capital gains on Australian shares

Make tax-free capital gains on Australian shares whilst a non-resident expat

If you’re an Aussie expat who’s a non-resident for Australian tax purposes, then investing in shares is what you need to consider deeply. You need to understand that this investment opportunity is only applicable to Australian expats that are non-resident for Australian tax purposes. The gains discussed do not take into consideration expats that remain Australian residents for tax purposes.

No tax on franked dividends

A franked dividend is simply accounting jargon meaning that the company paying the dividend has already paid tax on the profits from which the dividend was paid. Franked dividends paid to a shareholder also receive a tax credit (i.e. tax paid) equal to the tax that the company paid on those profits. This concept was introduced into Australia as a measure to eliminate double taxation. Explaining the concept further, a franked dividend is paid out to shareholders after the company decides to pay taxes on the dividend. A franking credit is attached to franked bonuses, and they represent the tax amount already paid by the company. The shareholder is therefore entitled to receive credit for the company’s tax compliance.

However, non-resident shareholders who are authorised to franked dividends will not be able to utilise franking credits. The profits, however, are usually not subject to any other tax in Australia.

Non-resident withholding tax

Unfranked dividends (i.e. profits upon which no tax has been paid by the company paying the dividends) paid out by your owned Australian shares are subject to a non-resident withholding tax of between 15% and 30%. This depends on the country in which you dwell.

No Australian tax return obligations

Another significant perk of investing in the Australian share market as a non-resident Australian Expat is that if you only receive franked dividends, then you you are not required to declare those dividends in an Australian tax return. Similarly, if you receive unfranked dividends and non-resident withholding tax has been withheld from those dividends, then you won’t be required to include those dividends in your Australian return either.

No capital gains tax

Another significant opportunity you can gain for being a non-resident of Australia is investing in the Australian share market. Majorly, this is because capital gains made through share investments in Australia are generally not subject to Australian capital gains tax while you remain a non-resident for tax purposes. Bear in mind that if the company that you’ve invested in principally invests in property, and if you own more than 10% of the company, then your investment will be subject to capital gains tax.

From the time you become a non-resident for tax purposes, you are considered to have traded at market value. Thus, you need to indicate the capital gain on your Australian tax return. From that date, till you become an Australian resident for tax purpose once again, all future capital profits from your existing and new share investments in Australia are not subject to capital earnings in Australia. On the day you acquire Australian residency for tax purposes anew, the shares you hold will be considered to have been obtained at the market on that date.

At Expat Tax Services, we understand the complex tax challenges expats face in Australia. If you are an expat who is considering making tax-free capital gains on Australian shares while working as a non-resident, contact us at Expat Tax Services today for professional advice and more information.

Shane Macfarlane
Follow me
Latest posts by Shane Macfarlane (see all)

Comments 34

  1. Hello,

    I’m an aussie expat living and working in the US. I’m hoping to buy some bluchip Aussie stocks (listed on ASX), and was wondering whether I should buy them via a US broker or through an aussie broker. And, if I don’t become an Australian tax resident until after I’ve sold the aussie stocks, what are my tax obligations related to capital gains? Would I better off buying them through a US broker then, or an Aussie Broker?

    1. Hi Jack,

      From an Australian tax outcome it will be the same if you have purchased the shares from an Australian broker or US broker. However you may find that if you are a non-resident it may be harder to setup an online trading account in Australia, not all brokers will create an account for non-residents.

      If you sell the shares before you become an Australian tax resident the Australian shares will not be subject to Australian Capital Gains tax, share investments in Australia are generally not subject to Australian capital gains tax while you remain a non-resident for tax purposes. Bear in mind that if the company that you’ve invested in principally invests in property, and if you own more than 10% of the company, then your investment will be subject to capital gains tax.

      You would need to discuss with a US tax accountant how to best manage the US tax on the shares.

      If you still own the shares when you become an Australian tax resident, the cost base of the shares will be the market value on the date you became a resident, when you sell the shares you will only include the capital gain during the time you are an Australian tax resident.

      Regards,

      Terryn

  2. Hi Guys and Gals (and any others),

    I’m an expat in China, who is a non resident for tax purposes, and I still have cash in an Australian bank account. I’m wondering if I was to buy shares through an Aussie broker such as commsec or similar, and I was to remain a non resident for tax purposes, do I avoid capital gains? Are profits from share trading taxed in other ways?

