Off on an exciting adventure
The chance to work overseas can be both exhilarating and rewarding with new countries, cultures and experiences to enjoy. But there can also be some challenges to confront, particularly at the start of the assignment. Settling in the family, finding new housing and schools can all be stressful. The financial rewards can be high, yet with new rules and issues to consider, expert advice is required to ensure you maximise the benefits of your overseas assignment. Brian (43) and Christine (44) turned to us for exactly this kind of advice.
About Brian and Christine
Brian and Christine were married with two young children. Brian worked for a multinational company and had just accepted a three-year assignment with one of the company’s Asian affiliates. It was a great opportunity and both Brian and his family were excited about the challenges and the increased compensation package. With some 20 years of working life ahead, their goals were to make the best of the opportunity to accumulate wealth and set them up for a secure retirement.
Many Questions
Like many new expatriates, Brian had a number of questions in mind that needed answers, including:
• How do I ensure that I am making the most of my salary and opportunity while working overseas?
• How should I manage my investments to ensure they are tax effective?
• How will I structure, and where should I invest, my assets to grow my wealth while I am away – in Australia or offshore?
• How should I manage my Executive Share Options – what impact will my foreign assignment have on the tax?
Our Answers
One of the key questions to address related to Brian’s residency status from an Australian taxation perspective. The duration of his assignment and other factors meant that Brian was classified as a non-resident. That meant Brian could access attractive capital gains treatment on growth assets, such as shares, for the duration of his assignment.
Like many expatriates offered an offshore assignment, Brian’s employer managed the compensation package under the company’s Hypothetical Tax Equalisation Program, which was designed to take into consideration the tax issues associated with working in a foreign country. Each company’s policy is different and we helped Brian work his way through the details of his package and understand the implications for the various investment strategies that he may consider. We also liaised with the company’s taxation adviser on behalf of Brian to ensure that we clearly understood all of the issues.
Building Wealth Outside Superannuation
Given the long time before Brian could access his superannuation funds, it was important to build wealth outside of superannuation where it could remain accessible. Brian and Christine had an existing mortgage and a decision had to be made about whether to pay off this mortgage or invest their large surplus cashflow. We developed a financial model for their situation and a strategy that maximised their wealth creation by investing their funds, as opposed to debt repayment. That would come later when their taxation position changed. We also showed the couple why Australia was an attractive country to invest their investment portfolio in, with strong regulatory arrangements providing security for the funds. Superannuation was not ignored – we helped Brian understand his options relating to superannuation contributions and developed an appropriate contribution plan.
Executive Benefits
As a senior manager, Brian was entitled to participate in the company’s Executive Bonus plan and was offered Share Options and Restricted Share units. The rules regarding the taxation of such benefits can change when working offshore so we helped Brian understand the opportunities both now and when they ultimately returned to Australia.
The Results
Brian and Christine’s financial plan also addressed many other issues of importance to them, including protecting their financial position, understanding the tax implications of renting their home out and the development of a quality estate plan. Brian was able to place all of his focus on his work assignment, while Christine channelled her energy into settling the children into their new school and establishing their new home. And they could do this because they knew that they had developed a comprehensive financial plan that addressed the other issues associated with their assignment.
Brian and Christine also had the opportunity to work with an adviser who had himself worked as an expatriate for six years in different countries and who understood the challenges that they would face working and living in a new country. Brian has now accepted a new assignment in a new country and the family is well on the way to securing their financial future.
