Author Topic: Where should globe-trotting Australians keep their stash?  (Read 5494 times)

conwy

  • Stubble
  • **
  • Posts: 143
Where should globe-trotting Australians keep their stash?
« on: May 28, 2019, 01:59:58 PM »
Are there any tax (or other) advantages for an Australian living abroad to holding investments (liquid investments such as index funds, etc) outside of Australia?

Just reasoning it out in my head...

Presumably, you have to have your investments held in *some* country, and then that country's tax rules will apply, so you're probably not going to get out of paying tax, whether it's in Australia or the US or Canada or wherever. (And I suppose some would argue that that's fair, as, for better or worse, our taxes partly fund infrastructure, etc that we rely on to support the economy, but I digress.)

Perhaps the taxation of capital gains in another country will be *slightly* lower than Australia, though most developed countries seem to converge on around 25-35%, so it wouldn't be a big difference. But I guess a few percent less could make a difference over many years of compounding growth.

But if you haven't chosen one particular country outside of Australia to settle down in, and lock in the low tax rates, it doesn't seem like you'd get much of an advantage to holding outside of Australia over the time period it would take to realise growth (ie. 5-10+ years).

If anything, you'd lose money on the transaction costs of constantly switching every time you move country. You'd really have to move to a lower taxed country and stay there for a long time for it to be any benefit.

Being something of a digital nomad myself, and planning to live in multiple countries over the next 5-10 years, it seems like I'd be better off keeping my funds domiciled in Australia and sending all my savings to Austalia via, say, TransferWise.

Advantages:

* Simplicity
* Zero transaction costs (apart from the currency conversion fee and spread)

I guess for short-term cash I'd still try and get a bank account in whichever country I reside in, for depositing income from jobs, convenience and in case of emergencies.
« Last Edit: May 28, 2019, 02:01:43 PM by conwy »

marty998

  • Walrus Stache
  • *******
  • Posts: 7252
  • Location: Sydney, Oz
Re: Where should globe-trotting Australians keep their stash?
« Reply #1 on: May 28, 2019, 03:27:05 PM »

Perhaps the taxation of capital gains in another country will be *slightly* lower than Australia, though most developed countries seem to converge on around 25-35%, so it wouldn't be a big difference. But I guess a few percent less could make a difference over many years of compounding growth.

You won't get the CGT discount if you are a non-resident for tax purposes in Australia. Your offshore tax jurisdictions say also say "Que?" when you try to explain to them what a franking credit is.

conwy

  • Stubble
  • **
  • Posts: 143
Re: Where should globe-trotting Australians keep their stash?
« Reply #2 on: May 28, 2019, 04:08:00 PM »
You won't get the CGT discount if you are a non-resident for tax purposes in Australia. Your offshore tax jurisdictions say also say "Que?" when you try to explain to them what a franking credit is.

Interesting. So it looks like being a resident for tax purposes might be advantageous from a capital perspective.

Assuming the other country I'm in has a reciprocal tax agreement, getting taxed twice shouldn't be an issue.

After reading this, it looks like I'd be better off being both resident and domiciled in Australia.

Lukim

  • Stubble
  • **
  • Posts: 112
  • Location: Expat in Asia
Re: Where should globe-trotting Australians keep their stash?
« Reply #3 on: May 29, 2019, 09:07:58 PM »
I suggest you consider Singapore and Hong Kong.

The issue now is being able to open bank accounts in these jurisdictions.

I have had bank accounts in both jurisdictions and I still operate an account in Singapore (I closed my Hong Kong account about 9 years ago).  The bank fees in Singapore are high and they generally require a high minimum balance for foreigners (I think my bank in Singapore requires minimum of USD50,000).

I also had various investments through platforms in Singapore but I have liquidated those now and have the investments in Australia now (as I plan to retire in Australia later this year).


Singapore has no capital gains tax and does not tax non residents on profits / income made outside Singapore.  Even if you are taxed, the rate is low.


