Skip to content 
VOICE OVER:
This podcast channel it’s about you, successful international entrepreneurs, successful ex-pats, successful investors. Sponsored by HTJ.tax.
DERREN JOSEPH:
So, my name is Derren Joseph from HTJ.tax which is a member of Moores Rowland Asia Pacific. And joining me today, I have my colleagues, Tony, and Grant. Tony, do you want to introduce yourself? Grant? Introduce yourselves.
GRANT ABBOTT:
Hi, it’s Grant Abbott’s from Abbott and Molly, and I’ve got my legal partner here Tony Anamourlis, international tax guru, extraordinaire who got lots and lots of money.
DERREN JOSEPH:
Wonderful. So, what I thought we’d do, is just kind of like, just briefly introduce ourselves like five minutes max and thank you to those who sent in your questions in advance. They will safely receive, and we propose to go through them one by one, if you have not, if you weren’t one of those that emailed us questions in advance, feel free to type in the chat box below and we’ll get to them in the order in which they were received. So, I will just really, really quickly share my screen.
All right, here we go. So, as I mentioned, so our team is a member of Moores Rowland Asia Pacific. We have several offices across Asia. So as far north, as to Tokyo and Beijing, all the way down to Australia obviously. I sit in Singapore, I’ve been based in Singapore since 2013 and we’re also, my team is also a member of Fusion International, which gives us access to expertise in Europe for those who have exposure with European jurisdictions now, because I’m a US quantified, I’m legally required to say that anything we say here should be, should not be construed as advice. We may be tax consultant, but we’re not yet your tax consultant. So, nothing should be considered legally binding. We are having a conversation and consider it education or consider it entertainment. But the point is that nothing that we say here should be construed as encouraging you to be less than your fair share of taxes in any jurisdiction in which you’re exposed. So please keep that in mind, it’s handwriting as well. So, without further ado, I will stop sharing. And what I propose to do is just jump into those questions. I see people typing more questions below, so we’ll get to them in order.
The first one is, you know, well, yeah, how do I avoid being double taxed? You know, in short that, once you have a team that knows what they’re doing and reasonably experienced with international tax, it usually does not happen. Why? Because with Australia in the US respect the, the principle of foreign tax credits and in the event, that we aren’t able to use that to treat your situation in a way in which it needs to be treated. We also have a treaty. It’s also Australia and US tax treaty on which we can rely, and there’s also totalization agreement. And we can get into the details of that later on, but just keeping it at that high level, it’s unlikely that you will be subject to double tax. It can happen, and we can perhaps touch on the instances where it can happen. One of the more, later on, especially when we get into some of the more technical questions ask later on, but typically I think ordinarily one space in which it does happen and when it comes to state taxes. So, states within the US. So, for example, at the federal level, yes, the IRS would respect tax credits. It will acknowledge that you paid taxes to Australia, you pay taxes to the ATO, so that will reduce your tax bill accordingly.
And since Australia tends to be the higher, the two jurisdictions, it can probably reduce it to zero, but in many instances, the states within the US so just in case you have exposure at the state level, within the US. There are times when the state won’t recognize taxes that you paid to the ATO that you paid outside. And that may under certain circumstances lead to double tax, but just stepping back ordinarily at the federal level, it’s unlikely to happen. Grant, Tony, any comments on that?
GRANT ABBOTT:
Yeah, I think if you’re taking that helicopter view, everyone, it’s a very, you know, obviously both Derren and Tony probably well aware is the issue of double taxation for an entrepreneur. And I’ve set up many businesses all around the world and, you know, we’ll provide from a legal perspective, mainly in Australia, but I still have some businesses here that, you know, looking, going down the track for the US and UK and Canada, it’s really important that I wouldn’t even be worrying about double tax. You need to your business on track.
You need to work out what sort of business you’ve got. Is it a commodities business, for example, you’re selling clothing from Vietnam, or you’re selling something from Singapore, is it an intellectual capital business? So, for example, I’m writing a book and then I’m going to be selling that online to Amazon. Is it a business, for example, my other business that Tony and I work in, it’s called a Lightyeardocs. And we provide a platform that really enables accountants and financial planners to jump into our legal precedent system and easily create multi transaction documents in a heartbeat.
And again, that sort of stuff is that if I was operating across border in US, I wouldn’t be setting it up in Australia. I’d be better off licensing it over in the US or Singapore or wherever it is. So, you really need to focus in on one is your business, what your business is doing. Is it successful? Is it going to expand? For example, I’ve dealt with a business here in Australia, and last year they are doing extremely well, but most of their orders, if you can believe this is how stupid that was, that they would get their orders made up in China.
They would ship them all to Australia, but then 70% of their business was overseas. So, they were paying, they weren’t paying just double tax. So, paying like triple taxes, and it’s just simply, they didn’t have a good idea of what their business really did. And I think that’s the crucial one you can do if you’re, if you’re running in intellectual capital, which is all of us that we do. I mean, all the speakers today, we really make money from what’s sitting inside our brain and knowing the tax codes and knowing estate planning, which is something I’m really big into in bloodline planning, that that can be translated generally anywhere.
But like, for example, I spent a number of years offshore. I wasn’t a resident of any jurisdiction, so that was, for me, it was perfect. Unfortunately, my wife is from America. So, she staffed. It doesn’t matter where you are, because it’s, if you’re a citizen, you’ve got global taxation. So, you really need to work out what you want to do, what the business is. And then I think both, both my conference would say that it’s important to look at tax, but I certainly know if I was an entrepreneur, is I’m setting up an international software business or whatever. I’d absolutely choose Singapore in the past. It was always a tossup between Singapore and Hong Kong. You wouldn’t even go, wouldn’t even go within a thousand miles of Hong Kong now. A lot of our staff are over in Manila in Philippines. So, it’s just the way that the world works now is cross border. And we’ve got other staff in, in Vietnam and, you know, they’re the more important issues and getting restructuring right. And then the tax will come from that.
DERREN JOSEPH:
Hmm. Well said, well said. And that’s a great segway into the second question. I think, which is if I’m an Australian citizen and I leave Australia, how do I sever a tax residency with Australia? Because you’ve done it.
GRANT ABBOTT:
Well, it’s pretty easy. So, they’ve changed the laws, but in Australia, essentially, and this is also important too, for double tax treaties, because if you’re a resident of two places and this is important for Americans, there are some carve-outs within the double tax treaties that only a certain jurisdiction is contextual. For example, if I was in Australia and I had a, what we call a retirement fund in Australia, we have private retirement funds. You can invest in anything and do a whole lot of crap and stuff like that. But if I went over to any of the jurisdictions, for example, Singapore, it would only be, if I became a resident of Singapore would only be Singapore, that would be able to text me on that income stream.
But that’s a problem because in Australia it’s tax-free. So, I might jeopardize myself by becoming a resident of Singapore. Two, if you’re an Australian resident, the core test is usually 193 days. So, if you’re in a strive for 193 days or more, and I used to watch my days, I think one might’ve just jumped out a couple of days, but you’ve got to watch those 193 days, declare yourself as a non-resident. So, when you mark your form going out of Australia, you declare that you’re no longer going to be a resident of Australia, but they can always put, so there’s two different one is for immigration. And the other one is obviously for tax. Taxes is 193 days, but you need to tick off that you’re not going to be a resident, and then you just stay overseas. And it’s important. Now, if you do that, so any, so you’ve got a choice there, any assets you have in Australia, you can choose to make them effectively, or unless it’s property, but you can treat for example, shares or whatever, or you can pay capital gains tax on them. At that time, depends on what the market is. If the market’s tanked, you might want to do that. And then when you go overseas, any increase in those underlying shares will not taxed in Australia. So, because in Australia, the Australian residents are only taxed on stuff around the world.
