Beginning your life as an Australian expat feels like you are setting up an entirely new life; from buying a home to furnishing your house, everything you had set up in Australia needs establishing in your new home overseas. Banking is one of those components of your life that you need to organise before you start working, so you can accurately get paid by your employer and access money to live.
Many expats experience hesitation over banking overseas, and in this article, we discuss the three most common questions about how to best handle your banking arrangements as an Australian expat regardless of where you are living and working from, anywhere in the world.
Should I keep my Australian bank account?
There is no legal reason to close down your Australian bank account. Non-residents can maintain bank accounts in Australia
Having said that however, maintaining Australian bank accounts shows a stronger durability of association with Australia and this creates a stronger argument for Australian tax residency as opposed to non-residency.
Accordingly, we generally recommend that our clients shut down and or consolidate all accounts but one in Australia (i.e. we often recommend that one account only be kept open in Australia). We suggest this as the shutting down of unnecessary bank accounts shows that the taxpayer has made attempts to cut ties with Australia to support the argument for non-residency status.
Although you may wish to close all of your Australian bank accounts, we encourage most of our expat clients to keep one Australian bank account open whilst they live and work overseas as non-residents.
Here’s a few reasons why:
- Your Australian tax returns – as you will continue to have Australian tax return lodgement obligations each year, even whilst you are a non-resident expat, (refer Do I need to lodge a tax return while living overseas?), maintaining at least one Australian bank account is generally recommended as this will be required to receive any ATO refunds that may be due. It’s also needed so that you can pay any Australian taxes that may be owing on your return each year.
- Time to return – most Australian expats return home to Australia at some point during their life, whether that be at the conclusion of their expat adventure, or between expat roles or even be it simply to visit friends and family during a short break home. Maintaining an Australian bank account means that you can utilise that account for your day to day expenses whilst you are in Australia without incurring high foreign currency transaction fees and foreign exchange fees like you would if you choose to use your foreign bank account instead. Additionally, it’s one less thing you will need to organise upon your return and allows you the freedom to begin life at home quicker.
- Goodwill – your years of loyal banking means that you have built a history with your Australian bank resulting in some goodwill. Although not a major factor, maintaining such a history means that it is often easier to set-up and obtain new banking products such as other accounts, credit-cards or loans down the track.
- Emergency – it’s generally good not to keep all of your eggs in one basket. So, in the case where perhaps your foreign account (your day too day expenses account) has been hacked or your card stolen, maintaining some funds in an Australian bank account that’s not used often, is a good backup that can be used in times of emergencies.
Should I open up an overseas bank account?
While some people assume opening a bank account in your new country isn’t necessary (because you can continue to live day-to-day out of your Australian bank account), working and living comfortably without one is difficult. Withdrawing money from your Australian bank account overseas incurs higher ATM fees, higher transaction fees and foreign currency exchange fees to boot. Even worse, all these fees are are charged by your Australian bank each time.
Worse again, by living day to day out of your Australian bank accounts, this shows a very strong durability of association with Australia thus increasing the risk that you have perhaps remained an Australian tax resident, subject to taxation at high Australian tax rates on your worldwide income, no matter where you earn it!
Depositing money is also problematic, as most international terminals don’t offer capabilities for overseas institutions.
Accordingly, we highly recommend that you open a foreign bank account as soon as possible after you move overseas and we recommend that you live day to day out of that account, leaving your Australian account to remain largely untouched.
Can I transfer between my bank accounts?
Most foreign banks allow you to electronically transfer money across borders back to your Australian bank accounts however you should always check that this is the case when you set-up your foreign account for the first time.
So although you can transfer money via the banking system, a better question is should you?
In our opinion, the answer is a resounding NO – you should not use the banking system to transfer money from your foreign bank account to your Australian bank accounts.
Why? Because banks are notorious for charging ridiculously high foreign currency transfer fees and worse they charge exorbitantly high foreign currency conversion fees in the form of a foreign currency exchange margin when they convert your foreign currency too Australian dollars. Here at expat tax services, we’ve incurred hidden foreign currency exchange fees of 7.5% of our transfers. In dollar terms this means that for a AUD$10,000 transfer to our foreign bank account, we were charged $750. In addition to that we were also charged a $12 transaction fee for a grand total of $762 of fees on only a $10,000 transfer! That’s a ridiculously high cost that truly shows the greed of all banks participating in our banking system
So what do you recommend for transferring money overseas?
Recognising the sheer greed of banks around the world, we’ve recently hammered out a deal with www.ofx.com, an ASX listed Australian company that specialises in much cheaper foreign exchange transfers for Australians living and working overseas.
In partnering with OFX, we have negotiated for our clients, friends and followers of our firm:
- fee-free transfers, and
- a discount off the standard exchange rate offered by OFX for all transfers
If you’re interested in dramatically reducing the costs of sending money overseas by taking advantage of this, you’ll need to sign up for an account as an Expat Tax Services client via the following link:
Finally, if you have some questions about your finances or if you’ve got other questions about your circumstances and your taxes, contact us today.
We’ll be happy to discuss your options, review your circumstances, answer all of your questions and we’ll help guide you through what you need to know whilst you live and work overseas as an Australian expat so that you’re set up for success!
Latest posts by Shane Macfarlane (see all)
- Death of the Main Residence Exemption for Australian expats - 05/12/2019
- Main residence CGT exemption abolished for Aussie expats - 22/11/2019
- Determining Your Tax Residency - 24/10/2019