Remember, however, if you are an Australian tax resident (and it is hard to lose Australian tax residency now), you will be required to declare foreign income.



Sounds like you are starting out and I am finishing up.


itchyfeet

  • Pencil Stache
  • ****
  • Posts: 938
Re: Where should globe-trotting Australians keep their stash?
« Reply #4 on: June 01, 2019, 10:32:56 PM »
I think you want to read up on Australian tax residency laws before moving forward with your grand plan.

One of the tax residency tests is call the domicile test. Basically it says that if your home is Australia this is your domicile and you are an Australian tax resident. If you donít have another home (ie:nomad) and are an Australian citizen then the ATO seems your home to be Australia.

If you are an Australian tax resident you will pay tax in australia on global income irrespective of where the bank account is.

conwy

  • Stubble
  • **
  • Posts: 143
Re: Where should globe-trotting Australians keep their stash?
« Reply #5 on: June 02, 2019, 11:20:20 AM »
I think you want to read up on Australian tax residency laws before moving forward with your grand plan.

One of the tax residency tests is call the domicile test. Basically it says that if your home is Australia this is your domicile and you are an Australian tax resident. If you donít have another home (ie:nomad) and are an Australian citizen then the ATO seems your home to be Australia.

If you are an Australian tax resident you will pay tax in australia on global income irrespective of where the bank account is.

I went through this with my accountant, and as I do have a fixed address in the UK, I do qualify as a non-resident.

But from what marty998 writes, it seems like I might actually be better of being tax resident in Australia, as then I will get discounted on the  CGT on my investments in Australia. Whereas, as a non-resident, I have to pay full tax on CGT.

I don't know how other countries work out CGT. The tricky thing is, I kinda have to be tax resident somewhere in the world, and since I don't know where I will end up living and I already have my funds in Australia and am an Australian citizen, it seems like the best choice is to try and keep my Australian tax residency and keep all my funds domiciled in Australia, thereby at least getting the discounted CGT rate.

marty998

  • Walrus Stache
  • *******
  • Posts: 7252
  • Location: Sydney, Oz
Re: Where should globe-trotting Australians keep their stash?
« Reply #6 on: June 02, 2019, 03:24:15 PM »
https://www.ato.gov.au/general/capital-gains-tax/international-issues/cgt-discount-for-foreign-resident-individuals/

Here is some of the guidance on the removal of the CGT discount for foreign residents. It applies to "Taxable Australian Property", which is a defined term, but you should get proper tax advice from your Accountant.

itchyfeet

  • Pencil Stache
  • ****
  • Posts: 938
Re: Where should globe-trotting Australians keep their stash?
« Reply #7 on: June 02, 2019, 10:33:50 PM »
You say you have an address in the U.K. and can prove that is your home.

Like Australia the U.K. taxes worldwide income. I see no advantage in being a U.K. tax resident over being an australian tax resident, particularly given the added tax complications that arise from changing tax residency, as Marty has pointed out.

You are right that as an australian you need to be a tax resident somewhere. If you canít prove you have a home outside Australia in some other tax jurisdiction then the ATO will claim you as theirs.

conwy

  • Stubble
  • **
  • Posts: 143
Re: Where should globe-trotting Australians keep their stash?
« Reply #8 on: June 20, 2019, 01:54:38 PM »
Here is some of the guidance on the removal of the CGT discount for foreign residents. It applies to "Taxable Australian Property", which is a defined term, but you should get proper tax advice from your Accountant.

So this "CGT discount" appears to have only ever applied to property - e.g. house, apartment. Not to liquid assets like mutual funds, stocks, etc. So it looks like an Australian investor would have nothing to lose by keeping their funds domiciled in Australia while remaining tax non-resident.

