Tax on Dividends if Living Overseas

Discussion in 'Accounting & Tax' started by Realist35, 8th May, 2017.

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  1. Realist35

    Realist35 Well-Known Member

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    Hi guys,

    My end goal is to retire overseas (in 15 years) on income from shares. I'm trying to figure out how much capital I need (in shares) in order to live off, but this is a bit hard without understanding the tax side.

    So if I eventually move to Europe, where income from dividends is taxed at 9%, do I also pay tax in Australia?

    Also I'm thinking of the asset allocation of my share portfolio. Having my goal in mind, would it make sense to go 50:50 in Australian:international shares (such as VAS:VGS)?

    Thanks a lot:)!
     
  2. Ross Forrester

    Ross Forrester Well-Known Member

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    If the dividend income is Australian sourced they are tax free when fully franked.

    If the dividends are unfranked they are taxed at 30% unless their is a tax treaty with that country so it might be 15%

    Your income from international shares will probably be untaxed as they are derived from overseas to a non-resident but I have never seen that arising (yet).
     
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  3. Jack Chen

    Jack Chen Well-Known Member

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    I can't give tax advice but when I looked into it for my personal circumstances there was a tax treaty in place that meant I'd have to pay a final withholding tax of 10% in the event of a fully franked dividend, otherwise 15% if not fully franked.

    Meanwhile property would be taxed at non-resident tax rates of 32.5% from the first $

    This added further fuel to my 'live off dividends' strategy vs 'live off rents' as I intend to spend a large chunk of my early retirement abroad.
     
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  4. Realist35

    Realist35 Well-Known Member

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    Thanks a lot:).

    So just to clarify. I'm most likely be getting Vanguard etfs VAS (tracks asx 300) and VGS (tracks MSCI world ex Australia). I think VAS is franked at 80% level. So that would mean than once I move to Europe, I'd be paying some tax on VAS dividends (not much as they are partially franked) and no tax on VGS dividends. Is that correct? So altogether I'll be only paying 9% tax in Europe?
     
  5. Ross Forrester

    Ross Forrester Well-Known Member

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    You typically get a tax credit overseas for your Australian tax paid.
     
  6. Realist35

    Realist35 Well-Known Member

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    Sounds like a win-win situation, total 9% tax paid on all my dividends:).
     
  7. D.T.

    D.T. Specialist Property Manager Business Member

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    Lose your resident tax status though , which has its pros and cons. Someone like @Blacky can probably clarify
     
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  8. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    AU unfranked divs are subject to withholding tax of 10% if you advise the registry you are a non-resident. Fully franked divs are not subect to withholding tax. If withholding tax is deducted no AU tax return to include these is required.

    AU shares held by a non-resident are not subject to CGT either IF they are listed and you own under 10% of the company shares.

    Just remember not all "dividends" are dividends. ETFs can often be a trust and this is treated differently. They may distribute capital gains income which is subject to tax and loss of the CGT discount. Or foreign income etc....
     
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  9. Terry_w

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

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    Keep in mind the CGT aspects too.
    Deemed disposal on becoming a non-resident. You could disregard the capital gains in some circumstances but there are many implications.
     
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  10. Redwing

    Redwing Well-Known Member

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  11. Realist35

    Realist35 Well-Known Member

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    Thanks Paul.

    Would this mean LICs would be a better choice than ETFs for individuals planning to retire overseas (as Australian LICs are fully franked, whereas for example VAS only at 60-80% franking level)?

    Also would you please be able to advise whether I'd pay any tax on international shares (e.g. VGS) while living overseas?

    Thanks a lot:).
     
  12. Blacky

    Blacky Well-Known Member

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    Be careful what you wish for.

    There is a false belief that non-residents dont pay any tax.
    This statement convieniently leaves off a critical component of the statement.

    Non residents dont pay any tax on FOREIGN earned income. However, they pay a flat 30% on all income earned in Australia (not including dividends which are treated differently).

    The others have already provided a fairly detialed response to you, however, I will add the following note of caution - and it expands on what @Paul@PFI mentions above.
    If you are non-resident the franked amount of any dividend is exempt from any additional income and witholding tax. Thats great right? however, you cannont use franking credits to reduce the amount of other Australian taxes. Go figure.
    So the unfranked amount of your divident gets hit with 10% witholding tax, and no other tax is payable.
    Read more on the ATO web site.

    Note my first point also. You only pay tax on Australian generated income. You dont pay any AUSTRALIAN tax on foreing income, as a non-resident.
    You may be better looking at an etf such as VTI. Noting that this comes with exchange risk, and much lower dividends than Australian based market products.

    Prior to doing anything, engage with a foreign income tax specialist.

    Blacky
     
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  13. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    You need to determine how australian income is taxed in your country. That is full and final tax. If the country you are resident in is not a tax treaty partner then they may tax the income and not give a credit for withholding taxes paid... Double taxation of sorts.
     
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  14. Blacky

    Blacky Well-Known Member

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    Paul
    Sorry - Im not confident this is correct?
    The witholding amount is 30%, unless you are a resident of a country which Australia has an agreement with, which may reduce this amount down to 15% or 10% in some circumstances? I think the US is 15%?

    Im not sure how many countries have this agreement. I know that I am not eligible for 10% WHT on dividends though.

    Blacky
     
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  15. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Yes some countries are higher.

    Its important to consider the tax rates that apply to AU income in your country and if its a treaty partner. Some countries have specific rules too. Using for example Switzerland when an australian earns swiss investment income they withhold 40% of income paid to an Australian income earner but there is a process to have part of that refunded if you prove you paid AU tax here. They credit it back to 20% and the ATO gives a tax credit for the 20%....So in reality they deduct 40% but you get half back and half from the ATO....Once AU taxes are paid on the income.

    The country of residence tax rules need to be considered. eg Australian super is tax free earning and pensions if aged 60+...But if its a member who is a US resident its very different.
     
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  16. MTR

    MTR Well-Known Member

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    Best advice I can give anyone with foreign investments is to employ an expert in this area

    I have a US accountant because US tax laws are complicated. Get it wrong and it could be very painful
     
  17. Realist35

    Realist35 Well-Known Member

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    Just checked, my home country is not a tax treaty partner unfortunately. They tax 9% on income from dividends.
     
  18. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    So your final tax rate is 39% perhaps ? (30% withholding + 9% tax). Or just 9% and loss of franking credits for fully franked.

    Note that if the registry fails to deduct withholding then you are required to lodge in AU and report unfranked income. The ATO then charge the withholding tax.

    Interest, unfranked dividends and royalties
     
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  19. Alex_Alex

    Alex_Alex Active Member

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    How is the withholding amount set Paul. As a non-resident do you just tell the registry where you are living and they determine the amount to withhold.

    For example a country treaty listed here: www.treasury.gov.au/Policy-Topics/Taxation/Tax-Treaties/HTML/Income-Tax-Treaties has the following on dividends:

    (a) 15 per cent of the gross amount of the dividends if the company paying the dividends engages in an industrial undertaking; and
    (b) 20 per cent of the gross amount of the dividends in other cases.


    Does the registry determine when to withhold 15% or 20% in this case? Otherwise is there a just a fixed amount (15% ?) they withhold and you then should fill in a tax return?

    Thanks.
     
  20. therealAusting

    therealAusting Well-Known Member

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    Great subject!

    I have a vague plan of living in New Zealand when I retire. I may even eventually be eligible for an aged pension there which I would not get here as aparently we have some sort of Social Security agreement. No idea though.

    My retirement income will consist of a Super pension, some dividend shares in own name and some from a Family Trust which I control.

    Taxation is something I had not thought of though.
     

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