How to manage assets and currency transfer as an expat

Working with expats in many countries across the globe, we are frequently asked about the best way to manage transferring assets or large sums of money across borders. When and how you transfer your assets can have a significant impact on the financial outcome and transferring at the wrong time can severely erode your capital, so it’s important to understand the landscape before making any moves.

Here are a few things to consider when it comes to assets and currency transfer.

#1 Currency conversion can impact the value of your investments

For most of us, investment is about funding our future goals, such as retirement, supporting loved ones or leaving a legacy. If you intend to retire in your home country, you need to carefully plan where you build your retirement assets. While there can be some tax advantages to building assets overseas, it’s always important to build a solid base of assets in your home country.

If you hold all of your retirement assets in a foreign country, you will constantly need to convert cash to meet your expenditure needs. So, alongside market ups-and-downs, you’ll need to navigate currency fluctuation, which can greatly vary your return and erode your retirement funds.

#2 Be cautious of trying to predict future currency movements

Currency markets are incredibly volatile, there are lots of different factors at play and speculating on future direction can be both difficult and dangerous. While you want to get the timing right, it really can be difficult to predict, so it’s important to consider not just when, but how you transfer your assets.  Rather than trying to time the market too much, focus on a strategy to transfer smaller amounts over a longer period of time.

This way, you’ll get a fairly steady exchange rate over time and avoid putting yourself in the position where you need to make a lump sum transfer within a small window, leaving your return at the mercy of currency markets.

#3 Currency movement can impact your taxes

When calculating taxes on foreign assets, timing and planning can be critical, as currency movement can have a significant impact on how much tax you will pay.

There is a common misconception that foreign bank accounts do not attract tax on transfer to Australia. However, this is not always the case. For Australian tax residents, a gain or loss from holding foreign currency can be assessable on an Australian tax return.

This is usually the case where foreign accounts are holding over the equivalent of AUD $250,000. Where there is a foreign currency debt, should the foreign currency loan be less (in Australian currency terms) at the time of repayment compared to when the loan was taken out (or first became assessable for Australian tax), then there may be tax applicable.

If you are moving assets, Capital Gains Tax (CGT) can come into play. Australian CGT is calculated based on your purchase price and sale price in Australian dollars, regardless of the currency used to purchase the asset, so currency movement can have a significant impact.

The same rule applies for most countries when calculating CGT on foreign assets. So, if you’re an Australian living abroad and your Australian assets are assessable for tax in that country, then currency conversion can increase or decrease the taxes you pay overseas.

#4 Compare the costs of transfer

Typically, when you make a currency exchange transaction, there are three main costs associated with it. These are summarised below and can vary wildly between providers, so it’s important to do your research and understand all the costs involved.

The Transfer Cost refers to the fee a provider charges to facilitate the transaction. While these may be a small percentage, they can build up over time, particularly if you are transferring smaller amounts on a regular basis.

The Exchange Rate is usually the most important rate to consider. Often, people will see a foreign exchange rate advertised and think that this is the rate they will get. However, this is merely the wholesale rate, and foreign exchange providers will then build their margin on top of this, which will vary between providers. Therefore, it is worth shopping around for the most competitive exchange rate, as this can make a significant difference in the outcome of your transfer.

The Receiving Bank Fee is an amount that is often charged by the bank to receive your foreign exchange transfer. Whilst this fee is often small, it is still an additional cost which can add up over time. Ask your bank what fees they charge to receive a foreign exchange transfer and consider an alternative provider if these fees are not competitive.

#5 Work with expert partners who understand both locations

Always choose an accountant who understands both jurisdictions to look after your tax filing and provide taxation advice. To put yourself in the best position to achieve your financial goals, it’s also beneficial to partner with a financial adviser who has a good understanding of financial issues for expats.

General Advice warning

The information provided in this blog does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. Apt Wealth Partners (AFSL and ACL 436121 ABN 49 159 583 847) and Apt Wealth Home Loans (powered by Smartline ACL 385325) recommends that you obtain professional advice before making any decision in relation to your particular requirements or circumstances.