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, or 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
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Comments 16

  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, or 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, or 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

  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

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