Financial tips for a golden gap year

Baby boomers are increasingly opting to take a ‘golden gap year’ in their latter working years or at the start of retirement, but make sure your finances are in order before you go.

Why let teenagers have all the fun!
The concept of a ‘gap year’ spent living overseas isn’t just for those who are between school and university. It can be a very attractive ‘once in a lifetime’ experience for those who want a sabbatical in the latter stages of their working life or for those who want to launch into retirement with a bang, while they are still in good health.

But don’t forget your finances
The need to plan where you will live while overseas and what experiences you will enjoy will probably be top of mind as anticipation builds. But one issue that you may not automatically consider is the impacts and implications for your personal financial situation. To help you cover the bases, here are some useful guidelines.

Will tax be an issue?
Let’s say you decide to go to Europe and set up a home there for a couple of years to really soak up the culture and lifestyle. You may even do some part time work to generate some income in between tours around the continent. Your home back in Australia may be rented out while you are away to generate some income too. How would you be treated tax-wise? The answer to this may not always be clear cut.

One option that may be worth exploring is the potential tax benefits of declaring yourself as a non-resident for income tax purposes. There may also be capital gains tax or withholding tax advantages relating to your Australian property, bank accounts or investment assets while you are overseas.

The flip side of earning an income overseas is that you may be required to pay tax in the country where it's earned. Australia only has reciprocal agreements with a few other countries to prevent double taxation, so this needs to be checked out.

It can be a complex issue to manage by yourself, but the potential benefits make it well worth getting some professional advice so that you maximse your tax situation.

What about your super?
The potential tax advantages and pitfalls for non-residents may have particular impact on your superannuation, so this is one area that you should definitely seek advice on from a qualified financial planner.

If you are working while overseas and a non-resident you are generally still allowed to contribute to your super. If you retire while overseas you are still subject to the same release restrictions on super benefits as you would be if you were still in the country.

Those with Self-managed Super Funds have some particular rules and regulations that may catch them out if they are living overseas, so you should seek advice to ensure you remain compliant.

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It's important to make proper arrangements about your tax, super and benefits so they don't ruin your time away

What will happen to your Centrelink benefits?
If you are already qualifying for Centrelink benefits, a lengthy stay overseas may impact your entitlements. Again, individual circumstances will need to be examined on this, so you can’t take it for granted that you won’t be adversely affected. Better to plan with the help of a financial adviser to analyse your situation and structure things to achieve optimal outcomes.

Pharmaceutical benefits may also be affected and if you are on prescription medications make sure you check out the accessibility of relevant drugs overseas – regulations may be different to what they are in Australia.

What about if the worst happens while you are overseas?
Managing your investments and estate while overseas can be a nightmare if you don’t make proper arrangements before you leave. Setting up things like power of attorney and updating your will are essential in case the worst happens while you are away. This ensures that you maintain the control over management and disposal of estate assets, with minimal impact on your loved ones.

Don’t forget your life insurance too. Not all policies will treat you the same way if you are residing overseas, so have an adviser check them out to, so that you are not caught out.

Planning your finances, along with some professional guidance, is an essential for making your overseas sojourn worry free, so speak to a financial planner about your situation as early as possible.

What issues do you feel are of most concern if you were to live overseas for a while? Share your thoughts below.

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