But if you’re a non-resident, you’re only taxed on income that is earned in Australia. So again, the only exception for me, if I become a non-resident is Australian property has always stuck with me. And that’s just an issue. So that’s the way it’s going to be. You can be, as I said, you can be a resident of nowhere, which is a pretty good place. I can see. I know Derren does a bit of work over in a few of the more advantageous tax jurisdictions, which I’ve done in the past as well through Vanuatu, but even places like Singapore, which has got a very, very generous tax credits for startups, very generous corporate tax system. It’s worthwhile if you’re going over there. And as I said, if you’re doing software or developing is to go there and cite yourself there and then use the double tax treaty. So, you don’t get caught in Australia.
DERREN JOSEPH:
Right. But you know, I’ve seen, and you could perhaps comment on this. They, for those who may be moving around quite a bit, I believe it’s important to establish a permanent place of abode somewhere else to move your center of life. So, because otherwise, potentially the ATO might say, well, the fallback rule is, if you can improve your resident somewhere else, you know, utility bill, a rental contract, something, then you are subject to tax in Australia. Is that a fair comment?
GRANT ABBOTT:
Yes, and it also, if you have a look at the double tax treaties, which are really based on conflicts of laws, because the hard thing about it is when you have a look at each jurisdiction wants to raise the time money. So, it can look after the welfare of its residents, so to speak. So, and that’s where, I mean, if you have a look at it, that’s where you have a look at places like Google, you know, Uber, you know, they never pay tax anywhere because they set up usually in Ireland. So, it’s exactly what you’re saying, Derren, but I think the Irish jurisdiction, what is about 10% tax, but there’s a lot of credits and stuff like that.
So again, you can all, look, I wholly agree with you. It’s not a bad idea. It’s also a good idea as well, to set up if you are going to set up in a jurisdiction that doesn’t, you know, it doesn’t tax income that sourced outside that jurisdiction, because then you can virtually live there. And as long as there’s nothing being derived there, for example, you know, it used to be Hong Kong, for example, you could live there, but you know, it was only encompass sourced outside there’d tanks, as long as you don’t have any income in Hong Kong, you know, you’re in a good position and there’s numerous jurisdictions around the world like that, but it is it’s important because it does come down to domicile.
So where do you have habitually, that the laws are basically, where do you have benchley abode, you know, have you got a permanent place of residence somewhere? Do you come back to that place all the time? You know, if I had a look at your flights or your passport with a little digital now, where would I say as a reasonable person that you were domiciled? If you’ve got, for example, many people got caught in Australia, they’re going to try and live overseas, but then they’ve got their kids’ houses and, you know, wife or spouse has left in Australia and they’re trying to argue their non-resident. It’s like, well, no, one’s going to weigh that one.
DERREN JOSEPH:
That’s actually, that’s actually a great segue into the third question posed by one of the attendees today, which is under which circumstances would I be taxed by the ATO, even though I live outside of Australia, I think you’ve answered some of it, but yeah.
GRANT ABBOTT:
Then, it comes down to your essentially, it’s going to be income that is sourced in Australia. So, for example, this is an interesting one. And again, this is where you need to have a good legal minds or tax minds behind you. So, I and look, it’s pretty open book, but I sold a business. And so, this is how you can play around guys if you’re entrepreneurs. So, I sold a business many years ago and I had a two year non-compete, but I was sensible enough to make sure that that non-compete was only for Australia. So, then I set up exactly the same business in a jurisdiction about a month after, but it was a jurisdiction outside Australia.
So, I wasn’t breaching my non-compete and I was doing exactly the same thing over the internet. And again, that’s the benefit of intellectual capital. So, in that instance then comes down and I was still selling into Australia at that time, but it then comes down to where is the income sourced? And that’s always comes down to where it is. So usually there’s a whole range and it depends on what jurisdictions some have codified in Australia, it usually comes down to high. So, it’s where the contract or the services being made. So, I just made sure that all the agreements, I did everything, I did sure that it was done in the jurisdiction that I was outside. But if I did a contract or had a permanent establishment in Australia and I was operating out of there, then you’re obviously you’re going to get caught there. It’s easy for intellectual capital, software, stuff like that. But if you’ve got physical goods and stuff like that, it’s tough. Like if I’m shipping, so the classic one would be, if I’m overseas and I’m shipping, let’s say dresses to Australia to sell to Australians, that’s fine. So, I can have the, the contract outside of Australia. And, you know, there’s been an issue GST. The, you still probably have to add the GST on, but if it’s an overseas source, then I might okay. But if I’m landing it in Australia and then selling it out of a residence in Australia, then obviously it’s going to be sourced in tax in Australia, but it’s only going to be that profit.
So, then that’s where Tony comes in, because then there’s the transfer pricing, because I’ll probably have a jurisdiction. I might have it up in Singapore. I charge marketing fees; I charge other expenses and all that. And then I charge them back to the Australian company, much like a franchise would do so that I’m trying to keep that in a high tax jurisdiction, virtually no profit, but I’m bringing the profit back into a, a better tax jurisdiction. So, and Tony, you probably know a bit more than that when you come around a transfer pricing do you want to give a bit of a finagling around that one.
DERREN JOSEPH:
Tony, you’re on mute.
TONY ANAMOURLIS:
Everybody can hear me now. Now, as you know, we’ve transferred pricing, basically. It’s, you know, you’ve got what you got to do by after you’ve set up the structures and et cetera. And what have you, what you need to do is what we do is I need an overarching transfer pricing policy, right. And then we’ve got to do all the compatibles to it. That’s more like more economics in that respect. And then we’ll produce what is, what’s called basically the, the transfer pricing policy in respect to, you know, the different segments.
So, you could have management fees, you could have marketing fees, you’ve got an and so forth and so forth, basically. So, there’s a little bit of work that surrounds our transfer pricing. But as we know Derren, Grant, and many of you out there, you know, transfer pricing, the OACD, as you know, is brought out all these various policies, you know, with beeps coming on and all these other reports that are out there at the moment in respect to transfer pricing. So, it’s got to be done right at the end of the day.
Otherwise, you know, a lot of ramifications that surround that basically. And they could deny their deduction and many other things, basically that got to that in that area, in that respect. So, yeah. So, I can talk about transfer pricing, all that, but, you know, I mean, it’s just got to be done properly. That’s all cost, you know, it costs a bit, but you’re better off getting it right rather than wrong at the end of the day. And the tax office, as, you know, always challenges, basically these transfer pricing policies. So especially, and in particular, you know, the pricing of intellectual property. So that’s a big area, so, you know.
GRANT ABBOTT:
One thing, hard thing we face as entrepreneurs, you know, we start off and, you know, we’ll go that far in our belly, we’re working on a shoestring, and we do all of that sort of stuff. We can’t afford decent tax advice. And then, then suddenly our idea takes off. And then we’re in a milestone of storm and we’re stuck in a jurisdiction. It’s very hard to get out. And then you contact one of us and it costs a lot of money. And then it’s very hard to extricate yourself out of that. So, what, I would strongly suggest is for anyone who’s in that, if you’re already in that phase and then come and have a chat with one of us, because we can do our magic, but it makes a lot harder for us.
But if you’re in that startup phase, what I would suggest is that you probably put aside, if you’re doing through a capital raise, look, I’ve just done a capital raise for my company, make sure that you’ve got a good amount of money set aside for decently yours. So don’t go and look, it’s very easy to get ripped off and you do not need to go to like a huge firm. I mean, you look at Derren’s CV. I mean, you don’t need to go, you don’t need to go to a KPMG or a big legal firm because all they’re going to do is charge you a lot. And generally, they look after the big, big end of town with the startups.