    Thanks for your helpful information. This site and blog are great!

    Stephen.

    1. Hi Stephen,

      Thanks for your question. Share investments in Australia generally are not subject to Australian capital gains tax while you remain a non-resident for tax purposes. Bear in mind that if the company that you’ve invested in principally invests in property, and if you own more than 10% of the company, then your investment will be subject to capital gains tax.

      Whilst you won’t be assessable on the gain in Australia as a non-resident you may be assessable on the gain in China depending on how long you have or will be there, you would need to check this with a tax accountant in China.

      As I mentioned to Jack in a previous comment, you may find that if you are a non-resident of Australia you may find it more difficult to setup an online trading account in Australia, not all brokers will create an account for non-residents.

      Thanks for the positive feedback.

      If you do have any other questions do not hesitate to contact us.

      Regards,

      Terryn

  3. Hello,

    Thank you for the helpful article!
    Are there any online brokers operating in Australia that you are aware of that will allow investment in shares for non-residents of Australia? Or is it possible through Australian banks?

    Kind regards,

    Joel

    1. Hi Joel,

      This is not a recommendation to use them but CMC Markets Australia is one broker that does allow a non-resident to setup an account. I do not know which banks do offer share trading accounts for non-residents.

      You would need to compare the options to see which is best suited to your needs.

      Regards,

      Terryn

  4. I moved overseas recently and I do not intend to return to Australia. I currently own shares in a couple of companies (CBA and WBC) listed on the ASX. I now consider myself to be a non resident. To finalise my non residency do I just submit a final tax return with the capital gains calculations for my shares worked out as of the date of my last tax return? If I choose to continue to hold shares in these companies what are the implications moving forward? Thanks in anticipation,

    1. Hi Stephen,

      Thanks for your questions. The way that you notify the ATO is on your tax return, so if you left after 30 June 2019, you will notify this on your 2020 tax return. You can also notify the ATO that you have no future tax obligations on your tax return.

      When you cease being an Australian resident for tax purposes you are deemed to have disposed of your assets that are not taxable Australian property for their market value at the time you ceased being a resident, this generally includes shares.

      If you do not return to Australia any future gains from your existing and new share investments in Australia are not subject to capital earnings in Australia.

      If the Companies pay you fully franked dividends or unfranked dividends and withholds non-resident withholding tax you will not pay any additional tax in Australia and you will not be required to lodge Australian tax returns in the future.

      I’d highly recommend that you engage a registered tax agent, who specialises in expats to prepare the return for you because Australian tax residency is complicated and it is important that your return is completed correctly with the appropriate disclosures. Obviously we’d like it to be us but if not us, another firm that specialises in this area.

      If you have any questions do not hesitate to contact us via the contact us page on our website.

      Regards,

      Terryn

      1. Hi
        Thanks for sharing this.
        What happens in the year of changing residency where you were tax resident in Australia for say only 90 days, so not tax resident for that financial year. Is the CGT based off the date of physically leaving or the prior 30 June? If based on physically leaving then isn’t a person subject to CGT in Australia and their new country? The new country (like Australia would upon arrival) state that if you are resident for 275 days in my example to pay tax on the full year’s CGT. In which case only DT agreement would save them.
        Thanks

        1. Hi Pablo,

          If you change your residency status during the year you are treated as a part year tax resident. From the time that you leave Australia you will be a non-resident. Most countries will only treat you as a resident from the date of the change not the whole of the tax year but it would depend on the tax legislation of the particular country you have moved to.

          Get in contact with us at Expat Tax Services to discuss further in relation to your circumstances.

          Regards

          Terryn

  5. if non resident doesn’t need to pay CGT does that mean we do not need to indicate/mention capital gain in tax return (note:it’s not a propert/real estate company and we don’t own 10% of the company)

    1. Hi Shudip,

      That is correct, you won’t need to include these on your Australian tax return if you are a non-resident, as long as the following:

      • They were acquired while you were a non-resident or
      • If they were acquired when you were a resident you did not elect to disregard the gain when you ceased being an Australian Tax resident (Ie you included the gain or loss when you ceased being a resident)

      Regards,

  6. Hi Terryn,

    My query is regarding the CGT exemption on ASX shares, bought and sold whilst a non resident for tax purposes.

    To date I’ve used a local Australian postal address, for CHESS sponsorship (shares purchased using Commsec).

    Perhaps a strange question, but would there be any negative implications on my CGT exemption, based on this aspect ?

