A FEW weeks ago Money Matters looked at the effects the Foreign Investment Fund legislation had on tax and investment planning issues, for those who intended one day to live in Australia. There were two main avenues that Money Matters was aware of which, following the response to that article, need further clarification. Firstly, however, I have been informed the FIF legislation came into effect on January 1, 1993. Offshore insurance based saving schemes will still be tax free to those living in Australia after 10 years. However, once you have returned to Australia they will grow each year subject to tax. In many cases you should choose to be taxed on the ''Cash Surrender Value'' basis, rather than the ''Deemed'' basis. The is because the deemed growth rate taxes you whether you have made a profit or not, whereas the cash surrender value taxes you only if a profit has been made. This method is not punitive and does not appear to make the tax position any worse than if funds are held personally and tax paid normally. There are, in fact, a couple of advantages. Fees and management costs are deducted from the taxable amount and therefore paid from gross rather than net income. Also, unrealised losses can be offset against current income and can provide a useful tax deferral method. Generally, it is not advisable to encash a life policy before it has run its full term, but if you decide to encash you should do so before returning to Australia. This is because on becoming an Australian resident, if policies are encashed, this may bring offshore gains that have been made tax free into the Australian tax net as per the section 26AH regulations. On the issue of pension planning, I am indebted to Samantha Marmara of Thomas Spencer and Associates, who contacted Money Matters with details of its planning suggestions for Australians intending to return home. Under current legislation, in some circumstances you can establish an ''Employer Sponsored Offshore Superannuation Scheme''. However, once established correctly this will enable your money to grow tax free until retirement, thereby achieving gross roll up. Moreover, withdrawals can be made again tax free, even though you may be resident in Australia at the time. Thomas Spencer's in-depth research has been done in conjunction with Australia's largest firm of lawyers, Mallesons. If you are in the situation of intending to return to Australia, and are able to establish a pension fund (or as an Australian would call it, a ''superannuation fund'') today in Hong Kong, this does give tremendous scope for establishing a bona fide retirement scheme that is also highly effective. The third area that Australians should consider is the purchase of property. This has a double tax advantage. In the short term, by insuring that you take out a mortgage to purchase the property, you will then have something to offset from a tax viewpoint against the rental income. Naturally, if you do not have a loan from a qualifying bank, then Australian tax will be liable on the net profits derived from rent. But by using a mortgage you are likely, particularly in the early years, to have in effect no tax to pay, because the mortgage interest will be deducted from the net rental proceeds, leaving no taxable profit. Moreover, if there is a ''tax loss'' created by the mortgage interest then that income tax loss can be carried forward year on year to offset against future liabilities. This can be useful, particularly when you have returned to Australia and will be subject to Australian income tax or, alternatively, when you are in Australia and are receiving an income from a pension or a salary. The tax losses are known as ''negative gearing''. I am grateful to Advance Bank who informed me they can offer clients an even more effective tax planning variation on the negative gearing theme above. They will consider requests from clients who wish to offer a 100 per cent mortgage, rather than purchasing a property with, say, a standard 70 per cent mortgage and 30 per cent deposit in Hong Kong. This would be achieved by placing the intended 30 per cent down payment as a pledged deposit in Hong Kong. This money would earn tax free interest which can be used to cover the interest on the larger mortgage; one offsets the other. Why bother? By doing it this way the potential for creating even greater tax losses is greatly increased and thereby building-up even more ''tax loss'' credits for the future. The major concern when giving financial planning advice to Australians is that unlike many other jurisdictions, there is specific tax avoidance legislation. This means in Australia the law is allowed to tax investments that have been structured in such a way as to avoid tax, even though there is nothing wrong specifically with each of the individual steps taken. If you have any queries or practices you wish to have answered or investigated, please contact me confidentially by facsimile on 565 1423.