You know, once someone who can bootstrap, you set you up in the basic structures and set you up and usually it should be like a three or four phase. So, first phase we’re going to do this. Let’s see if the business works, but bear in mind, if it takes off, then this is what we’re going to do. We’re going to shift the licensing or whatever. We’re going to put it over here. We’re going to do here and here. And so, it’s more of a monitoring on a day by day because end of the day, there’s, there’s two things. There is not only tax, but also asset protection. You’ve gotta be really careful as well that when you get going into different jurisdictions and I’m sure Tony and Derren would say suddenly you’re open to a whole lot of different laws.
So, for example, with our system in Australia, we can set up companies in 30 seconds and you can do the same thing up in Singapore. I think to a lesser extent, you go in the US you can’t do that at all. You know, it’s just crazy system over there. And every state has its own set of laws. So you just gotta be careful and particularly jurisdictions like if you were in Hong Kong or wherever, you know, those guys can just come in, close you down overnight. And in some instances, Australia can do that, and you’ve got no right of recourse. So, you need to have not only a growth system and build it on a structural basis, but you also need to have a protection system as well.
You know, what happens if you know, hits the fan, are you going to lose everything? Or have you managed to keep your crown jewels in a jurisdiction, which people can’t touch you, particularly tax cause tax like no one gets expedited for tax. Taxes, a civil matter between you and the tax office, the relevant jurisdiction. So, it’s not a criminal offense, so you can’t get extradited for it. So that’s a, that’s a pretty important issue. So, it depends on what you’re doing, I think is really important. And getting in your mind what your business is. So, for example, I saw with Nick is looking at moving overseas full time to work for a US company.
Now millions of Australians had done there. You know, people do that, but once you’re outside of the Australian jurisdiction, you’re okay. And again, you go back to, what’s going to happen with your investments and all that, but again, you can, you can make a pretty clean break on that one, the US guys, it’s just interesting to see what you have to say, Derren, cause obviously you’ve worked a lot. I remember at KPMG when I was working there many years ago, we had a lot of US ex-pats in Australia and it was bloody tough because even though they’d lived here for so long, unless they give up or renounce their citizenship, you know, they still have to file a global tax return, which is also difficult. If in my instance if your husband is making sort of reasonable money. And in Australia, what we do is we try and shift tax around using trust mechanisms. So, I’ve got to be very, very mindful of what I distribute to my spouse, because that might, you know, I might save tax here, but then it gets swept up into the US as well.
DERREN JOSEPH:
Hmm. We have great, great comments. And speaking about offshore jurisdictions. The next question, question four. If I set up an offshore company in Singapore, would that reduce my taxes? I feel as if the comments that you, that you guys have made have really touched on that. So, it’s important to get professional advice upfront and, you know, people think, and it’s easy to understand why people have all these misconceptions because you go into certain forums online and people throw around terms like offshore as if it was a matter to be treated, but it’s not, as you guys have pointed out, it’s not just about forming a company in Singapore. And then you may wave a magic wand. That company needs to have substance. You need to have boots on the ground. Otherwise, the ATO can take the position. Well, you know, hold on management and control has been exercised from Australia. This is an Australian company, right? So, you have, you have real economic substance in this case, as this person has asked in Singapore. And then to your point, and to Tony’s point, there needs to be a transfer pricing agreement in place, just in case there’s, you know, the movements of funds back and forth to govern that movement so that the ATO won’t feel uncomfortable, that Singapore in this example has been, is being used exclusively for the purpose of shifting profits offshore. So, it’s about getting a plan in place as, as you point out, making sure there’s real substance in Singapore to the level of whatever it is they’re supposed to be doing and having a transfer pricing agreement in place to govern the relationship between the two entities. Comments?
GRANT ABBOTT
Yeah. Look, there’s also, you know, while you’re having your check, because, you know, I was very, very close. You know, I’ve set up companies in Hong Kong and Singapore looked at the two jurisdictions. I chose Hong Kong. This was about a decade ago, but I would say one of the things we have to look at is the overall impact of COVID is it’s really had an impact on every jurisdiction. And so, again, that’s gone down to every jurisdiction is treated quite differently in Australia. You know, we’ve used the closed down mentality. I can see Singapore is now opening up and you’ve gotta be careful and have a look at the balance sheets of the country.
I mean, if you have a look at the US operating a business in there, you know, I could run my business there, but it just doesn’t hold the attraction that it once used to, because they’ve run up huge debts. And you know that with those huge debts and that someone has to pay the piper at some time, and you don’t want to be there if they suddenly, which you can see already. I think Biden is looking at putting in quite significant capital gains taxes. Now I’ll be it’s, you know, for people earning more than a million dollars, but I can tell you why they started the benchmark and guess what happens over time, it drops and drops, and it drops, and it drops.
So, once you put it in there, it’s very difficult. Singapore is, is probably well-placed. It’s a small island nation of go getters. If I had a choice, for example, between Singapore and Malaysia, I would always go to Singapore. So, I think you need to look at the jurisdiction and make a five-to-10-year goal. If I was looking at setting up international businesses, I’d probably spend my time on those messages boards and see what people are thinking about, you know, the long-term impact of those jurisdictions. I mean, over in the UK, they’re doing a pretty gutsy move, which I think it’s a good one.
It’s great for the whole world really is. And let’s hope they go through that because they’ve had a lot of flak is they’re just going to open up the whole country much the same as Singapore has. And then that, will be good because it looks as though this new Delta very little, there’s always going to be variance. You know, every, every variance is going to come out. It looks as though it’s highly contagious the Delta, but it hasn’t got the same deleterious effects on your health as originally had. So, it’s going to be a good test case to see what happens, because if that suddenly opens, then it’s going to be great for UK and UK after Brexit needs to, you know, to shine because it was once, you know, I wouldn’t say empire because, you know, Singapore and Australia were colonies.
So, we don’t really treat the UK that well, but they were great on the services side. So, you know, as you go down the track, you know, I wouldn’t set up in the UK, but I think if you have a look at jurisdictions, you know, who is safe, who looks as though they’re going to get out of this in five to 10 years with a clean balance sheet. And I would have to say that Australia’s doing very well, and we’re lucky we’ve got commodities for essentially, they will be rebuilding. We’ve also got a very small population to look after. And Singapore is exactly the same, you know, it’s good stable economy.
It’s going down the track with US is it’s a very, it’s one of those ones now that people would say, well, I’m not sure about it. And it’s the same thing. If you don’t, you wouldn’t go over. And for example, invest in some South American countries, because you just don’t know whether they’re going to be around. We’re not round, but you just don’t know what the public unrest will be. But again, if you have a look at some of the Asian countries, you know, Vietnam is really taking off Thailand is into a lesser extent. You know, they’ve got good, strong workforces. They’re quite smart people sort of moving away from China these days because of, you know, you just, you just don’t know what you don’t know.
So, I see that Southeast Asia, I see that as a really booming area. And I think that, you know, Australia and New Zealand to a lesser extent are very lucky to be sort of very closely there. And we have to obviously manage our relationships around there.
DERREN JOSEPH:
That’s a fair point. Now, circling back to, as you say to Australia, there’s, I get the perception that, and I could be wrong, right. That, but my perception is that trust as a tax planning tool, not just as planning, but asset protection as well. It’s, it’s more, there’s great awareness and there’s perhaps greater use. And that it’s a more popular structure in Australia than it is in the US. Could you talk a bit about family trusts and how it’s typically used for asset protection and tax planning?
GRANT ABBOTT:
Yeah. So, there’s a whole layer of different skills in trust. So, you can get your basic trust in Australia. Like if you’re running a business through a trust, so say if you’re owning a business through a trading company, it’s okay, you’ll have a salary and wages come out and you pay tax at your marginal tax rates, which in Australia do not want to be doing because I was having a look at the other day. I was actually shocked myself was scary that once you learn, I think $42,000 year on something like a 33% or actually 34% tax rate. Whereas if you’re running through a company, you tax rates like 27%. So, you’d say, well, why would anyone do that? But then it’s hard to get money out of that company. So traditionally what we do is we blend a lot of it. So, we run our business through a trust. So, you can run a trading trust and I’ll just show you, I’ll, I’ll go through exactly what a perfect setup is in Australia. So, people understand. So, you’d run a trading business through a trading trust, which is, again, it’s very easy to set up. And then you’ve got discretion as to where you would like to transfer the income each year.
