ETFs for Resident vs Non-resident

Question

My current core allocation is: CORE: IVV=50%, VEU=20%, I plan to move to Southeast Asia in 5-7 year. Considering this, I'm reevaluating my core portfolio, especially my investment in VAS, seeking alternatives to complement IVV and VEU. What would be suitable for my core portfolio considering my relocation plans? I believe I shouldn't be allocating more than 5% to VAS because I won't be an Australian resident in the future.

Answer

Hi JK.

Interesting question.

If this is a permanent move overseas, then I can see why you’re asking this question.

Most overseas residents as I understand tend to invest in a global portfolio, kind of like what you’re describing.  After leaving Oz, and possibly being a tax resident elsewhere, there’s very little benefit to having a specific stake in Aussie shares.  Your expenses won’t be in Aussie dollars, and you won’t get the benefits of franking credits.  Also, VEU contains a small amount of Aussie shares if I’m not mistaken.  So global investors still have their suitable allocation based on our small market size.

If you may move back to Oz at a later date, then it’s a trickier conversation.  Reason being, it could be expensive (tax wise) to change the portfolio around multiple times to align with new living arrangements.  So if this is the case, I would try to find a balance that you’re happy with regardless of where you’ll be living.

Anyway, tricky question, but hope that helps.
Dave

Answer

Thanks Dave. You are right. There are some Aussie shares in VEU that will give me enough exposure to Australia. The plan is to move overseas for good (geo-arbitrage). The challenge is my income and expenses are currently in AUD until I make the move. You mentioned most overseas investors invest in global ETFs. Are you able to give me a few examples please?

Answer

it is the other way around especially if you are a high income earner.

On top of that for non-resident investors holding Australian shares that pay franked dividends, there is another tax advantage. Franked dividends received by non-residents do not need to be declared in their Australian tax return, nor do they incur any additional tax liability. This is in stark contrast to Australian taxpayers who may face a top-up tax on franking credits when receiving dividends as high-income earners. As a non-resident, you get to enjoy the full benefits of franked dividends without the associated tax implications. For example like me i would pay a max of 15% or 30% depending on where you reside.

One of the standout advantages of investing in the Australian stock market as a non-resident is the absence of Capital Gains Tax (CGT). When you buy and sell Australian shares, you are not liable for CGT, which means you can enjoy the full benefits of your investment gains without the burden of taxation. This tax-friendly environment is a deliberate strategy by the Australian government to encourage foreign investment in Australian shares, making it an attractive proposition for non-resident investors seeking tax efficiency

Hope this help so keep only Australian shares for more tax benefits for non-resident

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