The Foreign Exchange Market – What Is an Interbank Rate?

 

The foreign exchange market is a global decentralized market also known as an over-the-counter market where bank dealers make the market to determine the interbank exchange rate, i.e. the rate the banks use when trading with one another.

The interbank rate is the mid-point between the buy and sell rate for a currency on the open market and is the most accurate rate of exchange at any given time. You can easily check this at any time using the XE Currency Converter.

Unfortunately for most of us, this rate is reserved solely for banks and large financial institutions trading in large amounts of foreign currency.

For retail or business banking customers looking to make smaller international money transfers, a margin (or spread) will be applied to the interbank rate to ensure a profit for the service making the transfer. As a retail banking customer, this margin may be anywhere between ~4-5% of the interbank rate.

The graph below illustrates the rate that a customer may expect to receive from the bank when converting their AUD or NZD to GBP.

What determines whether I receive a competitive rate?

Naturally, when sending money abroad, it’s in your best interests to ensure you keep as much of your money as possible by locking in a favorable rate of exchange.

The exchange rate you receive will be based on a number of factors, including:

  • Volume – the amount you are converting
  • Currencies exchanged
  • Knowledge and awareness
  • Frequency of transactions – ongoing or one-off

However, one of the most sure-fire ways to ensure you are receiving a competitive rate is to look at using a money transfer specialist like XE who provides a much sharper rate of exchange than you would otherwise receive from the banks.

Why you should look beyond your bank

XE works closely with our broad network of referring partners to provide their clients with a competitive, secure money transfer solution.

As such, when you choose XE Money Transfer via one of our partners, you will receive preferential rates of exchange that are more competitive than you would receive from other providers.

…It’s not just about the rate

At XE, we pride ourselves on delivering our clients value beyond a great rate, providing a much more comprehensive service than they could expect to receive from the banks.

Exchange rates fluctuate at any given minute and as such our expert team is on hand to be your eyes and ears in the market and advise on how to ensure you lock in the best rate possible.

We also offer a range of products typically not made available to retail banking clients, including Market Orders and Forward Contracts, that will help you reduce your exposure to currency risk.

Whatever your needs or situation, feel free to get in touch with the team at XE to discuss the best approach to your foreign currency needs.

Personal Tax – How Employment Income Is Taxed in Australia

 

As an expatriate moving to Australia one of the important tax issues is how your salary would be taxed.

Australia does not have a separate salaries tax per se. Rather your employment income and all your other income such as investment income is added together and forms part of your assessable income in Australia.

Once you have calculated your assessable income you then need to work out your ‘allowable deductions’ before you arrive at your taxable income.

A number of items can be considered to be deductions against employment income but care needs to be taken to ensure the strict rules regarding employment-related deductions are complied with.

The Basics

You pay tax based on your taxable income. The personal income tax rates which apply to you are published every year by the ATO. Australia’s current personal tax rates can be found here.

You will notice that the top tax rate in Australia is 45% and this rate applies once your income is more than $180,000 for the tax year. The income tax year commences on 1 July and ends on the 30 June year.

If you derive employment income then Australian tax law requires your employer to deduct what is known as PAYG (Pay as You Go) from your salary and you are paid a net amount after tax.

Your Australian employer is then required to pay the ATO (typically on a monthly basis) the amount of PAYG they withhold from your salary.

At the end of the year (30 June) your employer has to issue what is known as a PAYG Payment Summary which details the gross salary paid to you for the tax year, the amount of PAYG withheld and the net amount paid to you.

The information is automatically reported to the Australian Taxation Office and recorded against your Tax File Number.

If you are receiving allowances, such as car allowances or travel allowances, then these will also be summarised on the PAYG Payment Summary.

If you are moving to Australia and you commence your employment halfway through a tax year then typically your employer will still be required to deduct PAYG from your employment income as if you had been employed for a full year.

