Do you own Australian shares, Exchange Traded Funds (ETFs) or Managed Funds..?
Did you own them when you lived in Australia and currently live abroad..?
Are you currently considering an expat opportunity abroad and wondering how this could impact your Australian shares..?
If you’ve answered yes to one or more of these questions, then this article is an important one for you as it can have a significant impact on your personal tax liability both now and in the future.
Here we are referring to the Deemed Acquisition and Deemed Disposal rules. As an Australian expat, when you cease being an Australian resident for tax purposes, you are deemed to have disposed of your assets, including the shares and managed funds for example, which are not considered to be Taxable Australian Property (TARP assets) at the market value at the date of your departure or final tax return. It is at this point that a Capital Gains Tax (CGT) event takes place, and tax is either paid on the capital gain realised or a tax loss is created if the shares or other investments have decreased in value.
Before we go any further, please do note that we’re not referring to Australian property such as a residential investment property or commercial property here, as these are considerable Taxable Australian Property (TARP) assets by the Australian Tax Office (ATO).
Following this deemed disposal, these assets are no longer subject to Australian CGT liabilities while you are a non-resident of Australia for tax purposes. This can be particularly attractive for those relocating or residing already in tax-friendly jurisdictions such as Singapore or Hong Kong, particularly if you’re planning to reside abroad for a few years. There is no one-size-fits-all approach here or a specific number of years you’re planning to be abroad to drive the decision, as it will depend on the individual investments, the country you’re relocating to, and much more.
While it is not a requirement that you complete a Deemed Disposal at your point of departure, it’s an important consideration. Unfortunately, you can’t select which shares you carry out a deemed disposal on and elect not to do so for others. It’s an all-or-nothing decision, which can make it simpler, however, it also means that it can have a greater impact on the long-term outcome for your finances.
This means that it’s important to do your homework to decide whether you should action a deemed disposal or whether you should decide to defer the CGT event into the future. This means seeking professional tax (financial) advice to explore your options and crunch your numbers.
A Deemed Disposal can be carried out for Non-Taxable Australian Property (TARP) assets including; Shares, Exchange Traded Funds (ETFs), Managed Funds, Hedge Funds and Unit Trusts. It is important to note that this is not restricted to domestic Australian shares and funds but can apply to global investments. The specific requirement however is that you purchased and/or owned them while you are, or were, an Australian resident for tax purposes.
Contrary to popular belief, there is no specific Capital Gains Tax (CGT) rate, and any capital gain is simply added to your taxable income, and your marginal rate of tax applies. This could therefore be upwards of 47% excluding the Medicare Levy. If you have held the shares or other investments for a period greater than 12 months while a resident of Australia, you may be entitled to a 50% discount on the capital gain for tax purposes, so it’s important to check on the holding period for your particular investments. If you elect to hold the shares as an Australian resident while living abroad and not proceed with the deemed disposal, you could be eligible for the 50% discount for the whole period of growth providing that you meet the 12-month requirement.
Prior to the 8th May 2012, non-residents of Australia were also entitled to the 50% discount on capital gains for assets held for more than12 months, however, this was restricted to Australian tax residents only.
If you’re already living offshore and haven’t completed a Deemed Disposal, you need not worry. In most cases, you can complete this retrospectively as an adjustment or amendment to a previous tax return. If you didn’t submit a final tax return upon departure, then we would suggest speaking with your accountant and your tax(financial) adviser to ensure that this is actioned for you and that you have the right strategies in place aligned with your financial goals.
It’s important to speak with a qualified financial professional experienced in working with Australian expats such as yourself. You may find that based on your financial situation and goals deferring the capital gain and not completing a deemed disposal is the most sensible option, so it is important to seek professional advice.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.