So, which is one of the problems about trust. As you have to distribute the income, if you don’t distribute the income, it’s taxed in the trust at 45% or 47%. So, you want to distribute it so you can distribute it down to children, generally over 18 there’s penalty taxes obviously for children, you can put it to your parents, to your nieces, nephews everywhere. So, what you do is you end up instead of just one person, you end up with a family group, but then you have what we call a company and they call it a bucket company for obvious reasons, because we distribute down into that company and pay because it’s investment income or traders trading income, you know, it might be 27% and then that’s held within there.
And then you, you utilize it as you see fit. So that’s a really good one in terms of asset protection. We’re built, we built a specialist trust, which call a family protection trust. So that is a little bit further, more advanced. And because what we’re seeing in Australia is a lot more attacks on businesses, but also in a state playing, we’ve got a very strange system in Australia. So, I can drive down a beautiful world for Tony and doing this and that. But at the end of the day, when, if Tony passes away, any spouse, child grandchild, even friends, who’ve been financial looked after by Tony, brothers, sisters can all make a claim on his estate. So, it doesn’t matter what I’ve said. And the funny thing is we deal with a lot with parents who go to the stage and say, look, I don’t want to put this girl in because or this son in, because they’ve, you know, taken so much money out of my life, you know, they keep on ripping me off and all that. But it’s funny when you look at the courts, they’re the ones the court actually puts most of the money into. So, because they’re the ones who actually it’s called family provisions. So, what we do is, and as much the same as they do over in the US, they do use trusts. They call living trusts instead of wills. So, the idea there is to bundle it all up, put it in there.
So, you don’t have death duties. Money’s is sitting in there and then you can put terms and conditions around it. So now family protection trusts the only people who can be looked after out of that are bloodline. So, for example, if kids marry and had stepchildren, they’re all excluded. So can only be bloodline or entities that are associated with bloodline, but we’ve found that there’s great protection. There we’ve even gone so far. This will show you how important it is Derren we’ve even gone so far that in Australia, a big thing is for everyone to have their house. And it’s a tax thing because in Australia house prices have always been increasing.
So, the most investments, the most major investment in Australia is generally the property of family home. And as prices go up, the good thing about it is the tax law says, if your principal place of residence is no capital gains tax, or there’s no taxes on it know that’s good. And the same with investment properties in Australia, if you go into investment property, you’re lucky to get maybe a one or 2% yield, but if you’re paying a four or 5% interest rate, you’ll have excess deductions, which can offset against salary and wage income. So, it’s very popular. We call that negative gearing. You can do the same with shares as well, but the problem is all those assets are now in your own name. You can’t split the income and you’re super exposed because if you get, if you do something wrong and Australia’s a very litigious society, I’m a trustee in bankruptcy or credit that will try to attach it.
So, we’ve actually got built strategies there that we go through, and we look at the equity of those assets. We don’t transfer the, so anything that you’re in your own name, we gifted into a family protection trust. And in that aspect, there’s no, the legal title still stays in your own name. So, there’s no transfer duties, there’s no tax or anything it gives over. And then it’s the link back to you. So, your you’re literally still utilizing all the assets, but you have no equity in them. All the equity’s been shifted into those family protection trusts. And that helps because if you do that and generally can last two years, your trustee in bankruptcy, can’t attack that gift.
Likewise, if you have a look at it from a perspective, the trustee in bankruptcy can’t touch it, but also when it comes down to that family provisions claim, that again, it’s non-accessible so you might have you know, a daughter or a son or whatever who wants to make a claim on the estate decide, well, sorry, there’s nothing in the estate. It also has some potential benefits around family law. Particularly if you go down generations and we’ve got one jurisdiction in Australia, in south Australia, which generally these normally trust most everywhere around the world, usually only last eight years, because everyone wants to, you know, get their tax hike at some stage.
But over there, you can have a perpetual trust so that once you build these things, and then as you can imagine, you know, different families or push the monies into these vehicles. And again, they’re very sole vehicles, but they’re not going to be the trading trust. So, the trading trust, what you’d have is that is just the very risky entity, all of crown jewels from the trading trust. So, if you had software, the software would be in a family protection trust, being licensed back to the trading trust, manual processes. So, it doesn’t matter in your business, whether you’re doing whatever you might have a manual for marketing and a client base, they’re all in the family protection trust being effectively leased or licensed bank to the trading trust. Because then if the government shuts you down on that trading trust or accredited us, it doesn’t matter because you’re then open up next day in his family protection trust through another entity, so to speak because it does that sort of make sense.
DERREN JOSEPH:
Yeah, it does. And when you said that Australia is quite litigious, of course, that is quite similar to the situation in the US. So, it makes asset protection, definitely a priority for any family, not even a wealthy family, but anyone at all, it’s something that they should avail themselves of you know.
GRANT ABBOTT:
I would put that the structuring, because I’ve seen too many entrepreneurs and they’re all around the world. And particularly in Australia, they built up this amazing wealth. We’ve got the best tax structures, but it can go in a heartbeat because, you know, you are the local, you know, local regulators coming in to try and shut it down or get some broad in a, in a litigation. And the whole thing about litigation and Tony will tell you that is, you know, from the legal perspective, it’s all about dragging it out as long as possible. That’s because there’s more fees and also puts a lot of pressure on the party. That is the weakest. So, if you’ve got the strongest hand, like for example, we called building a moat around the castle.
So, you’ve got your castle, your crown jewels, and you want to make it as hard as possible for the lawyers to get to it. So, for example, family provision lawyers, they call them no win, no fee. They take 30% of whatever they get. And look, they always make lots of money, but if there’s nothing in the estate, they’re not going to spend 50 or a hundred hours working on a case. If they’ve got no chance of success. They’re businesspeople, and they wouldn’t even spend 10 minutes, they’d probably get the client in and then go once I did a bit of discovery, then they’d walk out.
DERREN JOSEPH:
Yeah. I, you know, I, I tell clients that all the time, you know, litigation lawsuits are a legitimate tool of business. And if you have not yet been sued, you haven’t been in business long enough, but I want to move on to the next question. And I think you kind of hinted at this topic in, in your commentary, let’s t start talking about superannuation, which of course are really popular in Australia. So, someone is asking them question six, how does the US tax annuation valuations now? Just from a US perspective, it is quite contentious because in the treating, there is no specific provision for super. Like the, in the US, UK treaty where there’s specific comments on UK pension plans.
So at least we have some guidance and unfortunately the IRS continues to be silent on the treatment of superannuation, but generally speaking contributions are taxable. So, you don’t, from a US perspective, you don’t get that tax benefit. Generally speaking, growth in the fund is not taxable unless it’s a self-managed fund, which we can comment on later and then distributions would be taxable. But then we would probably want to bifurcate between what is the original investment and what is the growth.
GRANT ABBOTT:
Yeah. So that is, so you’re looking at a US person, Australian super fund?
DERREN JOSEPH:
Yeah, from a US what about the Australia perspective for those who need tests.
GRANT ABBOTT:
First? Yeah. Yeah. So, if we looked at it from Australian, looking outside Australia as a great jurisdiction, in fact, that just changed the laws to make it a lot easier for overseas people to actually set up self-managed, super funds in Australia, their trust structures in I’ve set up, believe it or not a few self-managed super funds for Japanese experts here because they’re excluded from death duty. So, they’re not included. So again, we’ve got all these little, as you said, the bifurcation, you’ve got little twists and turns. And I explain it when I go over to the US people can’t believe it that over.