Because of the graduated tax rates, this would mean that typically unless you have other income to declare – such as investment income – you would receive a tax refund in your first year after moving to Australia. 

How employee share scheme interests are treated

Many expats moving to Australia also participate in employee share schemes.

In Australia (as in many countries) gains made from the participation in employee share schemes are considered to taxable as employment income.

Employers in Australia must also prepare annual payment summaries (known as ESS Payment Summaries) where they are required to report the total amount of income that an employee has earned that year through participation in an employee share scheme or employee options plan. This can be a complicated area of tax for many expatriates.

One issue which many expatriates can tend to overlook is if they receive foreign salary income or employee share scheme income after they move to Australia, then they will be taxable on that income even if they performed the employment duties outside Australia.

Hence expats moving to Australia who may be due to deferred bonuses or other employment-related compensation need to be aware that such income is taxable in Australia.

If the tax is paid overseas on that income then generally the expat will be able to claim a foreign income tax offset (foreign tax credit) in Australia for tax already paid overseas. It is only in rare circumstances that employment-related payments would not be taxable income in Australia.

If you have questions about cross border salary payments or other employment income issues which you need to be resolved CST Tax Advisors can assist you.

Written by: Matthew Marcarian from CST Tax Advisors

Australia’s Foreign Investment Framework

 

Under Australia’s foreign investment framework, foreign persons need to apply for foreign investment approval before purchasing residential real estate in Australia.

The Government’s policy is to channel foreign investment into new dwellings as this creates additional jobs in the construction industry and helps support economic growth. Foreign investment applications are considered in light of this principle.

It is important that foreign investors understand and comply with Australia’s foreign investment framework as strict penalties may apply for breaches of this law, including orders requiring you to dispose of property purchased by you without approval.

New Dwellings and Vacant Land

Foreign persons generally need to apply and/ or receive foreign investment approval before purchasing new dwellings and vacant residential land for development.

Applications to purchase new dwellings are usually approved without conditions. Applications to purchase vacant land are normally approved subject to construction being completed within four years.  Once new dwellings are built or purchased, they may be rented out by the foreign investor, sold, or retained for their own use.

Land that has previously had an established dwelling on it would generally not be treated as vacant land for the purposes of Australia’s foreign investment framework. Further, a single dwelling that has been built to replace one or more demolished established dwellings would generally not be considered a new dwelling for the purposes of Australia’s foreign investment framework.

Established Dwellings

Non-resident foreign persons are generally prohibited from purchasing established dwellings in Australia. However, reflecting the fact that foreign persons who are temporary residents need a place to live during their time in Australia, temporary residents can apply to purchase one established dwelling to use as a residence while they live in Australia.

The purchase of an established dwelling in these circumstances would normally be conditional on the foreign person selling the property when they leave Australia or cease being a temporary resident and do not become a permanent resident or an Australian citizen.

In addition to his, temporary residents cannot acquire established dwellings to rent out or for use as a holiday home.

The Application Process

Foreign persons should apply for approval before taking an interest in residential real estate. However, foreign persons who want to minimise the risk of a property they are interested in purchasing being sold to someone else before they receive foreign investment approval can enter into a contract as long as the contract is conditional on receiving foreign investment approval.

Foreign persons are required to pay a fee for each application made or notice given, under the Act and the Regulation (limited exceptions apply).

The fees that are payable for residential land applications depend on the price for the acquisition of the interest and can end up being quite costly, another reason why foreign persons may wish to enter into a conditional contract.

The board has a statutory period of 30 days to make a decision from the date of full payment of the relevant fee on the application, and a further 10 days to notify the applicant of the outcome.

Article from: NL & Associates

Written by: Nicole Leggat

Expatland Employment

Whether you saw it in a book as a child or you were inspired by Lord of the Rings, New Zealand is consistently one of the most desirable countries on Earth to visit and live.

Wherever the inspiration came from, the decision to migrate will come with a huge amount of anticipation of a new and better life in this safe, clean, green South Pacific paradise.

