International International Passive Income Portfolio

Discussion in 'Shares & Funds' started by KPY, 14th Feb, 2018.

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  1. KPY

    KPY Member

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    Hi All,


    As a very amateur investor I’m after a bit of ‘not advice’ on the contents on our portfolio as my wife and I will be changing our tax status every few years due to the nature of our work. Currently overseas but will return to Aus before heading off again in 5 years or so and repeat the process. We will retire in Aus though with a planned 70/30 AUD/unhedged asset allocation.


    We definitely follow the bogleheads approach since we’re living in an income tax/capital gains free country (currently invested in VGS, VAS and HISA). However, I don’t think this is the best strategy for us going forward as we will be changing between residents for tax purposes and then non-residents for tax purposes. Upon leaving Aus, we’ll have to pay the CGT at a 50% discount or defer payment but lose the 50% discount. Not something I want to be doing every 5 or so years!


    Therefore, I think (could be very wrong!) that the best portfolio for our situation would be to not ever have to sell and eventually live off the dividends – similar to the Thornhill approach.


    This is what I was thinking upon returning to Aus:


    Inside super


    · 25% VAS

    · 75% VGS


    By having a large allocation to International shares in super, we don’t have to worry about incurring a CGT event every time we leave the country. No franking credits though…


    Outside super – held in personal names


    · 25% VAS

    · 25% MLT

    · 25% QVE

    · 25% DUI


    Concerns


    · I’m worried that the portfolio outside super is not ‘International’ enough (currently only DUI has exposure and this could change) as we would be at the mercy of the exchange rate when investing back in to Aus.

    · Should I just suck it up and have VGS outside super as well???

    · Would love to hear what others may think about an ‘International tilted never sell portfolio…’


    Thanks!
     
  2. oracle

    oracle Well-Known Member

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    Have you thought about increasing your international exposure outside super by investing in emerging markets (vge) and/or Asia ex-japan( vae)?

    Personally I like VAE since it includes South Korea and in future if China was ever moved to developed world index from emerging market it would not impact VAE but could impact VGE holdings.

    Cheers
    Oracle
     
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  3. KPY

    KPY Member

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    Thanks for the reply Oracle.

    I think I would prefer to have my international exposure through VGS rather than VGE although VAE would be more appealing. I would be happy to invest in VAE through my super if I could. That is a good point you raised about China... Another reason why VAE is a better choice than VGE.

    I'm trying to find a way that I can get international exposure that either pays a reasonable dividend or realises capital gains (and pays the tax) which then gets passed on to the investor through dividends. Essentially I am trying to minimise/not have shares that I will need to sell but still have a diversified portfolio of Aussie and International stocks.

    Cheers.
     
  4. The Falcon

    The Falcon Well-Known Member

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    Your starting point should be specific tax advice. The changes of tax residency as you know are cgt events and wealth killers. I’d be considering company structure for holding assets but you’d need advice on this. Good luck mate.
     
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  5. KPY

    KPY Member

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    Thanks for that. Much easier living in a tax free environment!:D
    I'll have a read through all of Terry's stuff and seek out a suitable accountant/lawyer when we're next back in Australia.
    Cheers.
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Generally a discretionary trust may be better as with a corporate trustee residency can be maintained in Australia while the individual is not. But will need a resident to come in as a director too. A company could be used, but there is no 50% CGT discount when shares sold. With a trust there can be another company set up as a beneficiary and the dividends distributed to this company and held. Later the bucket company can pay a dividend to the shareholders - which should be the trustee of a different discretionary trust - and then out to the individual beneficiaries.

    Perhaps as the bucket company's cash holdings increase these can be lent back to the trust, under a div7A loan agreement, with the trust claiming a tax deduction for the interest - or the company could directly invest.

    if the dividends are needed for living expenses things would be different though.
     
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  7. KPY

    KPY Member

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    Thank you for that Terry. Very insightful!
    Dividends will not be needed while overseas so hopefully that makes it a little less messy...
    Just a quick question: when returning to Australia, is it possible to 'gift' the existing shares to the trust or do you have to sell before and then either gift or loan to the trust?
    Thanks again!
     
  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You could give but probably better to sell
     
  9. KPY

    KPY Member

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    Hey Falcon,
    I read that you recently switched your super to the Australian Super High Growth. After going through their portfolio I'm thinking of doing the same.
    Do you reckon their Australian shares component is diversified enough to get away with no other ex-20 fund (eg QVE)?
    Portfolio would be:
    Super - High Growth
    Trust - VAS and VGS (could use managed funds to make it even easier and less emotional).
    Cheers.
     
  10. The Falcon

    The Falcon Well-Known Member

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    To be honest I haven’t seen stock weights of their Australian Shares portfolio. I don’t really care ; this is an externally managed active strategy which is as cheap and tax efficient (super) as it gets. In a way I am hedging against what I do outside of super - I don’t want to replicate the same strategy.
     
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