    The ATO does have formal records of my non-resident tax status, as I have been lodging tax assessments and paying PAYG tax throughout my expatriation overseas, due to income from property investments.

    Appreciate any guidance/feedback.

    Best
    Tony

    1. Hi Tony,

      Thanks for your question. Your postal address with the share registry and your broker should have no bearing on the CGT on your shares, as long as you meet the other requirements mentioned in the article. If Commsec or the registry record your residential address then you should ensure that is recorded correctly as your overseas address.

      Regards,

      Terryn

  7. Hi Terryn,
    My question relates to tax implications for foreigners granted share schemes overseas.
    After recently receiving an RSU award through an Employee share scheme from my overseas employer, and selling these shares, I am having to pay a hefty amount of tax on the granted shares + capital gain event here in Australia. I haven’t yet had to pay tax on these overseas, will I incur other tax implications from overseas or since tax will have already been paid and there is a tax treaty between the 2 countries, do I need to worry about it anymore?
    Thanks for your help!
    Regards,
    Bec

    1. Hi Bec,

      Thanks for your question. Tax on employee share schemes is quite confusing to start with, but it is particularly confusing if you are a non-resident during part of the service period. Some of the scheme may be taxable in Australia and some in another foreign jurisdiction.

      We would need to discuss with you to find out a bit more about your particular employee share scheme to answer your question properly. It seems unusual to pay tax on shares issued as part of the award and a capital gain (on the same shares) if you disposed of them at the same time as they were awarded to you. The capital gain could be from the disposal of shares issued from an employee share scheme in an early year, which would make sense.

      The tax rules in the foreign country that you live in will determine how that income is to be treated in that country. If there is a tax treaty with that country and Australia, the tax treaty will set out how that income is to be taxed. Many of Australia’s tax treaties allow a foreign tax credit for tax paid in the other country. The good news is you shouldn’t end up paying tax in both countries but you can’t forget about it just yet, you may still need to include the income in both returns and claim a credit for tax paid in Australia.

      If you want to discuss further, please Contact Us and one of our team will get back to you.

      Regards,

      Terryn

  8. Hi Terryn,

    I am on temporary visa(currently living in Australia), which means I am temporary resident for tax purpose. Does this rule still apply for me as I have bought and and sold some shares this year 2020?

    1. Hi Prem,

      Thanks for your question.

      The rules are a bit different for a temporary resident to the the rules for a non-resident.

      Temporary residents are assessable on capital gains from CGT assets that are taxable Australian property.

      Temporary residents are assessable on Australian sourced investment income, like Australian dividend income.

      Please Contact Us if you want to discuss further and one of our team will get back to you.

      Terryn

  9. Hi Terryn,
    I left Australia about 2 years ago for the purpose of travel (on tourist visas – no employment contract or anything). To date I’ve remained an Australian resident for tax purposes. It now looks like I’ll settle overseas longer (at least another year or 2 – indefinite at this point) in which case I’ll likely change to a non-resident. Assuming that’s the case, what’s the date that I cease being a resident? Is it 1-Jul-2020? If so, would my 2019/2020 return still be completed as a resident with the exception that the I1 CGT event gets applied (where my share holdings are deemed to be sold)? And would I get still get the 50% CG discount on the I1 CGT event?
    Thanks
    Tom

    1. Hi Tom,

      You will be a non-resident from the date that you fail each of the Australian tax residency tests. It’s very rare that someone’s residency status changes on 1 July, but it is possible and depends on all of your personal circumstances. You would have to run through each of the tests to determine when you cease being an Australian tax resident.

      In the year that your residency status changes you will need to complete your return as a part year resident and notify the ATO of the date of your change in residency. On the date that you cease being a resident you will trigger the CGT event I1, at that date you are required to include the gain in your return, unless you elect to defer the gain until you actually dispose of the shares. You are still eligible to the 50% CGT discount on the deemed disposal of the shares, as long as you meet the usual requirements for the 50% CGT discount.

      Regards,

  10. Good day Terryn,
    I note that in one instance you mention that if an investor invests in a firm that invests in Australian property and/or holds ten 10 percent of the firm then he may be liable for the capital gain tax in Australia. Do both conditions have to be met in order to become liable? From a browse of this on the internet I think both must apply, as one of those conditions is not enough to make one liable. As in even if a firm invests in Australian property but you own few shares then not liable. Also in regards to mining companies which invest and hold most assests in Australia (gold companies operating mines), does it make the mines Australian property? Thank you in advance.

