New year, new direction

[haiqu]

Welcome to 2016.

Since I failed to win the Lotto again tonight (well I did get four numbers, it paid a whole $36.20) I won't be able to immediately take off on that world adventure just yet. That's kind of sad, because I'm not getting any younger.

The subject of relationships has been on my mind lately. I've been alone a long time so it would be nice to connect with another human being on that level. And scouring the old dating websites it seems to me that Australia's standards have deteriorated even further.

Here's a sampling of real primary photos taken from an Australian dating site tonight. Yes, these are real people trying to get a date:

[haiqu]

On the other hand, I checked out a website specializing in Ukrainian women, and here's a random selection taken without being very picky. All were under 35, had no children, were well educated and were happy to marry a guy of my age:

[haiqu]

Clearly I'm in the wrong country. So I'm going to keep working on getting a yacht that will take me the hell out of here, to somewhere - anywhere - else.

I don't want to spend the rest of my life alone, and I sure don't want to spend one more second wasting time on the locals.

[haiqu]

Found an astounding website that discusses the cost of living in various countries. It's entirely possible to cut living expenses by half and have a great life at the same time.

The Cheapest Places to Live in the World - 2016

Of course there are always limitations with visas, property ownership, work permits and cultural/language issues to consider, but for someone of retirement age the possibilities look pretty good.

For instance, a rural house in Bulgaria will set you back less than 10,000 Euros. Travelling from there to any other country in Europe is easy, and cheap too if you use public transport.

[haiqu]

This little article says a lot of things that I have to agree with.

Invest in Something That You Can Never Lose | Nomad Capitalist

In fact the whole site is worth a read, especially if you have an income over $100k pa.

[haiqu]

Retirement planning:

I've just spent a few days reviewing Australian rules regarding government pension.

Due to my relatively small income and changes to the retirement age, I become eligible for a reduced pension at age 65 1/2 years in August 2017. With various supplements this amount will be $514.50 per fortnight when income and means testing are taken into account. In order to claim it, I have to be physically within Australia at the date of the claim, and need to have been an Australian resident for tax purposes for two years continuously prior to making that claim.

All this severely cramps my travel plans, but that amount represent a significant increase in income for me. I have no private superannuation at all, that only became mandatory during the latter half of my life when employment was scarce.

On top of all this, the government have been making noises about completely abolishing the pension at some undetermined time. All this makes me a bit nervous.

My current income derives from the rent on a share of a commercial building I inherited. That's how I was able to retire onto a yacht at 59yo, at a time when I had become homeless and had zero employment prospects. The way the current rules work, if that commercial building is sold and I buy a house in Australia, I then become eligible for the full pension which is $867 per fortnight. Unfortunately the cash I would receive from this sale wouldn't buy much of a property here nowadays, and it would be in an outer suburban area at best.

A viable alternative is to live somewhere cheaper, but I'd still need to wait until Aug 2017 before cutting ties with Australia completely. They sure make things difficult.

[haiqu]

Retirement planning (continued):

A few things became really obvious right away:

1. If the commercial building is sold in the next 2 1/2 years I'll be eating into my capital to pay the bills. Not an optimum thing to do. Also, this tax-free asset continues to increase in value during that period, which is great.
2. I can't go and live in New Zealand for more than 183 days in either of the next two years. I would risk becoming a non-resident for tax purposes (see below why this is a Bad Idea) and may not be able to claim the pension. In fact I'm thinking the house I bought might be best sold since I've experienced a somewhat higher cost of living there in the last few visits, combined with difficulties getting basic building materials which wastes my valuable time. Don't get me wrong, it was still a bargain but I can do better.
3. There are places in the world where I can live for half my current costs, and in which - being new to me and therefore more interesting - I would probably live more happily. The travel and sightseeing opportunities from SE Asia or Europe are significantly cheaper and easier than Aus/NZ.

So, I still have a nomadic bent after all. What are the options?

Well, that depends a lot on other rules. For instance, while I'm an Australian resident there's no tax on the first $18,200 of my income. If I leave permanently and become a non-resident then I suddenly have to pay 32.5% on all earnings within Australia. If I were to do this it would be best to have the commercial building sold first, obviously.

On the other hand, if I were to "cash up" and invest elsewhere - and it's EASY to get 10% ROI on term deposits elsewhere with no effort - I'd be liable for tax on income derived anywhere in the world (same rule as the USA) as an Australian resident. So really, the sane thing to do at that point would be to give up residency completely, which then adds the problem of either finding another country to live in (and NZ is still an option) or becoming a Perpetual Traveler.

What about 3-flag theory, or 5-flag theory? Well, that's quite complex and deserves a totally separate post.