But moving countries means a lot of official documents that need to be signed and submitted and of course the wait. In addition to the physical move, at the core of your decision making will be your finances starting with currency conversion, which will determine relocation cost and the eventual setup costs when you arrive.

This guide written by Canstaff provides valuable information on planning for your move and finding the right role in your new city.

To download the guide click here:

Why Do I Need Professional Indemnity Insurance?

 

Professional Indemnity Insurance (PI) is required by expat professionals whilst operating their business in Australia.

Professionals are someone who offers services or advice in a specialised field or discipline. The professional is qualified to provide such advice/service usually for a fee/remuneration.

Traditional professionals include accountants, lawyers, insurance brokers, engineers, architects, real estate agents, and consultants. Non-traditional professionals include agricultural consultants, migration consultants, freelance journalists, translators, naturopaths and any business which provides professional services or advice.

Professional Indemnity is designed to protect Insured Professionals from economic loss, sustained by third parties as a result of the performance of the Insured’s professional services and advice.

The (PI) policy provides the Insured cover for Investigation, Defence Costs, and Settlements.

Professional Indemnity can also be known as E&O (Errors and Omissions) or Professional Liability Insurance.

Most PI policies operate on a “claims made and notified” basis. This means a claim must first be made against the Insured and notified to the Insurer during that period of insurance.

Therefore, when the Insured first becomes aware of a claim or circumstances which may give rise to a claim against them, they must notify the Insurer of this event during that period of insurance. The Period of Insurance is always clearly outlined on the policy schedule.

A claim against the Insured includes a verbal notice made against the Insured during the Period of Insurance, as well as a written notice for damages by a third party or civil proceeding.

Below are examples of claims recently received by Insurers we deal with:-

Agricultural Consultant 

The Insured was hired to provide advice to a customer regarding the correct management of their crops. The Insured failed to consider the soil residual herbicide that had been applied to the crops in the prior year and as a result, the crops failed. The client sought reimbursement for loss of income and yield from the Insured.

The Professional Indemnity Insurer appointed lawyers, assessed the loss and payment was made in the amount of $60,000 to the client subject to them signing a deed of release.

Accountant 

A former client made a claim against the Insured regarding negligent advice in regard to making contributions into their Self-Managed Super Funds (SMSF).

The client’s Financial Planner had prepared a Statement of Advice recommending the superannuation contributions, which the Insured approved. As a result, the claimant had to pay $150,000 in excess contributions liability.

The Insured claimed under the PI Policy and commercial settlement was reached between the parties and a deed of release was signed. The payment amount was $99,000.

Land Surveyor and Town Planning/Building Surveyor 

A claim for loss was made against the Insured in regards to providing incorrect advice on the potential sub-division of a property a client of the Insured had purchased.

The Insured was covered under his PI Policy for legal and defense costs in responding to the claim. A settlement payment of $800,000 was made.

The above claims scenarios are evidence of the importance of Professional Indemnity Insurance for any business person who provides professional services and/or advice.

 

Written by: Michael McMahon from Gibson Insurance

Superannuation and Wealth

 

One of the great challenges upon arrival in Expatland is often how to manage your money.

There is no easy answer and it depends upon the complexity of your affairs. Similar to your home country jurisdiction, financial planning requires a number of steps.

Strategy One’s guide to Financial Planning assists expats with choosing the right planner, creating a financial plan and important questions to ask your advisor.

To download this guide click here:

Obtaining a Mortgage in Sydney

 

There are many lenders including banks, credit unions and non-bank lenders operating in the Australian property market and offering finance to purchase Australian property.

Of these lenders, they will have many different loan products with their own features and benefits, some of which are more appropriate to different objectives. Navigating the finance and product options is time consuming trying to work out what is best for you.

