Holding Global Assets In A Foreign (Or Australian) Trust Or Other Structures
Did you know?
Do you know assets held outside your name in different ownership structures may offer tax (savings and deferral benefits), flexibility and protection of your assets?
Should I consider holding assets in my name or other ownership structures?
Offshore ownership
As an expatriate, we all have different goals and time frames impacting on how assets are held.
“But one size does not fit all”
Governments around the world provide tax breaks to invest for the medium to long term reducing or deferring tax (for example holding investments in foreign retirement, family trusts or bond structures).
Additionally, as an expatriate, accumulating global assets (and unsure where you may wish to live or invest long term), a trust or bond structure may offer flexibility and protection of assets.
Separate to holding global assets in your own name, three foreign ownership structures may have a place:
i) Foreign Discretionary Trust.
ii) Foreign Life Insurance Bond.
iii) Foreign Superannuation Plan.
i) Foreign Discretionary Trust
Positives
Similar to an Australian family trust, the foreign trust offers an expatriate:
No restriction on the amount of global asset investment and flexibility of access.
Consolidation of global assets in one structure, simplifying your estate in the event of death, as an expatriate.
Protection of assets from litigation/professional liability.
Negatives
On return to Australia, undistributed annual income or gains may be attributed to you as Australian tax resident (whether or not you are a beneficiary) on the basis you transferred property or services at any time in the past to the “non-resident trust”. The relevant income or gains held in the trust need to be declared in your Australian tax return. There is no tax however on unrealized gains but there can be tax on payments of capital to the extent Australian tax has not been paid previously on undistributed earnings/gains.
ii) Foreign Life Insurance Bond
Positives
Foreign life insurance wrapper/ bond used to hold global assets, with withdrawals tax free/exempt for Australian tax residents after 10 years.
If the bond is held for 9 years, two thirds of gains tax free/exempt.
If the bond is held for 8 years, one third of gain tax free/exempt.
If the bond held for less than 8 years, all gains withdrawn taxable.
Negatives
Ten year term does not suit everyone.
All Insurance bonds are not the same, with fees varying between insurance bond companies.
Debate on whether there is Australian legislative risk of a foreign bond structure (originally designed for tax paid Australian insurance bond) offering unrestricted investment, no tax on growth and no tax on withdrawal.
iii) Foreign Superannuation Fund
A “Foreign Super Fund” has a set of rules (Trust Deed), Trustee, Regulator and is established for the “sole” purpose of providing retirement benefits to the member and dependents.
A “Foreign Super Fund” is similar to an Australian Super Fund, with one exception:
A “complying” Australian Super Fund” has an Australian resident Trustee (with central management & control at all times in Australia) whereas:
A “Non-complying” Foreign Super Fund has a non-resident Trustee (with central management & control at all times outside Australia).
Positives
No statutory limits on contributions (unlike restrictive Australian Superannuation rules):
Earlier access (retirement dates between 50 and 75 unlike Australian plans with preservation rules).
Withdrawals as a non-resident tax free and plan continues to grow on a tax free/deferred basis (if a tax resident retains their plan on return/migration to Australia).
Earnings of the plan tax free (no tax at source) and Pensions taxable on a portion of withdrawals (after deducting the member-funded capital portion of any pension withdrawals).
Consolidation of assets as part of estate planning strategy (and outside Australian jurisdiction).
Negatives
The Foreign Superannuation Fund is a retirement structure with restrictions on access (minimum retirement age 50 years).
Case Study
Australian expatriate worked in Asia before returning to Australia. The executive was a member of a Hong Kong employer sponsored Mandatory Provident Fund (“MPF”). On leaving the Hong Kong company the executive was required to withdraw his benefits from the MPF. The benefit amount was approximately $A5.3 million.
Two part retirement strategy:
“Australia Super” - Establish a Self-Managed Superannuation Fund for the executive and spouse contributing $ 440,000 per person, ie $110k in June first year and then $330,000 in July of second year utilizing “bring forward” three year rule on non-concessional limits and both subject to age 75 year limitation)
“Foreign Super” - Establish a foreign superannuation fund contributing balance of retirement funds of $ 4.5 million, holding a global investment portfolio of stocks and managed funds. Member contribution constitutes “undeducted purchase price of a consequent pension and is deductible over the member’s life expectancy period.
Critical Questions
Is the executive migrating or returning to Australia indefinitely or for period of time?
Does the executive retain global assets accumulated as an expatriate outside Australia before relocating to Australia?
How InterRetire Can Help You
If you’re an Australian expatriate who is considering moving back to Australia, InterRetire can help you maximise your assets, minimise your tax obligations and help you transition smoothly.
Disclaimer: This article provides general information on avoiding double taxation in Australia and should not be considered as professional tax advice. It is recommended to consult with a qualified tax advisor or accountant for personalised guidance based on your specific circumstances.