The long and short of it is that I've already gained escape velocity by no longer having to work, but I'm in that difficult spot between having to fill in mounds of paperwork in order to survive, and having enough money to do whatever the hell I want. I was expecting to be at this point of my life 30 years earlier so I've done a lot of study and thinking about it.

To bring it all back to some sort of relevance to this forum, one thing that's becoming obvious is that the cruising life actually complicates matters due to the insufferable mounds of paperwork at borders, especially in the Euro zone. Air travelers don't have to suffer this rubbish, it's all automated.

As always, it pays to be wealthy.

[haiqu]

OK, so what's Flag Theory?

Simply put, it's a concept created by Harry D. Schulz in his 1964 novel "How to Keep Your Money and Your Freedom." Schulz posits that an individual needs three flags:

1. Citizenship in a country which has no tax on foreign income
2. Business or investments in tax havens
3. Live as a global citizen or Perpetual Tourist to avoid local taxes

It's all a bit James Bond (or maybe Jason Bourne these days) but many people have successfully tried it. Unfortunately in the early days there were severe limitations due to lack of banking infrastructure, lack of computers, limits to occupations or business types this would work with and so on.

It was also difficult to get off the continuous travel roundabout without being caught eventually for income taxes, and tended to create official suspicion of illegal activities even when totally legitimate.

More recently W. G. Hill has proposed a variation called Five Flags:

1. Passport in a country which has no tax on non-resident citizens and doesn't control your actions
2. Legal residency in a tax haven
3. Business base, preferably in a tax haven
4. Asset haven, preferably where no CGT exists
5. Playground where there's no sales tax or VAT

The changes reflect the complexity of the modern world and attempt to keep a step ahead of government legislation designed to trap users of the original scheme.

Notably, item one in each case is ONLY necessary for US citizens. Almost every other country in the world does NOT tax world income for a non-resident. Since the acquisition of a new passport and citizenship costs highly in both time and money this is great news for the rest of us.

Most countries either need an applicant to live and work legally for at least 3-5 years before permanent residency is granted, or require huge investments in business, property, government bonds or similar schemes. In comparison, merely gaining legal residency for item 2 of the 5-flag system is easily achieved and much faster, often only requiring the purchase of a cheap and barely-livable property (ca. $20,000) and applying to stay for 12 months at first "to study the local language" or something similar. As a retiree, being able to show a regular pension income of $2000pcm will often be sufficient, although some countries require twice this amount due to cost of living.

However, as noted in my last few messages, one also has to weigh the benefits gained against the loss of benefits in the country of origin. There's definitely a distinct and frustrating band of income in which one can see the next game but cannot readily jump offshore.

One final point. For a person of retirement age this is dangerous, since all your businesses and assets and cash are now spread around the world and only you have the key to their access. You had better have a really good solicitor somewhere and an airtight will assigning your assets to your successors, or it could all simply vanish.

[haiqu]

Here are a couple of links I found useful in assessing this stuff:

List of countries by tax rates: https://en.wikipedia.org/wiki/List_o...s_by_tax_rates

The Nomad capitalist:
Nomad Capitalist | Grow and protect your wealth offshore

Compare cost of living city by city:
Cost of Living

It pays to have a look at property prices in the country of interest before deciding to go there, but keep away from UK reseller sites that specialize in "luxury" properties at inflated values. It's also wise to do a general check of political history for possible problems. For instance, a region recently annexed by Russia such as Simferopol in the Ukraine would not be a great investment at any price.

I can also highly recommend the Kindle book "The 4 Hour Work Week" by Tim Ferriss, which costs a mere US$3.41 on Amazon. Amazon.com: The 4-Hour Workweek, Expanded and Updated: Expanded and Updated, With Over 100 New Pages of Cutting-Edge Content. eBook: Timothy Ferriss: Kindle Store

This should satisfy some of the most basic enquiries we get from new cruisers who ask "but how am I going to make a living while traveling?"

There are websited that discuss the Flag Theory and suggest that one should "plant flags" in other places of advantage, such as where you can get cheap medical or dental care. As a single guy I'd also suggest that checking whether the local women are feral or hot is absolutely necessary before making the decision.

Now reading "The Seven Day Startup" by Dan Norris.

[haiqu]

By now you're probably thinking, "This guy has far too much time on his hands if he's delving into this stuff in such depth", and you'd be right. But remember, I've been aware of it since the 70s and had planned to execute it a long time ago, before life interfered. Humour me for a while longer, you might learn something useful.

"The Seven Day Startup" turned out to be brilliant, as expected. It led me to a group of modern "digital nomads" who like to travel and work wherever they happen to be living. Get your copy on Amazon Kindle for US$3.28

Amazon.com: The 7 Day Startup: You Don't Learn Until You Launch eBook: Dan Norris, Rob Walling: Kindle Store

Now, I've worked from home as a programmer so I know how that operates in practice. Metrics of progress are hard to judge, employers can get antsy and inspiration to keep regular hours goes out the door. Your living quarters start to resemble a bearpit and you almost never leave the house. In short, it ain't great.

