Tax on Dividends if Living Overseas

Change of tax residency isnt a choice as such. Its like willing yourself to change gender or skin colour

Any shares (listed AU companies !!) held while a resident and at time you become a non-resident have a CHOICE of CGT event
1. CGT event on the date of residency change - Taxed with discount if available or
2. CGT event when actual shares are sold
If you choose 1 and never sell the shares then become resident again then the costbase will become their market value on the date you return. If you elected to not realise the CGT gain / loss on change of residency (2) and return to be a resident the costbase is the historical cost

In many instances it can be beneficial to realise all shares OR take the CGT event when you become a non-resident.

 

Hi Casteller,
A fellow aussie here living in the province of Valencia I know this is an old thread but i was looking to invest back into ETFs in Australia. You mentioned double tax but are you referring to Property or your share component?
Cheers
JohnG

 

Hi John,

There is a taxation agreement but Spain will only credit 15% of Australian tax paid to offset Spanish tax, so for example if you paid 25% in Australia, Spain would tax you another 10%, so 10% is the double taxation. But if you have franking credits in Australia, or are neutral/negatively geared on property, you are probably not going to go over the 15%.

If you have no property or other income in Australia and are just considering the ETF, you will get hit additional tax on it from Spain (assuming the ETF carries franking credits).

Negative gearing cannot be applied against any other assets/income except property. In my case my small loss in Australia offsets some property income in Spain, which is good. I have a net tax to pay in Australia due to unfranked dividends but this is less than the 15%. Franking credits are not recognized in Spain so better to make money from your property in Australia (positively geared) and use that Australian tax paid to offset the tax Spain will charge on your franked dividends. There is also no recognition of margin loan interest in Spain, it is not deductible so don´t do that.

 

1, A non resident will get $0 refund of franking credits
2. Full and final tax is actually more than the local tax...The lost franking reflects 30% tax paid. Then...
3. You will pay foreign tax (?) on that same gross income. So likely 30-60% tax has been paid. Depend if its a tax`treaty country

May be wise for a non resident to consider total tax and then consider where and how to invest. The lost franking in Australia is like a hidden 30% tax.

 

Many thanks Casteller, I guess at the end of the day try to stay towards no more than 15% tax in Aus is the objective

 

How about within an Australian superfund. You would get the benefits of franking.

I understand some superfunds do not allow non-residents and something to check.

 

Super fund members may get a benefit that grosses up a investment return. However a super fund isnt a non-resident.

Only a SMSF will have issues with non-residents. Some funds limit members to certain groups too.

 

It's why I will consider a top-up of A$300k (bring forward rule) when the time comes.

Was thinking possible to buy direct shares or LIC/ETF to setup a dividend income with benefit of franking credits yet being a non-resident.

 

Non residents will still have to consider their local tax laws, preservation, estate planning and a number of other factors. eg A death could trigger a major tax problem for super benefits. And a costly AU tax issue. Chasing income issues is a small part of the picture

Super earnings are concessionally taxed down to 0% for a fund but can be as much as 15% . CGT and divs + some trust income may avoid AU resident taxation otherwise.

ETFs arent always "dividends"..The tax reports ETFs provide assume tax residency

 

This is kinda true but not the whole story.
When you invest in other countries, most countries take a withholding tax which comes out to the same thing as losing franking, so in an of itself this isn't really the problem.

Here is the problem.

Most seem to range from 15-30%, so Australia is definitely on the high end.

The main problem with Australian shares is that the higher dividends at around 4% combined with the 30% tax paid comes out to about 1.2% off the total return. Whereas international shares are closer to 2% and with 15% dividends you lose about 0.3% of your total return. So you lose close to 1% of your total return which over the very long term has been around 6% over inflation so around 8% in the current inflation conditions. ie you are losing 0.9 from your 8 which is around 9% of your yearly average expected return, which is a fkn lot.

As a non resident, you would really want a good reason to be investing in Australian companies, when 10% of your return is lost yet the risk is not lower to compensate.

 

Some countries have withholding taxes. Some are far higher than here eg Switzerland, Germany and Austria. The ATO only credits a designated amount eg 20% for swiss. But a complex system exists for each country so the excessive withholding at source is also refunded in Switzerland (40% total so 20% is refundable) only if a stamped document that evidences that the income was taxed in Australia is processed.

In some countries withholding isnt creditable here.

Each taxpayer should make their own choices. Not all listed "shares" pay dividends. Many managed funds eg ETFs etc pay income not subject to withholding. Some is even tax free !! eg Deferred tax element of income distributions dont impact non-resident taxpayers. And no withholding. And many foreign countries dont have taxing provisions which deal with that issue