If you have a look in the US, they’ve got IRA accounts, but mainly their 401ks, which are primarily even vested back in their company or managed funds. So, they’re getting ripped off every, everywhere, down the track. And the problem about that is it’s just individuals. So, there’s no splitting in Australia. We’ve got self-managed super funds. Look, I wouldn’t put money with an industry or retail find you’re getting ripped off. Once you get up to a certain level, you set up your own fund, your own family, super fund. And that fits in really well with that family protection trust, because again, believe it or not, the self-managed super fund, which are called a family super fund has the best asset protection of anything all across Australia.
It’s very low taxed. If you’re paying more than three or 4% tax within the fund on your investments, you’re doing something wrong. You’ve got an ability to borrow, banks lend money, to buy property inside a self-managed super fund. You’re paying virtually little tax on the way through if anything, and then once you turn 60, when you take money out, it’s tax free. And I I’ve argued, you know, I’ve done talks around the world, and I’ll call it the world’s-based tax haven. There are limits, of course, because now the, they worked out like I’ve had some clients have had half a billion dollars sitting inside these funds.
Now that put a lot of caps on it, obviously, because people saw what it was, but, you know, imagine half a billion dollars invest in what you want. There are limits on when you can buy a property in there and live it yourself, but you can buy an office and work in it yourself. So, there’s a little twist and turns, but it’s a great opportunity. If you are in Australia and you are doing business, it really sits alongside that family protection, trust your trading trust and your business and all works well. The saddest thing I ever see is when I see a client has got a super successful business, aged 60, and they’ve got a lot of money sitting in companies, these bucket companies, and they’ve got virtually, they’ve got a self-managed super fund with a couple hundred thousand dollars in it, whether it would be so easy, I’m doing one at the moment, a restructure where a client, who’s a thoroughbred? You know, racist, thoroughbreds, et cetera. He would have saved so much money because you can do that inside a self-managed super fund. There’s so many opportunities there, but then if you’re over in the US looking in through here, you’ve gotta be really careful about how it’s treated over in the US whether it’s aggregated, as you said, and broad to account there, which is, again, one of the reasons I haven’t necessarily bought my wife into my self-managed super fund, because I don’t want the US jurisdiction I’m sniffing around or what I’ve got. And honestly, at the end of the day that they can’t do much. I mean, as I said, they can’t extradite me, but if you get, it’s hard enough to get on the board, a bit of fun to go to the US and make a trip, and they’ve flagged me. You’re pretty well staffed at that time. You know, you’re caught in that jurisdiction and there’s nothing worse that they bundle you up and interrogate you. And, you know, once you’re in there, you’re stuck.
DERREN JOSEPH:
Yeah. So, sticking with the theme of Australian superannuation, we have two questions back-to-back. Someone is asking under what circumstances would a superannuation be considered a trust and PFIC? So, in terms of our position, I know that there are some of US tax teams that consider all superannuation’s as foreign grants or trust. We at the treaty. We look at I think it’s section 1802, and our position is that it’s not a foreign ground to a trust, but it can become a foreign grant or trust if the grantor or, you know, the person that is being in the contributions contributes more than 50% of the trust, then it may be considered a foreign grant or trust.
And in terms of it being a PFIC? For those who are unfamiliar with what the PFIC is about, PFIC is a Passive Foreign Investment Company. So that is a designation at arose in US tax rules, back in the 80s, 1980s, when President Reagan was in office, US domestic financial institutions were complaining that Americans whether they reside in the US or abroad, they were investing in essentially foreign mutual funds. So, they create, they came up with this designation, which it more or less penalizes you in a way for investing in what is essentially deemed to be a foreign mutual fund. So basically, when you have a self-managed super, the tax code tends to interpret that as a, essentially a PFIC, and it will be tax accordingly. I wouldn’t get into the mechanics of it, but it tends not to be to the advantage of the US taxpayer. So, we generally wouldn’t.
GRANT ABBOTT:
Generally you wouldn’t anyway, because to be brutally honest, going back to what you said before, a central management control there’s ways of look, we find ways around everything, obviously, but if you’re a US resident, you’re not going to put a contribution into Australian, super because the danger about that is if your central management control was seen to be overseas in terms of funding into a non or foreign superfund, which then is attack. So, it moves from a generous tax rate to a 45% tax rate. So, you get pinged in the U S you get pink tears. So, what we tell people is if you’ve got a self-managed superannuation fund and you move overseas, depending on the jurisdiction, and it’s the same thing, as I said before, a lot of people will say, okay, I’ve got a self-managed super fund, or I’ve got Australian super, and I want to move to Italy. I want to move to UK. I want to move to Singapore. And the thing about is once you’re over 60, you can take an income stream from Australia tax-free. But if the, there is article 11 of most double tax treaties provide that wherever you are, a resident and tax that pension income. Now, the problem about that is you coming from a tax-free jurisdiction and many jurisdictions will actually treat overseas pension income as assessable income. So, you’re doing the worst of everything by going and living over in Italy or whatever. So, you’ve just got to be really careful. And again, I think through, you know, the Moore’s network is the beauty about that is we don’t know everything round Australia, absolutely asset protection, estate planning. You know, we’ve got, we’ve got the boots on the ground and, you know, we read the cases and we see, and we represent people. And the same as you do up in Singapore, but both of us would say, well, if a client is coming to, he wants to go over and live in Holland, neither of us have got that skill, but the good thing about the network, and if it’s Vietnam, whatever we’ve got access to, you know, the best minds in the business who can, again, we can start to finagle and work out what the best structure is. And unfortunately, we live in a global world. There are no global taxes, thank goodness, but we do have to work so different taxes. And sometimes most of it if you look at it, anyone from, as a us citizen, as spiritually, a global tax.
DERREN JOSEPH:
Anyway. Yeah. So, staying with that theme for a while, actually leaving Australia. So, if someone was to ask resident, there is a superannuation fund and they decide, hey, I want to leave Australia. Can they cash in the super?
GRANT ABBOTT:
No, they used to be able to, like, I had a friend whose, and she was my brother’s ex-wife, and she called me just recently. She got divorced. She was over in Sweden and had $200,000 sitting in a, not a self-manager, but in a retail fund, like a mutual fund over here. So, they’re very big here. And I did my darndest out of everything and she touch it until she’s age 60. Once it’s in Australia, it’s locked and loaded until you’re 60, or the only other way out is to become, if you become temporary incapacitated, you can take it out as like a salary continuance or totally permanent disabled, which you don’t want to do or turn over you die and you can take it out. So otherwise, you’re just going to have to wait. So unfortunately, if it’s in Australia, it’s basically stuck in there.
DERREN JOSEPH:
Okay. Understood. And we were talking about like family trusts and trust structures before. So as an Australian quantified trust, what about if someone who’s Australian tax resident were to use a foreign qualified, let’s say Singapore, qualified trust. So, US or something from another jurisdiction, can that be used for tax planning?
GRANT ABBOTT:
Not really. Yeah, no. We’ve got Tony, you can probably talk about that on control foreign trusts and control foreign companies.
TONY ANAMOURLIS:
Yeah. So, if you’ve got, the rules are around now, basically if you’ve got a 1% or, or more interest in a foreign trust, basically you’re captured in terms of income. So, with foreign trusts again, if you’re a beneficiary again, and we spoke about this last, if you’re a foreign beneficiary in an Australian trust, of course, and you make a distribution out outbound to a foreign beneficiary overseas, whether it be US, Singapore, wherever, then a recent case has just come out now, which I’ll send to you is it’s in the federal court actually. It was, it was issued in a federal court. It’s a federal court decision. If you distribute out to a foreign beneficiary, the trustee will get tax now. Did you hear about that one Grant?
GRANT ABBOTT:
No, I haven’t seen that.
TONY ANAMOURLIS:
I’ll get to send that through to you. It’s very like, you know, mind blowing, you know, so, but anywhere else in that case out to you, it’s pretty interesting actually.
GRANT ABBOTT:
You gotta be careful too because we brought control foreign trust and control foreign corporation legislation. You get caught in there, if you’re seen as being the dominant party in there that effectively they can bring to account the growth in the underlying shares on an accruals basis and bring that in as income, which is telling me what to do. It’s gotta be very careful, but it doesn’t mean that your family truly your trust here can’t invest in an offshore company. Probably not a Trice, probably a with a better way.
DERREN JOSEPH:
Okay. All right. Moving on to question 11, I’m going to read it. My question involves owning real estate in Australia as an American. If co-owning a property with my Australian spouse, is it possible to avoid the US capital gains tax in the future by transferring a title completely from myself to my Australian spouse?
GRANT ABBOTT:
Yeah, I think, yeah. I’m not sure about that one because I think I’ll look at it again. I’d have to admit I’m not an expert on Australia property taxes, but I’m finding it bloody quickly through having a wife thing. So, I’m man and working my way through there.
DERREN JOSEPH:
Out I can comment on that. From the US perspective there’s absolutely nothing. We should be transferring you as the US taxpayer from transferring it to a foreign spouse. The only thing is that it’ll be reportable on a gift tax return. So once so it’s reportable, but not necessarily taxable because as a US person, you have a lifetime gift and a state tax exclusion amount that you can, you can use.
GRANT ABBOTT:
Do you have, gift, sorry to buddy. And do you have gift taxes up in Singapore?
DERREN JOSEPH:
Singapore? No gift and estate taxes now.
GRANT ABBOTT:
Yeah, we don’t have them either. So, I mean, that’s why, like I was talking before that, you know, we can gift everywhere and it’s the best thing since sliced bread, because you can really restructure fairly well. And its funny cause the courts are looking at a lot of this stuff now because a lot of the smarter people are using a lot of gifts and loan banks and stuff like that. And the poor old judges, their, their brains are just frying because they just don’t know what to do because it’s quite advanced at some point in time though, again, going back to what we were saying is the jurisdictions you’re in, you’ve got to be mindful of those estate taxes that might be coming in the future and also gift taxes and more becoming.
So, I would always encourage everyone to, to move as quickly as possible, get your structures, right? Because I’ve seen so many people who’ve come to us and said, oh, you will we, we actually wanted to do something a year ago because they’ve always change law.
DERREN JOSEPH:
So, just continuing from a US perspective, thanks to President Trump’s tax and jobs act to the end of 2017, the lifetime exclusion for gifts and a state moved up to 11 million. So, which was quite generous. So, but unless it’s extended, we expect, and the president Biden I’ll go back down to 5 million or maybe even a bit less. So, you know, it’s being discussed, but you know, nothing is formalized as yet. We expect that to be done by the end of this year, top of next year. But the bottom line is that that the value of the property is going to be less than 11 million. You can transfer it and you just file a gift tax return. And if when your Australian partner does decide to sell it, there would be no US capital gains taxes. It’ll just strictly be the Australian tax situation to, to consider which as you’ve already commented on, could be actually tax break if it’s their primary residence.
GRANT ABBOTT:
Yeah. So yeah, probably residents, the same thing is if you’re got a spouse, you can gift over to the spouse. There’s no capital gains tax. And also, there’s no transfer or gift Judy’s in Australia. So that’ll be interesting. I’m just going through that process myself. So, I’ll be digging around in the US code. So, I’ll probably need your help there Derren.
DERREN JOSEPH:
Sure. Okay. Moving on to a completely different topic. Now we’re going to talk about yoga. So, question 12, someone has written US. I am a sole proprietor with a yoga business in Australia, and I’m planning on moving from an ABN to an ACN for the liability protection. With this change, my wife filed taxes. Tony, can you comment on the ABN to CAN, please?
GRANT ABBOTT:
Yeah. So, well the aliens just strain business numbers. So, you’re obviously changing entities. They should really go back, if you’re in yoga, I would probably not go down the company. I think it’s, just a bit too cumbersome. I would go back to what we’re talking about before I’d set up just to trust. And again, that would have its own separate ABM and again, with yoga as well in anything to do with that health industry, there’s a good chance of litigation. In fact, there’s a very strong chance to litigation. So, to have it in your own name is extremely dangerous. I mean, in yoga, someone just extends themselves in the wrong pose, falls on their neck, breaks their neck, that’s it, you’re dead for the, you know, you’ll end up going bankrupt. So, the family trust is, is probably the best structure to use as a base.
DERREN JOSEPH:
Right. But from a tax perspective, would it still be considered it’s an unincorporated entity?
GRANT ABBOTT:
Yeah. So, it’s an unincorporated entity. If you want, you can always have a corporate trustee, but if you’re a yoga instructor only just starting, I’d probably just wait a little while. And then what you’ll do there is if you’ve got yourself, but you can distribute the income to other members of your family. So, because we use a progressive tax system regressive rights by spreading it out, it means you’ve got an overall lower tax. So, for example, up to a 42,000, I think our tax rates, I think around about $40,000 at tax rate is 30% or thereabouts, from 42 to 120 it’s 32%.
So, if you’ve got a whole lot of people there, you can actually spread it around quite a lot of new Zealand’s tax-free threshold of 18 or $19,000. But it has said that that would be the best thing because it would have. So, if I was having a chat with a yoga instructor, I’d probably deconstruct their business. Yoga is fantastic, but it’s very, as they say, boots on the ground, mortar and bricks, if you’ve got a unique way of doing yoga or whatever, I’d probably do a couple of things. I would investigate the ability to teach whatever style you’re doing because yoga has its own style. So, I’ll probably put it online, even do a sub stock, start writing some, some stock stuff on sub stack and then putting it all into that family trust to try to get leverage. Because the end of the day with our business, it’s hard for us as lawyers and accountants, to, you know, where we get charged on, you know, the hours we work the same with yoga, but if you can leverage it by turning it, as I said, right, from the start until eight intellectual properties, you’re a lot better off. And that’s definitely the place to have a one of those family trusts or discretionary trusts.
DERREN JOSEPH:
Right. And from a US perspective and to his or her comments, then yes, you’d still be on schedule. See, and the income would be covered by the foreign income exclusion form 2555. This self-employment tax should be alleviated by the US Australia totalization agreement. So, it’s quite an official structure, efficient trapped here. And I’m reading on to what he was saying. If I teach yoga online to people in the US, that that is to your point of leveraging it and making it more efficient as a business from a tax perspective that would have no, because it’s being done from within Australia, even though it’s online, right? So, the entire process more or less remains the same.
GRANT ABBOTT:
That’s why, for example, like that’s why Amazon and those guys don’t pay any tax because they’re on a very favorable tax jurisdiction. And they say, well, all our IP and all that is here. So, you know, we don’t have to pay any tax. So there again, that’s advantageous. And, and look, we, you never know how it’s going to work, but it’s worthwhile having a go because the cost of setting up something like that, whether it’s YouTube channel, you know, I mean, there’s so many different these days, you’ve got plug and plays, you know, you can do webinars, you can do everything. It’s all done for you. You can charge for it. You know, you charge subscription. I’m always a big one on, on subscription. You know, people might charge, you know, 50 or $20 to do in home.
And really you have a look at it after COVID and you know, COVID is not going to be the last time we have lockdown. It’s perfect. People need to do something at home. And it’s been a big switch away from the yoga studios, from the gyms, you know, from communal or exercising to either outdoor exercising or more important than just doing it at home. It’s the same with exam, the home offices. I mean, hardly anyone, I don’t know what psych up in Singapore, but there’s certainly a great reticence in Australia for anyone to return to work. And we’ve got some very aggressive occupational health and safety laws. Plus, we’ve got very aggressive, fair work laws that you can’t force a, an employee to come in and work in the office anymore.
