Over the past few months we have seen what some would describe as “just another bear rally” My view has not changed and that this is probably the start of a genuine recovery, we should still remain cautious but we have now started to see the first signs of growth, but one can still not give the green light just yet. But, as is always the case, investors who do wait until they are absolutely sure that a recovery is genuine will miss a lot of upside so don’t sit on the side lines.

One interesting headline I saw recently was that Australia has staved off the dreaded ‘R ‘word. The technical definition of a recession is two quarters of negative growth, and we’ve only had one. Like many of you, I know people back home who are finding it tough, as the Australian market is still suffering from negative housing prices and an increasing unemployment rate.

In addition to these past few positive months what else has been released is the Budget for 2009. The Rudd government has managed to not only wipe out the projected surplus which, stood at 3.6 Billion, they have also managed to rack up a deficit of more than $60 billion, the biggest in Australia’s history, will now be forecast for 2009-10.

The deficit has “blown out” not only because of the fiscal packages, but also the because of the effect of the weak economy on revenues and, to a lesser extent, on spending. In my opinion by allowing the Budget to go into deficit the Government has done exactly the right thing and I do not feel that this will be a massive burden on the future government going forward. This deficit, by comparison to other western governments is small and by having key partners in Asia, who are in a stronger position than the west we will trade our way into positive territory. We all must remember that the Budget exists to serve the purposes of the economy, not the other way around.
In the mean time this has given the government an opportunity to look for different sources of revenue and create some new ways of targeting the “little Aussie battler”, regardless if he/she is not even in Australia!

Aussie Expat Tax & Section 23 AG
As many are aware there was some press recently on some of the tax rules that the ATO are bringing into play for the next financial year. As I mentioned in the last issue of Focus this is due to the government trying to raise revenue from other sources as their income has dropped and their outflows have increased.

Like most Governments the ATO is looking for alternative income streams and they feel that the expat market is worth targeting. They have taken their first aim at the expat market with this change to Section 23 AG. This little known section is mainly to do with how an Australian taxpayer is defined as a resident and this change nets the government some additional revenue for offshore expats with families back home. If you are not aware of these changes you may find yourself with an unexpected tax bill.

In late May we held a seminar to address some of the concerns we were being contacted about for Aussies regarding the changes and what they mean for our tax free income here. Like most of you the tax free opportunities that the UAE presents to expats like us drew me here. Obviously when I heard that those the tax free benefit might be taken away from me it caused me some concerns.

Upon looking into this article that was published in The Australian, this rule change has a lot to do with an expats tax residency status, most people living and working in the UAE would still be classified as a non resident. However for those who have sent their families back home and decide to keep working overseas and go home to visit, this may apply to you and you should seek advice on this. Overall this will not impact a number of you. However there are a few things we should all do when we leave Australia to work overseas that will help your case should you come up against the ATO.
• Take yourself off the Electoral. Sounds simple but how many Australian’s voted in the last election yet they were not a resident for taxation purposes. From the ATO’s point of view if you want to have your say in the way the country is run you should pay something towards this.
• Rent out your old home for a commercial rate. Sometimes the family home is either left empty or people have family living in their rent free. From the ATOs point of view you could be considered to be keeping this empty to return home, so it is important to take this step. 
• Keep a hold of all of your documents relating to you going overseas. If you have packed up the container with all of your worldly positions and then get sent back due the current economic climate then at least you can show intent to live overseas for a number of years.

Other outcomes from the budget
There were a few other outcomes from the budget that should be noted, if you were back in Australia you would be cheering as the tax rates have been changed once more. As you can see from table below most of us would be paying 40% tax on our UAE tax free salary over here. If you are one of those people over here earning 150,000 AUD per annum the tax you would pay would be 44,450 AUD. Looking at this figure would encourage me remain offshore for a few more years. In fact if  you are receiving 150,000 AUD net in your hand in real terms your before tax your salary is closer to 228,000 AUD……so with a little bit of planning in a tax effective manner you can make great inroads into reducing debt, increasing investments and setting yourself up from your overseas adventure. If you are not saving at least 10% of your salary you may need to work a little harder over the next few years so that you don’t miss this great opportunity to enhance your wealth.

 67 is the new 65….
Like most people at some stage I would like to be able to put my feet up and perhaps enjoy my retirement. As the Australian baby boomers approach their final years the government is becoming increasingly concerned about the liability this presents to them, and so is forcing people to become self funded retirees.

The Australian government has decided that if you want the state pension you need to keep working until age 67, effectively meaning that by the time you or I actually get to retirement age it will be 80 and we may never actually get it anyway. I am not sure about you but this is what we need to consider.

On the flip side the government has increased the weekly payment for both singles (up $32.49) and couples (up $10.14). (my grandparents will probably spend most of this on lotto tickets!)

In light of the above and that many of you reading this article would not want to be in that position and I also want to be a self funded retiree.  One key strategies we employ for Australian expats who have been outside the country for some time is taking advantage of the non-concessional contribution towards superannuation. The allowable amount is 150,000 AUD per financial year, so even although you may not have contributed towards your super it may not be too late to make a contribution towards super.

Property the most expensive assets to hold in terms of tax?
Whilst you are offshore the ATO views the assets you hold in different ways and below is a summary of this.

Any positive income derived from property is taxed at 29%, so it is important that if your property is self funding or approaching neutrality, you should start to consider other options for your surplus rather than paying off more of the mortgage. If you don’t you will pay unnecessary tax which could have been avoided with a little planning.

Six months ago who would have thought we would be here looking backwards.

So in summary, we’re doing better than anyone dared hope a few months ago, but there’s still some pain ahead. I suppose history shows us that there is always hope on the horizon and if we all continue to sit on the side line we may miss the best opportunity to invest in the last 30 years.

Whilst the Australian government is looking to target other sources of income I feel we are a long way off from something similar to the US style tax system. The changes that they have made did not require too much red tape to get through however a major overhaul of the tax system would take a number of years to be put in place.

Keep investing, I am.