If you are an Australian Expat, and are a non-resident for Australian tax purposes then this investing idea might be something for you to consider – how Australian Expats can make money on the share market without paying tax.
Non-Resident For Australian Tax Purposes Only
Firstly, this investment strategy only applies to Australian expats that are non-resident for Australian tax purposes, and the benefits discussed do not apply to those expats that remain Australian resident for tax purposes. The full impact and validity of the strategy can only be determined when taking into account your personal situation including the tax treatment in your country of residence. In any event, you should seek professional advice before taking action.
In my free ebook (which you can download by clicking the link below) I discuss how to determine whether or not you are an Australian resident for tax purposes. I also discuss in detail some of the implications of being a non-resident (foreign resident) for tax purposes, and it is these implications I build upon in this article.
No Capital Gains Tax
One of the opportunities that opens up for non-residents of Australia is investing in the Australian sharemarket as capital gains made through share investments in Australia are not subject to Australian capital gains tax while you remain a non-resident for tax purposes.
From the time you become a non-resident for tax purposes, you are deemed to have sold at market value your existing share portfolio and need to declare that capital gain in your Australian tax return. From that date forward until you become an Australian resident again for tax purposes all future capital gains from your existing and new share investments in Australia are not subject to capital gains tax in Australia. On the date you become an Australian resident for tax purposes again, your shares will be deemed to have been acquired at the market value on that day.
What makes this investment strategy particularly interesting is that many countries, where Australian expats reside, do not apply tax on capital gains.
One word of caution. If when you became a non-resident for tax purposes you elected to treat your share investments as “taxable Australian property”, then your existing share investments are still subject to capital gains tax. A number of expats make this election on the basis of being able to defer their capital gains liability until they physically sell their shares.
No Tax on Franked Dividends
Franked dividends are dividends paid out of an Australian company’s profits which have already been subject to Australian company tax. Franked dividends have a franking credit attached to them which represents the amount of tax the company has already paid, and entitles the shareholder to receive a credit for the tax the company has paid. Non-resident shareholders, however, who receive franked dividends are unable to utilise franking credits, but the dividends are generally not subject to any other tax in Australia.
Non Resident Withholding Tax
If the Australian shares you own pay out “unfranked” dividends, then that income will be subject to Non-Resident Withholding Tax of 15-30% depending on the country in which you reside.
No Australian Tax Return Obligation
Another key advantage of investing in the Australian share market as a non-resident Australian Expat is that you do not need to declare the income from your shares in an Australian Tax Return. In this article, Do I need to lodge an Australian Tax Return?, I discussed when you need to complete a tax return in Australia. If you currently have no requirement to complete an Australian tax return, and you follow the instructions in the article just mentioned, then investing in the sharemarket will not add any new obligation to complete an Australian tax return.
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.