Living off dividends abroad

Hey guys,

Has anyone done something similar? We are planning to live off ozzie dividends (LICs) in a foreign country. I'm just trying to understand how to transfer money in a cost effective way etc.

Thanks

 

If I was in your situation I'd get one of those debit cards where you can just walk up to an ATM and withdraw. I think you get a pretty good exchange rate and the fees are minimal.

 

Consider the tax issues too

 

Thanks guys. I have no idea how it all works out but i was hoping there would be ppl here in similar shoes..

 

We'll be spending a large part if not most of our retirement years abroad, and LIC dividends from Australia will form a good part of our income.
To move funds around I would recommend TransferWise, good rates, quick transfer and easy to use. Can also get a debit card if you wish.
Will you end up being a tax non-resident? If so there are lots of things to consider. Knowledge of the tax system of where you will be, and of the tax agreement (if any) are essential. There are traps, but also opportunities. Also research how super is viewed by the other country. In many places withdrawals that would be tax free in Australia are taxable.
Dividends from LICs will either not be taxed by Australia if fully franked, or taxed generally at 15% if unfranked. The other country may or may not give credit for the Australian tax paid. As the Australia franking system is quite unique, expect the tax authorities in the other country to be totally confused by it.
Remember when you leave that you have a choice to declare any share holdings as taxable Australian property.
Also note that the rules for determining tax residency will probably change soon.

Happy to elaborate on any topic, not retired yet but it's getting closer

 

FredBear, do you know of any resources I can read up on this topic?

 

Australian franking credits rarely give rise to a reduction of tax in a foreign country.

Australian resident trusts suffer a cgt event if the trustee moved to another country.

Get the tax advice in the foreign country and the Australian advice from one firm. The tax authorities in some countries are more flexible and policy based than Australia. Sometimes you need the foreign country tax advisor to become a close friend before they actually tell you the truth of how the tax system works.

 

From a purely AU tax perspective :
Franking credits will be lost
Could be CGT tax issues if the ETF / LIC distributes non-property gains. Fully taxed. CGT gains may (or may not) be CGT exempt. [Generally exempt until its a indirect property trust]
Some elements of income could be subject to 10-15% withholding
You may still need to lodge
Exchange rate issues. As a guide expect to drop 3.5% - 6% of the value in currency fees based on bank margins.

Foreign Nation :
- May or may not recognise withholding tax and may (or may not) seek to tax same income
- AU tax reporting to a foreign country may escalate local reporting and issues (eg NZ, USA, UK)

Money transfers are only a AUSTRAC issue which inst a issue since you can support what the $$$ is from. One issue to transfers is fees and margins on conversions etc As a guide expect 3.5% - 6% spreads on conversion and direct fees for transfers. The foreign receiving bank may also charge fees.

 

I'd start with the tax treaty, they are on the Treasury web site here:

Tax Treaties | Treasury.gov.au

 

That is lots of great info, thanks so much

If I end up using transfer wise, what are the fees like? And how much do you lose on currency conversion? I think the current exchange rate for aud to euro is 0.61.

I've looked into it a bit. There is no treaty between my country and Australia so the dividends will be taxed at 9% rate.

 

I just had a quick look at TransferWise and if I get this correctly the transfer is super cheap. Please see attached. They transfer $1000 to EUR 608, at a very competitive currency exchange rate of 0.611. The fee is only $5. Am I missing something?

And I assume the receiving bank would charge a fee?

 

Not in my experience - I've transferred many times between USD, AUD and EUR and not once has a receiving bank charged a fee.
Recently the transfer into Australian banks was improved so that it is almost instant now. Last week a transfer from TW to NAB in AUD took about 20 seconds.
If you are transferring USD into TW there can be a fee by the sending institution (e.g. eTrade) if you use a "Wire Transfer". This is quick but costs $25USD. Using ACH (American Clearing House) takes a day or two but is free.

 

Ohoh - it means that Australia will probably take the default 30% witholding tax from unfranked dividends rather than the usual 15% for treaty countries. This might make having fully franked holdings a better option.

 

it shouldnt because the receiving bank is receiving the local currency as a local transfer.

 

Don't use a bank - unless you are a shareholder in that bank

Example: Transfer 1000EUR to AUD and back again to EUR using TransferWise:
1000EUR
Fee 4.57EUR
1,629.07AUD
Fee 8.60AUD
990.29EUR

So you have lost 9.71EUR transferring 1000EUR to AUD and back to EUR. Loss is 0.971% for a double transfer - 0.4855% for a single transfer.

 

Thanks mate. I only hold LICs which are 100% franked. No actionrequired from me I suppose? The gov shouldn't withhold anything in this case i think.

 

Good - looks like no action needed, there shouldn't be any witholding tax. However if you will become a non-resident for tax purposes you need to consider whether these LIC holdings should be taxable Australian property or not.
You have the options:

1. Do nothing, and they will be Taxable Australian Property. This means that when you eventually sell capital gains tax with no 50% discount will be charged for the period you are a non-resident. You have to pay tax on a gain you haven't actually realized.
2. Declare them on your Australian tax return for the year you leave. You will pay CGT on the increase in value to date. Then the capital gain will be tax free until you return and become a tax resident again. Keep them for a further 12 months and the 50% discount kicks in again.

 

Hey Realist35,

I'd love to live in Thailand or Indonesia but not sure how it would all work. For you would it work like something below?

Is what you're saying is that your AUS dividends are the equivalent of working there and being taxed 9%?
So for each $1.00 AUD you get 0.61c with 9% of that taxed = 0.55c per $1.00AUD. I guess the country is at least 50% cheaper to live in than Australia right?
Is your foreign country like Australia where we have tax brackets?

Peace.

 

Now you have me guessing: A country that uses the euro, doesn't have a tax treaty with Australia, and taxes dividends at 9%. Could it be Montenegro?

 

Spot on