Has the high Australian dollar devalued your assets?

Written by Kate McCallum, Multiforte

Gail has around US$400,000 in employee shares - which used to be worth $560,000 and are now only worth $380,000 in Australian dollar terms. All she can think about is the dramatic shift in the exchange rate over the past 5 years.

"I remember when the USD would buy around 1.4 Australian dollars. Now, with the high Australian dollar, I'd be lucky to get 95 cents." 

Clearly Gail has to weigh up whether to stay the course, and wait for a turnaround in the exchange rate. Or whether it's in her best interests to take action now.

So, what is the likely outlook for exchange rates? Well, as always, there are plenty of commentators and economists with a view on the Australian dollar. Some say current valuations are going to be upheld for a while, while a few believe the Australian dollar could weaken in late 2012.

We believe the primary decision is the opportunity cost of the capital - that is, what other potentially better uses could you put your capital to.

Some of the factors you need to consider are:

• If the asset is currently well-invested given your objectives and financial situation
• What you're doing about currency hedging
• The tax you currently pay on earnings
• The likely rate of return on your overseas assets
• Other potential uses for the capital in Australia - and the implied rate of return these alternative uses provide
• Whether you will have capital losses, or zero or low capital gains tax liability
• Transaction costs

As you can imagine, these factors play out in different ways for different individuals, depending on their specific circumstances. We are finding for many clients we're working with at the moment, that certain asset transfers to Australia - despite the currency factor - are delivering positive outcomes.