And in fact, it might be even more tax effective than being resident for tax purposes. According to one article I dug up on Google:

"Foreign residents are only subject to capital gains tax in relation to gains made on assets that are considered TAP (which excludes assets such as shares, options and managed fund investments). Effectively, a non-resident can potentially avoid paying any Australian capital gains tax on such assets (i.e. non-TAP) during the period of their non-residency. Where such assets are acquired whilst a non-resident, and the individual subsequently becomes an Australian tax resident again, these assets are treated as being acquired at market value for CGT purposes at the date the taxpayer becomes a resident. Note: The taxation consequences of holding such assets in the country of residency should be considered."

If this is correct, then it means that I don't get taxed on my liquid assets (e.g. mutual fund) while I am a non-resident. If I can keep being a non-resident for many years, then I essentially get all that compounding growth in the fund with no tax!

Sounds a bit too good to be true, of course, so I guess I will check it with my accountant and confirm its accuracy.
« Last Edit: June 20, 2019, 02:15:09 PM by conwy »

itchyfeet

  • Pencil Stache
  • ****
  • Posts: 938
Re: Where should globe-trotting Australians keep their stash?
« Reply #9 on: June 21, 2019, 12:38:21 PM »
Yes there is no Capital Gains Tax payable in Australia if you are not a tax resident of Australia. But if you are a tax resident of the UK you will pay CGT there instead if you buy and sell stocks.

numbersgame

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Where should globe-trotting Australians keep their stash?
« Reply #10 on: August 27, 2019, 06:20:10 AM »
I think you want to read up on Australian tax residency laws before moving forward with your grand plan.

One of the tax residency tests is call the domicile test. Basically it says that if your home is Australia this is your domicile and you are an Australian tax resident. If you donít have another home (ie:nomad) and are an Australian citizen then the ATO seems your home to be Australia.

If you are an Australian tax resident you will pay tax in australia on global income irrespective of where the bank account is.

I went through this with my accountant, and as I do have a fixed address in the UK, I do qualify as a non-resident.

But from what marty998 writes, it seems like I might actually be better of being tax resident in Australia, as then I will get discounted on the  CGT on my investments in Australia. Whereas, as a non-resident, I have to pay full tax on CGT.

I don't know how other countries work out CGT. The tricky thing is, I kinda have to be tax resident somewhere in the world, and since I don't know where I will end up living and I already have my funds in Australia and am an Australian citizen, it seems like the best choice is to try and keep my Australian tax residency and keep all my funds domiciled in Australia, thereby at least getting the discounted CGT rate.

I travel a lot and am in your situation. I'm now in the process of putting down roots in a tax favourable jurisdiction, but it is 100% required to spend a good portion of my year there (probably 6+ months), and less than 3 months in Australia each year (ideally much less).

conwy

  • Stubble
  • **
  • Posts: 143
Re: Where should globe-trotting Australians keep their stash?
« Reply #11 on: September 12, 2019, 04:09:15 PM »
I travel a lot and am in your situation. I'm now in the process of putting down roots in a tax favourable jurisdiction, but it is 100% required to spend a good portion of my year there (probably 6+ months), and less than 3 months in Australia each year (ideally much less).

Numbersgame, it's interesting what you're saying because it looks like I'm also in a similar situation in terms of spending a good deal of time outside of Australia.

My situation has slightly changed, as new information has come to light. Basically, it turns out that for the purpose of closing my UK business and extracting the funds in the most tax-effective manner, I'm better off being a UK tax resident, at least until the business is closed and up to the end of the current UK tax year.

At the end of this UK tax year, I think it's likely that I'll be taxed by HMRC (the UK taxation authority) on my capital gains / distributions received from my Australian funds during the prior year.

This isn't ideal. As others pointed out, I won't receive franking credits or discounts of any kind.

However, it still works out a much better deal to remain a UK tax resident, due to the tax effective closure of my business, which represents a sizeable chunk of my total net worth (I made a tidy profit during my time in the UK).

So the adventure of my life takes another twist... back to the UK for a 6-12 months.

Maybe I'll end up saying there for a few years and try and get citizenship! Can't hurt!