OTOH if you're running your own business and have enough skin in the game to keep you on edge, working on the beach at your laptop could be practical. Possibly the key would be to take on small, quickly completed tasks and get progress payments. Anyhow, I digress.

Up until my father's will was challenged I assumed I'd have enough money to live on in retirement, but this is no longer true. The addition of the pension in 2017 makes it more viable but severely limits mobility, similar to being on the dole, since reporting requirements are onerous for a traveler. The future of that pension is also uncertain, but while it exists I am eligible for (most of) it no matter where I live so long as I remain an Australian citizen. And since 2008 even dual citizenship is permitted.

The next sensible step for me would be to find a way to create extra income. In short I need to start a business, and preferably one which doesn't attract Australian taxation. Meanwhile, it behooves me to retain Australian residence until local assets are liquidated and expatriated, to avoid being taxed at non-resident rates. If I don't get this right it could cost me $6500 a year in unnecessary taxes, at least. Now you can see where this has all been going, I trust.

It's going to be tricky to stay legal.

[haiqu]

How does a person earn money overseas as an Australian resident, but not pay taxes on that income? That's the big question of the day.

It can be done.

First, set up an International Business Corporation (IBC) in a tax haven country, along with a business bank account. It must be in a country that has no reporting requirements, for simplicity and privacy. Avoid jurisdictions that require nominee local directors, that's gaining far too much attention as a scam. So in short, you can forget about the Channel Islands for a start.

Next, all work is contracted to the company, not you as an individual. If the business is online - such as selling consulting, virtual product or even drop-shipping real products - then the website must be hosted in a safe country. The USA has declared that any domain ending in .COM is regarded as an American domain for tax purposes, so that won't do at all.

Run your business, and accrue assets in the name of the company but don't take a wage or a dividend, and pay all necessary company taxes (if any) in the tax haven. You should expect to pay 10% at most. When you're ready to bounce offshore permanently and become a non-resident, this accumulated cash is now yours to spend.

It really is that simple.

Cost to set this up is about US$1000.00

[haiqu]

In order to do any of that, one first needs a viable business. So I'm taking the 7 Day Startup Challenge:

The 7 Day Startup Challenge 19 Jan 2016 — 7 Day Startup

[Auzzee]

I don't know a whole lot about the taxation laws. Some while ago, I was sent a bill by the ATO. I was living in Asia and sailing at the time. I had been sent a bill to account for the "failure to lodge returns.....". As I like to seek answers from the people who are best qualified to provide answers, I wrote to the ATO and explained my position. They then sent me a detailed response. The final line of which is: "As you have advised us that you have not been a resident of Australia and did not earn an income for these periods, we have processed the income tax returns as Returns Not Necessary and cancelled the imposed penalties. Your account balance on the income tax account is now $0.00."
They can be quite human and understanding at times.

[haiqu]

In a clear-cut case of non-residency that's the expected response. My advices above are designed specifically for someone who is still a resident and is planning to move offshore, but can't yet do so.

And I agree, as long as you do the right thing the ATO is pretty sane.

[haiqu]

Some new hats available in Cairns, here modeled by my friend and multimillionaire property developer Nathan Birch:

[haiqu]

Just spoke to my sister on the mobile. The commercial building is going on the market as soon as we resolve a few lease issues. It will happen this year, most likely before the end of June.

[haiqu]

Figured I must have made a mistake about the requirements to claim the pension so I rechecked it. Yes, you have to be physically present in Australia to make the claim; but no, you don't need to have been resident for the two years prior. The rule states that you need to have been a resident for at least 10 years, but there's no reason to believe that it has to have been recently.

I guess that means I could in fact go a-wandering right now and come back in time to put the forms in. And now that I'm finally going to be cashed up I just might do that.

There was also a minor glitch in my plans to set up an International Business Corporation. The tax laws have changed since last time I read the CCHs and these days a shareholder in a business can be deemed to have received income even if it hasn't been distributed, which is pretty nasty. So what I described is no longer merely tax minimization, but could be construed as tax avoidance. Oops. Back to the drawing board.

[redbopeep]

Oh, I don't know how I missed this thread! Thanks for the entertaining read

We're always looking for the way to avoid the tax man aren't we? So nice to have income though.

[Gregor]

Originally Posted by haiqu

Some new hats available in Cairns, here modeled by my friend and multimillionaire property developer Nathan Birch:

Oh so cool, this summer planning to visit Cairns.

[haiqu]

Here's another one: