2 Consequential Costs You Need to Account For.
In the last few months we have read about and heard the noise in the Parliament about politicians who have dual citizenship or may have dual citizenship and the question whether they’re eligible to stand in Parliament; a question the High Court is working through and will eventually have to rule on.
It’s interesting to note that the concept of dual citizenship is actually quite recent, in recent decades in fact. The debate made me think about ourselves as a family and everyone I know who is family. Everyone in my own family is a dual citizen bar me, although I do have a legal right to abode in the UK. And from what I observe, this is the new normal.
If we go back 100 years or so, to the time when my grandparents came to Australia, they got on a ship, they kissed their family goodbye, and they never saw them again. It was a one-way ticket. Letters may have been sent and received on a regular basis, but essentially, they said goodbye to their family and never saw them again. My paternal grandfather was eight when he left home and my maternal grandfather was in his late teens. Never to see their parents again, which is pretty sad when you think about it.
In the modern world, things are totally different. Firstly, the modern definition of success is manifold: professional standing, educational accomplishments, athletic achievement, political clout, social impact, personal fulfillment and even celebrity status are measured on a global scale. We raise our children to be global citizens; hence we end up with children who are global citizens. Quite often we register the success of our family when we see them going overseas to university or going overseas for a promotion. Secondly, new information and communication technologies enable this to be the new reality for so many families: global nomads are the new hot desk worker – working from anywhere, anytime – and Facetime and Skype have replaced the humble letter.
The impact of globalisation on the lives of children and parents and its impact on family relationships is undeniable.
I was looking at someone recently who does two trips a year to visit his adult kids overseas. A retiree, he flies to the US and across to the UK and he’s away for about a month either side. In both cases, there’s not enough room for the family to put him up so he rents an apartment. With the cost of rental cars and so forth, he’s looking at about $20,000 for each trip ($40,000 p.a). If you think about this from a capital side in retirement, he would need about $500,000 to $750,000 extra in retirement just to fund his trips to see his family. And as he’s getting older, he’s saying, “I don’t want to travel economy. I want a bit more comfort because it’s too hard when I get to the other end.” So there is a true economic cost of his global family.
The second cost, of course, is the globalisation of taxes. If you are a resident of Australia you pay tax on all your Australian income and any other income from any other country. If you leave Australia and become a non-resident of Australia, you pay tax on the Australian income but no Australian tax on your foreign income. However, if you’re in the US, you pay tax on all your income in all locations. If you live elsewhere, some countries have death duties and gift duties, other countries do not. In Australia, death duties were abolished 35 years ago. If you go to the US, the death duties and gift duties are 40% above the threshold. Consequently if you’re passing assets from a US resident to a non-US resident, there can be severe estate reporting issues. Likewise, if you move from one country to another sometimes you end up being a tax resident in both locations and potentially be subject to their tax for estate planning purposes.
It’s complicated. It needs to be planned perfectly.
Quite often we see someone with a global family, they visit so often they decide to buy a property in the location, such as Singapore or London or the US. And of course, once you buy an asset in a location, you are in both their estate and their tax systems and their legal systems. It’s easy to buy something. It’s harder to unwind it, particularly if there’s a crisis. This too needs to be planned meticulously.
In modern society, people face more complex family relationships than ever before, it is easy to get confused about what we should do, what we want and how we should prepare financially. Dual citizenship, global nomads, new information and communication technologies and a transnational labour market increase both the opportunities we have but also the complexity that we face. Accounting for a global family requires careful planning.
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