So, it’s an interesting place. So, without yoga, as I said, as a good one, I mean, you can even, I’m again, just spit balling is, is going and finding a few large corporates and letting them have, particularly for a home office worker getting a subscription to your yoga, and then they can shoot it in, you know, their employees who are working at home can use yoga. So, they actually benefit everything. They’ll get a tax deduction for it. Has it been benefiting the mental health of their clients? And you’re sitting over here in Australia, wherever it is, and you can actually shoot that out around the world. So that’s the way I I’d be targeting.
DERREN JOSEPH:
Right now, as of this year because we have some clients that are YouTube burrs or influencers, online influencers, and they do pretty well for themselves. Now, if this, he or she does put it online and they use, for example, a platform like YouTube, what YouTube do would be to bifurcate their audience and, and report to them and say that when they give their report, that this percentage of the audience is from the US and therefore should be treated in a certain way. So, to answer the question that was post and would they, the income that arises from the US audience would be qualified for the qualified business deduction, which is a tax advantages, a deduction from a US perspective, but the audience outside of the US, like for example, Australia, unfortunately.
GRANT ABBOTT:
Yeah. I would say, look, just having run a lot of businesses. I wouldn’t trust YouTube. As far as the throw them, you end up being, if you’re relying on monetization for them, it’s nice as the same as I’d be using YouTube, Tik TOK, probably Instagram as well. And they should be leading into your own site. So, use it into a landing page. Look at click funnel, look, there’s heaps, click funnels. There are so many different places. And, and so you have a private, I don’t now not say I’ve been here, but that the industry that’s doing really well is a lot of people will be on Tik TOK or whatever.
And then they go onto an only fans page. So again, you’ve got to that stuff is free. It’s very cheap, but it’s well, this is what I’m doing. You can see at the moment; the cryptocurrency guys are making millions of dollars out of that. And let me show you how to make millions of dollars. And of course, they show you how to make millions of dollars by you have to pay a subscription or pay for training course to listen to them. And it’s not as if this is new, this has been around for options. It’s been around fishes, it’s around property. It’s just a, it’s just a typical thing is you’ve got the knowledge you want to pay for it. You give it away. You give a bit of way to tease them up.
And then there’ll be certain people who go bond behind the paywall to get subscription. And then that’s the case cases, wherever you’re delivering that service is that’s where the contract is. That’s generally the case. And that’s, that’s a good thing about the internet is that you can be in a good jurisdiction where the money comes back in there and it can’t be taxed over there. Whereas you start to use things like YouTube, Tik Tok, which is look, we ticked off. We don’t know what’s going to happen. Obviously, it’s a Chinese company, but you’ve just got to treat them with a grain of salt and have a multitude of stuff. Whether it’s like if you’re doing mental health for yoga, one, that’d be fantastic on LinkedIn. You know, you’re going to gain some really good resources out there, do some free sessions on LinkedIn. But again, it’s gotta go. There’s gotta be some monetization, but don’t the monetization have to come from you. You have to control it. Do not let other people control the monetization. If that makes sense.
DERREN JOSEPH:
I completely 100% agree with that. So, for example, this video is being live streamed on YouTube now because of the YouTube algorithm, because we’ve mentioned the seabird about a certain pandemic, it would be the algorithm will punish the video. So even people that have subscribed, it’ll be what they call shadow band. So, they will, it’s not going to be taken down, but we ‘re very difficult to find. So, I mean, we don’t depend on this for any revenue generation, but if we were to then we would be at the mercy of somebody else. So, to your point.
GRANT ABBOTT:
Oh, I’ve seen the, a good friend of mine. Again, the power of internet business. He’s got a company called Nordic rooms in Australia. Lovely staff has got fantastic. It brings stuff in from Sweden. Norway sells in Australia and does obviously a lot of online work from home lovely guy, but he finds out obviously with the online, he’s making a greater profit than you used to do it through retail, where obviously his margins are a lot lower. So, the problem about, and that’s how you can get free shipping because you’re cutting the retail around.
But then a lot of his business was coming through apple, but then he was doing Facebook ads, targeting people, and then they changed the algo and he’s down now $180,000 per annum, just simply because they changed to algo. So now he’s having to switch his marketing around to go to email marketing. And that’s why many of us are starting to see a lot more emails come through because each of the Google, the Facebook, and the apple, they’re now trying to centralize and silo their own businesses rather than allow them to feed off each other, which was people were doing really well for, but not anymore. So, you can’t trust these big companies necessarily.
DERREN JOSEPH:
Yeah, absolutely. Just moving on to the last few questions, we have 13. If I bring my taxes, I guess my taxes, how much money you can give me. I, you know, I tend to smile of course, and there’s no one can make you a promise. And I think those who would make any sort of guarantee of probably perhaps the less than sincere. So, I would take that with a pinch of salt. So, we need to, of course, look at your situation and make a determination.
Chances are, if you like a regular salaried employee, there’s typically not that much little room. Whereas if you were self-employed or you run your own business, then perhaps maybe a lot more opportunity for planning. So that, that that’s my response to something like that. And guys, any comments on that?
GRANT ABBOTT:
Yeah. Look at it. It all depends on what they’re doing quite often. That’s you, you really need, as you said, facts and circumstances, so that even if it was like half a dozen bullet points saying, blah, blah, blah, blah, blah, you going to, we, we can sign in only we’ve done this. We do this day in day out. So, we’re going to work out what we do, but quite often, if you are not making any money, that’s the easiest way of saving tax because you’re not lost. You don’t pay tax if you don’t make money. So, it depends on, on where you’re going, what you’re doing. And, and honestly, I would agree with your salary and wage earners, you’re staffed in Australia. You have to pay tax on the way through, even just having a trust or a company you can defer tax, which is, I was told by my tax lawyers, deferral is, is just as good as a permanent tax hike. So, it really depends on your circumstances. And I know that’s a wishy-washy answer, but if we’d been given blah, blah, blah, blah, blah, then absolutely, we’ll be happy to write into it and say, well, this is what I would do.
DERREN JOSEPH:
Okay. Question 14. What if we can’t afford a professional advisor or what should we do? Well on our website, HTJ.TAX, we have over a thousand articles on US tax issues, as well as I’ve books that are on Amazon. And if you’re an Amazon prime member or anything like that, I think for the most part books on nearly or next to free for Kindle. So, you can probably read it for free. So, there is professional guidance available online on the websites of people who will properly be qualified to give it as well as their professional liability insurance.
I would tend to shy away from the Facebook groups where people who perhaps are well-intentioned and well-meaning, they have a good heart, but they’re not qualified. And they have been generous with their perspectives. And that tends to get people in trouble. And to be honest, we probably make more money. Getting people, extricating people from a messy situation than we do, helping them get it right the first time around, Grant?
GRANT ABBOTT:
Yeah, look, I think you’re probably looking at it the wrong way is it’s like an investment more importantly, just this one-hour session. I mean, how many business ideas have you come up with? I mean, the way we’re telling you how to make money and don’t look at it as when you, if you’re looking at it from a narrow perspective of paying tax, then you’re missing out the point. As we said, sorry, in wage earners, you are pretty well. There’s not much you can do, but if you’re an entrepreneur, I would be going to the I’ve always done that. Always go to the best advisor because not only will they make sure you do the right thing, but they’ve also looked after the best of the best in the industry. And they’re going to give you all the, they’re all going to give your business ideas for nothing. Seriously. Look at the business ideas we’ve already given you. So, it’s not, don’t look at it from a tax perspective. Look at it as a business growth investment.