    1. Hi Paul,

      The condition is that both of those tests need to be met. Sorry if there was any confusion created by previous responses.

      If the mining Companies underlying value is principally derived from Australian real property would it be considered taxable Australian property.

      Thanks

  11. Hi Terryn,

    Thanks for the great eye opening article

    I apologise in advance for the plethora of questions below I just want to understand this corrcectly

    I was considering rolling some investments into Super but am now reconsidering what will be most tax effective!

    I have some ETF investments ( outside of Superannuation) that I wish to leave to grow here in Australia, whilst my family and I relocate to Ireland for a few years at least ( we will be non-resident for tax purposes). I believe when we leave I can elect to defer the CGT event that would be triggered by the change in tax status.

    If I do defer the CGT then return to being an Australia tax resident in a few years time does that mean I have the potential ( depending on market performance) to face a much bigger tax bill on several additional years growth than if I had just taken the smaller CGT hit earlier ?

    Also, If I do take the CGT hit when we leave Australia, I assume then there will be no CGT to pay on this again until I actually physically divest from the funds ? ( even then it will only be for the time period between when we become Aussie tax residents again and when we sell out of the funds)? If we divest while we are non-resident for tax purposes some years down the line – is their any further CGT to pay at all ?

    Ireland does have a double taxation agreement with Australia but if there is no actual divestment then I assume there is nothing to pay year on year whilst we are away (Unfranked dividends pay a 15% non-resident witholding tax direct to the ATO anyway).

    Do I understand this correctly ?

    Many Thanks again

    David

    1. Hi David,

      I think your understanding of the article is very good.

      If you elect to defer the gain then you will be assessable on the whole gain when you do eventually sell the investment. If the investment value has increased then you will end up with a larger gain. In addition to this since 8 May 2012 the 50% CGT has been removed for non-residents, if you do elect to defer the gain then your period of foreign residency is taken into account when calculating the CGT discount you can apply and you will not receive the full 50% CGT discount.

      If you include the deemed gain in your return in the year of departure and you sell the investment while a non resident, there will be no additional gain to include in your Australian return.

      You would need to investigate how Ireland treats the capital gains, if sold while you are in Ireland or when you depart and also how they treat the investment income. In Australia if the income is fully franked or appropriate non-resident withhold is deducted then you would have no further tax on the income each year. The double taxation agreement will assist with setting out how the income is to be taxed.

      Please contact us at Expat Tax Services for more information.

      Thanks

      Terryn

  12. Hi Terryn,
    Does the same tax treatment for non-residents apply for ETFs listed on the ASX as direct shares?

  13. How are dividend reinvestment plans (DRPs) treated as a non-resident? I notice that many companies explicitly exclude non-residents from participating, but some appear to not exclude it in their DRP rules. My guess is that an equivalent withholding tax (15% to 30%) on the value of the reinvested shares would need to be paid. Or is it even more favourable as a non-resident? As non-residents get big advantages on CGT, a mention of DRPs might be useful. Thanks.

    1. Hi Zeeb,

      As a non-resident taxpayer the income will be taxed the same as any other dividends. If the dividends are fully franked no further tax is payable in Australia. Unfranked dividends will have 30% tax withheld, unless you reside in a country which Australia has a treaty agreement. Most of the treaties will have 15% tax withheld on unfranked dividends. Each treaty is different, so you would need to the treaty relevant to the country you reside in.

      Shares acquired through a Dividend Reinvestment Plan (DRP) are treated the same as any other acquisition. If you are a non-resident for Australian tax purposes at that date they will not be subject to Australian capital gains tax if you sell them while a non resident. The same exclusions and rules that apply to other capital gains mentioned in the article will relate to DRP’s too.

      It is important to note that bonus share plans, which are not as common as DRP’s, are not treated as new purchases so these would potentially have a different tax outcome.

      Regards

      Terryn

  14. Hi Terryn,

    Is there any reason why a foreign resident would prefer franked over unfranked dividends (or vice versa), other things being equal??

    Secondly can I ask if it makes a difference with regard to any obligation to file an Australian tax return? Neither franked dividends nor unfranked with withholding tax deducted leads to any further Australian tax charge. But if a foreign resident only receives Australian interest (withholding tax deducted) and Australian dividends is there a need to file a tax return if unfranked dividends have been received rather than franked?

