These days, it’s becoming increasingly popular for retirees to spend large amounts of time travelling or even living overseas. Apart from the appeal and adventure of staying in exotic locations, many retirees find that the cost of living in some destinations can be cheaper than at home — so they get more mileage from their income.
But what are the implications for your finances if you spend lots of time overseas? If you have investment income, superannuation, or are drawing an age pension, there are some key issues you need to stay savvy about.
How is your investment income treated?
If you are an Australian resident living or staying overseas for large parts of the year, you are still generally subject to Australian tax regulations. This means you must lodge an Australian tax return and declare all your income — including income from your investments — the same way you would if you were residing in Australia.
If you are actually earning income overseas, you must also declare that income in your Australian tax return, even if you have paid tax on that income in the country in which you earned it.
You may be entitled to an Australian foreign income tax offset on that income, but this depends on many factors and you are obligated to declare that income in your Australian tax return so that any potential offsets can be assessed.
What about capital gains tax?
If you are an Australian resident for tax purposes and are travelling overseas for extended periods, capital gains tax (CGT) rules still generally apply to you and capital gains still need be declared.
You can, however, go overseas and rent out your main residence for up to six years, and it will still be treated as your main residence for capital gains tax purposes. If you don’t rent out your vacated home, you can treat it as your main residence for an unlimited period.
If you end up living overseas permanently and become a non-resident for tax purposes, the CGT rules can change dramatically for you, so it is important to seek independent tax advice if you plan on doing this.
Will you still be entitled to the age pension?
Generally speaking, Australian residents are still entitled to their age pension during any extended overseas stay, but there may be adjustments made to the rate of pension. This will depend on how long you are away, and whether your income and assets change.
You should also note that you are obligated to inform the Department of Human Services if you intend living in another country or if you are going to be out of the country for more than six weeks.
If you go overseas for more than 26 weeks, your pension rate will depend on how long you were an Australian resident between the age of 16 and age pension age. If this is at least 35 years then you will be entitled to the full rate, but if it is less than 35 years, you may only be entitled to a proportion of the rate.
Of course, the usual income and assets tests will apply, and may affect your pension in addition to the above provisions. For more information on this, refer to the Department of Human Services resources on the Age Pension if you travel outside Australia.
If you are an Australian citizen or permanent resident heading overseas, your super remains subject to the same rules — even if you are leaving Australia permanently. This means you cannot access your super until you reach preservation age and retire, or satisfy another condition of release.
Have you travelled extensively during retirement? What key financial tips do you think are worth passing on?