DERREN JOSEPH:
All right. Investment pro is definitely a positive return. Question 15, going on crypto, someone’s asking about crypto took them a while expecting crypto earlier on. Is there a difference between how Australia and how the US treat crypto. From a US point of view? It’s not considered a currency is more or less considered property. We have revenue ruling 2924 for that, but basically, it’s taxable. When you are trading crypto to Fiat, for example, to the dollar or one crypto to another crypto, when you spend crypto to purchase goods or services, or when you earn crypto as income, it’s taxable. So, it’s, it’s small as its property, right? So, it’ll be treated like that. So, you’re going to be taxed to the ordinary tax rates. If that’s all you’re being paid, or if there’s a capital gain, you’re going to be paying capital gains tax. And for those who are traded, because we do have some clients that crypto traders, this is what they do full-time, and they do thousands of trades per day. Then that’s trading income. So that, that how the US looks at it. How does Australia look at it?
GRANT ABBOTT:
Yeah, same thing. It’s a capital gains tax or if you’re in the business, it would be, or, but the, the very nature of crypto is it’s secretive. So, you mean you it’s, it’s harder because at the end of the day, no one knows what you’re doing and where it is because it’s not sitting on any asset register. So, it’s not sitting in the, like for example, the Australian taxation office has feeds into all bank accounts has fees for everything. So, if it’s come from a bank account, then we can be traced and obviously then capital gains tax and all that. But you know, if you had a windfall from, you know, great aunt Mary over in the UK and you set it up into an exchange overseas, no one’s even going to know about it. And that’s what scares. And you can see that that’s what scares all the central banks. And that’s why they’re all building their own crypto because crypto by itself is quite a femoral and no one can touch it and you can, and you can see, but then again, the ne’er do wells, have it as well, because if it’s sitting in an exchange, you know, what exchange are you actually going to use? If it’s an exchange in Australia, then obviously the Australian authorities will get it. If it’s exchange overseas, there’s a good chance that someone’s just going to walk away because all you’d be calling, and you’ve got no right to redress. So, it’s, it’s just one of those things to me, it’s a, it’s a good idea, but it’s very wild west town. So, if you’re in crypto, you can make a lot of profits by again, if there’s nothing there, it’s very hard in the long run.
DERREN JOSEPH:
Yeah. And the, the IRS has been pretty aggressive. They’ve been subject to funding issues and budget constraints, but one area in which they’ve been allowed funding by Congress has been for crypto. So they’ve hired, they spend a lot of hiring them with generous salaries, attracting talent, to deal with, with crypto tax liabilities and together with the US department of justice, they have gone after exchanges outside of the, so once you exchanges in the US it’s firmly under government control, like for example, Coinbase right now, if you’re outside of US we’ve had the recent example of BitMEX and Singapore, Hong Kong, where some warrants have been issued for the rest of some of the three shareholders, why? even though they are outside of the U S because according to whatever investigation the US has done, they’re allowing US exposed people to trade on their platforms.
So, the US has not been shy. And I don’t think they’re being shy right now, going off to exchanges that are allowing US people in without tax.
GRANT ABBOTT:
Yeah. But remember where we are now. But the law, I remember once getting in fortune cookie opened it up and as good though, the law sometimes sleeps, but never dies. So, what’s happening now because you’re looking at tax evasion, this could happen 10 or 20 years down the track. They can come and knock on your door and say, well, you didn’t do this. And then that’s when you need some really good asset protection structures.
DERREN JOSEPH:
Absolutely. Sorry, I’m getting, we got a message below from Nikki has to go, this for those who need to leave, this will be recorded and will be available at HTJ.tax, as well as on YouTube, SoundCloud, iTunes, Amazon, wherever you get your favorite podcasts, this is going to be posted there so you can pick it up there. So, nick asked some questions before he had to leave. He says, am US Australian, dual citizen. So, he’s a dual with investment accounts in both countries. Should I consolidate them? From a US perspective? It really depends, again, as Grant has said, facts and circumstances, right? So, from a US perspective, some if there’s a danger that some of the investments outside of the US may be treated as PFIC passive foreign investment company, as mentioned earlier, it will be tax disadvantaged from a US perspective and may need to be restructured. But other than that, I’m strictly from a tax perspective. I’m not going to comment on financial planning, cause that’s a whole different discussion, but from a tax perspective, lookout for PFIC and if there are PFIC, you may want to deal with them. Grant Tony, any comments?
GRANT ABBOTT:
Hmm. Yeah, probably the same. I think with the investment side, if you’re a dual resident and you’ve got to go back to the double tax treaty and find out where you are resident because yeah, I think Nick was moving over to US full-time he’s got a question there, which I am good, but if he’s moving over there, when he becomes a resident there, he’s got a choice, from an Australian perspective, leaving his investments, keeping his investments, and you’ll still have to pay tax in Australia on those. But then you’ve got to go to the double tax treaty. Alternatively, he’ll just basically pay capital gains tax on the way out. And then just doesn’t have to worry about so much. Dividends are different. If it receives dividends from shares, obviously there’s a withholding tax, but if they’re, we’ve got we’d call franking credits, we get the underlying company tax paid back. They won’t be, if it’s fully franked dividend, you won’t be paying any tax in Australia on it. Every interest and you pay a withholding tax of 15% with a double tax treaty.
DERREN JOSEPH:
Okay. Wonderful. So at least on my list, I’m sorry, I’m going to just flip over to Facebook to see if anyone has been asking any questions there. Nope, we’re good. So that’s it. Thank you. So, one thing I wanted to comment on, when we spoke about tax and it’s just subject to civil penalties, unfortunately from the US perspective, there are criminal penalties that will apply and be subject to criminal litigation. So, the recent case that’s been in the media a lot has been a guy called John McAfee, antivirus software guy. He was fighting extradition from Spain (Confused about US expat tax services in Spain? Let us provide clarity) on charges of tax evasion when he unfortunately met with his untimely demise. So, the US is one branch of the federal. The IRS is a branch to the federal government that is unafraid to cross borders and to find you wherever you are, if they want to make an example of you, or we’ve had cases where it’s just been, what we call a sealed indictment, and they just wait on you to enter the US. There’s no one knows anything until I didn’t know if you, for those who would enter the US your familiar with, when you go to the passport counter right now, you probably scanning. But anyway, there’s a light that goes off and someone just asks you, can you follow me? That’s when you know that something is, and it’s tied to your passport. So, yeah. Yeah. So, we just, we just need to be cautious and pay attention to that.
Gentlemen, thank you for your time and thank you for your expertise and for those who would want to find you, if you want to find me, I’m HTJ.tax and how would someone find you?
GRANT ABBOTT:
You just go Abbott Morley, I’ll put it in the chat, but if you go to Abbottmorley.com.au, and you can book in a time or have a chat with Tony or myself.
TONY ANAMOULIS:
Derren, I think the next one we should do; we should do a session on estate planning and asset protection. I think, you know, if you want to.
DERREN JOSEPH:
Absolutely. That sounds good. That sounds great to Me.
TONY ANAMOULIS:
The thing is Grant loves that area.
GRANT ABBOTT:
Yeah. We’re all going to die at some stage. He had to look at having a look at the thing last year. I think everyone was expecting to die last year, but anyway, it hasn’t been,
TONY ANAMOULIS:
If you want to set it up, set it up for, you know, another webinar, let us know. And that way we can, that way we can do a session on it.
DERREN JOSEPH:
You know, I’ll shoot you guys an e-mail. Thanks a lot.
Okay, guys, guys. Bye-bye
VOICE OVER:
Here are four ways we can help you.
- Sign-up for a free webinar on US Expat Taxes and International Entrepreneur Taxes at www.HTJ.tax
- Stream premium education or videos at www.HTJ.tax
- Contact us for Tax optimization consult via zoom
- High Net Worth. We can quote for doing your US International taxes returns.
Our books and upcoming events are available at HTJ.tax. Please subscribe like, share and comment down below or email us at help@htj.tax to engage us to advice on international tax or business matters.