    1. Post
      Author

      Hi Jason,

      Thanks for your questions – please see my responses below:

      Q./ Is there any reason why a foreign resident would prefer franked over unfranked dividends (or vice versa), other things being equal??

      A./ Assuming all things are equal, then franked dividends are preferred as they are essentially ‘tax-paid’ dividends for a non-resident. Unfranked dividends are subject to a 15% withholding tax (where the taxpayer resides in a country with which Australia has a tax treaty), or 30% in all other cases. When a non-resident taxpayer receives franked dividends, the logic is that as the company paying the franked dividends has already paid tax on their profits (at the rate of 30%), the withholding tax (15% or 30%) payable by the non-resident taxpayer is taken to have already been paid. As such, there is no further tax paid.

      Let me illustrate by way of an example. Let’s assume that a non-resident taxpayer, residing in a non-treaty country receives a cash dividend of $10,000 unfranked, and a cash dividend of $10,000 fully franked. In this example, withholding tax of 30%, totalling $3,000 will be deducted and paid for the unfranked dividend whereas the franked dividend will have no further tax paid.

      In this example, the net amount received (after tax) would total $10,000 for franked dividends and only $ 7,000 for unfranked dividends. Thus, the non-resident taxpayer will usually be between 15% – 30% better off receiving franked dividends (depending upon whether residing in a treaty country or not.

      Q./ Secondly can I ask if it makes a difference with regard to any obligation to file an Australian tax return? Neither franked dividends nor unfranked with withholding tax deducted leads to any further Australian tax charge. But if a foreign resident only receives Australian interest (withholding tax deducted) and Australian dividends is there a need to file a tax return if unfranked dividends have been received rather than franked?

      A./ Answering both questions at once, it only makes a difference if withholding tax is NOT deducted from interest, or from unfranked dividends (noting that franked dividends are already treated as tax paid and can be excluded from your return.

      Let me explain in a different way . . . if you receive interest and unfranked dividends, and no other Australian sourced income when you are a non-resident, if withholding tax was withheld from both the interest and the unfranked dividends, then you will be eligible to file a ‘Return Not Necessary’ (RNN) form (also known as a ‘Non-lodgement Advice’) instead of a full tax return. Note that unless you have previously lodged a final return with the ATO (meaning that you’re told the ATO that no further return will ever be required to be lodged), then you will have to lodge one of these two forms: either a RNN or a tax return. Refer our article: Do I need to lodge a tax return while living overseas?

      If however, withholding tax is NOT withheld either from any interest OR unfranked dividends earned, then you WILL be obligated to lodge a full tax return, including the relevant amount (i.e. the amount without tax withheld) in your return. To be clear, you generally will not be eligible to lodge a RNN in this instance.

      – – – – –
      Jason, hopefully that helps to explain things.

      Thanks again for your questions.

      Regards

      Shane

  15. Hi Terryn,

    A question regarding funds gained from selling shares. If – as I am currently – a non-resident for tax purposes sells shares when non-resident and deposits the (CGT-free) profit in an Australian bank account, are those funds then essentially treat as non-taxable thereafter or may they be deemed liable for CGT if and when the seller returns to Australia and becomes resident for tax purposes once again ?

    1. Hi Grant,

      If the gain was not subject to capital gains tax then the proceeds kept in your bank account will not be taxable in the future, even if/when you return to Australia.

      However, if that money in the bank earns interest then the interest will be assessable, either as a non-resident or resident. If you are a non-resident you should ensure you advise the bank so they withhold non-resident withholding tax and then it won’t be required to be included in your Australian return while you are a non-resident.

      Thanks

  16. I am a non-resident of Australia for tax purposes.

    I now have a capital gain from the sale of my investment rental property in Australia. I also have some UNREALIZED capital losses from some of my Australian share portfolio. I am wondering if I realize some of those share capital losses, can i offset them against the capital gain from the property?

    1. Hi Joshua,

      If you acquired those shares while you were a non-resident then they won’t be taxable Australian property and therefore the loss won’t be included in your Australian tax return and you won’t be able to offset the gain against your share losses.

      If you acquired the shares while you were an Australian tax resident and elected to defer the gain until you sell the shares then, when you sell those shares you will realise the loss. That loss can offset gains in the same year or be carried forward to offset future gains. If the sale of the property was in last financial year, those losses will not be able to offset the gain.

      Regards,

      Terryn

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.