Alycia and the team at Stoneturn Mortgages have written a guide to assist with the complexities of choosing the best option including:

  • Understanding the Finance Process
  • Pre-qualification and Credit Advice
  • Pre-Approval
  • Valuations
  • Post Settlement

To read this guide click here:

Looking into Buying Trends in 2019

Australia is experiencing a dip in consumer confidence at the moment.

As we can see, we are still above the historical average. But what does this mean for the Sydney property market?

Retail credit is still hard to come by (except for Expatland service providers) but is the rest of the Sydney population thinking its credit crunch 2.0? 2008 was a decade ago now and many are saying that we may dip again below the trending average in 2019. The Sydney property market is watching 2019 through a lens of skepticism.

The political sphere is driving this down with a March state election where the Premier is not handling her team well while no-one knows the name of the opposition leader. What’s going to happen? I know that treasury is screaming from the reduced forecast of stamp duty revenue.

What are they to do?

Federally we have a new PM that wants to reduce population growth and an opposition leader that wants to run on the premise of getting rid of negative-gearing? Do any of our leaders really want to foster a growth environment again?

What I do know is this? Buy low. Sell high.

The increased interest in doing deals in Sydney right now on both residential and commercial property is rife. We are negotiating on several investment properties for our clients in which the developer needs to sell remaining product or product with settlement risk with a 5-15% discount. Additionally, our clients are capitalising on buying established home’s for repatriation due to the pressure on some homeowners to sell.

One Sydney expat client from Hong Kong called to get some advice as she was not scheduled to come back to Sydney for another few years but wanted to take advantage of the current market and find her home for retirement. Over the New Year period, three private inspections will happen via Skype.

So don’t let the consumer sentiment get you down, take advantage of the counter market cycle and use the Christmas and New Year periods to reflect and plan for the next year or years ahead.

 

Temporary Residents – Australia’s Tax Concessions for Expats

A range of income tax concessions are available to individuals who become resident of Australia and who qualify as temporary resident.

Many have the impression that Australia is a very high taxing country with very few tax concessions.

While that may be true in many cases, Australia also has very generous tax concessions in relation to temporary residents.

Australia, being a worldwide tax regime, taxes its residents on their worldwide income.

This means that if you move to Australia any foreign investment income your have will be taxable here.

Can you be a “temporary resident”?

If you are the holder of a “temporary resident” visa, and provided your spouse is also not an Australian citizen or permanent resident then you will qualify as a temporary resident and you can take advantage of these generous concessions.

This would mean that you would not be required to pay tax on your foreign investment income in Australia, even if you bring that income in Australia.

It is also the case that you would only be subject to capital gains tax in Australia on a very narrow range of assets, which would typically only include Australian real estate investments.

Foreign sourced capital gains would not be taxable in Australia.

This makes Australia a very compelling jurisdiction for foreign nationals to move to on a temporary basis without having to worry about all the complexity associated with bringing foreign investment “on shore”.

However, if you move to Australia and then decide to become permanent resident or if your spouse becomes an Australian citizen then you would cease being a temporary resident for tax purposes.

Note that the definition of “spouse” includes a person who you are legally married to or who you live with on a genuine domestic basis as a couple.

If you have questions about your eligibility to this very important tax concession, please reach out to CST Tax in Sydney and we would be happy to advise you further.

Expatland Finance – Being Prepared in Your New City

 

The cost of living is of major importance to you and your family in looking at whether you will be better off in Expatland. The cost of living in different parts of Expatland varies widely and is affected by many factors beyond your control.

Just one of these, for example, is, say, the effect of tax rises in Expatland.

Those countries in Expatland that may have higher national debt as a percentage of GDP might seek to raise taxes shortly after your arrival. This tax rise – whether indirect or direct – may affect your cost of living in a very short period of time.

It is therefore important for you to prepare a budget. Our E-Team members, XE have written a guide on ensuring you are well equipped to deal with your move financially. It is an essential read and will assist any expat with moving to their new home.

To download our guide please click here:

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