Vanguard VGS dividends tax for non-residents question

Hi,

I'm a non-resident. Aus citizen but living abroad.
I'm looking to invest in an all world ETF such as Vanguards VGS.

I was wondering if anyone could tell me how the tax works for this.
The company (or trust?) is domiciled in Australia.
The companies they invest in are from outside of Australia.
The dividends have no franking (obviously).

I am guessing that for residents, this income would go in as 100% taxable income, so they would lose their marginal rate of that dividend.
For non-residents going through this Australian domiciled entity, would Vanguard be taking 30% of this as withholding tax? Or if it is a trust and not a company and since the companies are non-Australian, does that mean no tax would be taken/withheld?


I am trying to figure out if there is a disadvantage of using Vanguard Australia's ETF over looking for a total word ETF from another exchange outside of Australia.

Appreciate any info

 

Where are you resident? You could just buy an etf that is domiciled in your country.

 

Foreign conduit income maybe

 

@Ross Forrester
I'm in SEA and wouldn't risk bringing money here.

@MikeLivingTheDream
That's awesome. I didn't know what to search for until you mentioned that. Thank you!

 

Thats ok. It gets tricky where you have your own companies and trusts involved but for listed type trusts etc they are used to having foreign residents receiving foreign income through an australian entity.

I also lived in SEA and anyone who has understands why you never hold significant assets there.

 

The elements of income would all be affected differently for a non-resident. You may be liable to some income tax, some withholding tax (deducted by Vanguard is recommended). Likely no tax on CGT amounts. VGS could distribute franked and unfranked income as well as interest.

 

Hi Paul,

Dragging up an old thread because I'm still not totally clear on it.

I had assumed that the non-Australian shares held in Vanguard ETFs were considered foreign conduit income and therefore not taxable for non-residents but I read this comment recently.

I believe it is only conduit foreign income which is exempt. Most income one receives from an international ETF is not CFI, falls under category 2.​

When I look at the distributions for VGS as posted on the ASX [asx.com.au] (file attached), I'm seeing

Foreign income
Assessable Foreign Source Income 78%
Other non-assessable amounts
Exempt income 3%
None Assessable Non Exempt Income 0%

I'm wondering how exactly I would know whether a non-resident pays tax on non-Australian shares held in a Australian domiciled ETF?

I'm also wondering, since a non-resident is not required to submit an Australian tax return for shares purchased on the ASX (provided the broker or fund manager takes out any withholding tax on unfranked Australian shares), how would any tax on non-Australian shares be payable/paid? It would have to be paid before it gets to you and if that is the case then does it fall under franked dividends even though it is for non-Australian shares?

If unable to help, could you point me where to go to be able to definitively answer the question of how to know if or how much tax a non-resident pays on non-Australian shares held within Australian domiciled funds? I'm just lost as to how to find this out definitively. Thank you for any help.

 

VGS isnt a company and doesnt issue shares. It is a listed ETF. You dont need to look through.

A non resident will only be subject to
1. Withholding on any interest or franked income element (To the extent its franked then its exempt). Important the ETF know you are non-resident. They have a process for this.
2. Tax on the CGT elements of income IF the trust / ETF has a interest in real Australian property. If the trust doesnt hold real Australian property directly or indirectly the gains arent taxable.

Few ETFs produce the information needed to identify the extent of this issue as a listed Australian trust issues units on the basis on an assumption that only residents invest. Hence their reporting suits Australian use. Generally speaking until the investment is in a direct PROPERTY trust the income should be largely exempt from any Australian tax.

I assume you dont own 10% or more of VGS. If you did it will change the above.

Otherwise none is taxable under our income rules or CGT rules to a non-resident for tax purposes. That said if you were a tax resident of the USA for example, the investment may pose some concerns under FACTA etc