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 CA
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