Reducing Tax - a non resident?

Hi all,

This is my debut post and I'm new on the trading/investing scene.

I plan to sell a share which will return around a $20 000 profit. Obviously I'd like to reduce the tax liable to be paid on this amount.

I live overseas and have no taxable income. Yet I'm also currently an Australian resident for taxation/election etc. purposes.

I read from another post that being a non-resident means that no tax is paid on investment returns. Could anyone confirm or deny this?

Alternatively, are any other strategies recommended as a means of reducing the tax?

Thanks all

arae said:

I read from another post that being a non-resident means that no tax is paid on investment returns. Could anyone confirm or deny this?

Click to expand...

Yes, if you are a non-resident this is the case.

If you are a resident for taxation purposes then you have to stop being this in order to have non-resident tax treatment. On the date that you become a non-resident you are deemed to have disposed of the shares on that day at the closing price (dont quote me, check the ATO website), for CGT purposes. So you will pay CGT, or have a capital loss, up until that date. After that you can treat future price moves and hence capital gains like a non-resident ie. no CGT.

Income is a different story. When you become a non-resident you forego the franking credit aspect of dividends AND you pay 29% tax right from the first dollar.

Of course your new country of residency may also want to know about your tax free capital gain in Australia

Im NOT a tax professional and I'm NOT an accountant. I recommend checking the Australia Tax Office website as all of this is well documented there. You can even call them and ask for clarification. They're suprisingly helpful. If you are talking 20k, which in my opinion is a lot of money, you might even consider engaging an accountant. In my experience having your declaration come via an accountant looks better AND accountants have a hot-line service to the ATO where they can get better service than regular folk.

ASX.G

theasxgorilla said:

Income is a different story. When you become a non-resident you forego the franking credit aspect of dividends AND you pay 29% tax right from the first dollar.

Im NOT a tax professional and I'm NOT an accountant. I recommend checking the Australia Tax Office website as all of this is well documented there. You can even call them and ask for clarification. They're suprisingly helpful. If you are talking 20k, which in my opinion is a lot of money, you might even consider engaging an accountant. In my experience having your declaration come via an accountant looks better AND accountants have a hot-line service to the ATO where they can get better service than regular folk.

ASX.G

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If a person is a non resident for taxation purposes, they are unable to get a refund of the franking credit. The reason for this, is that the dividend becomes 'exempt income' under sections 128B & 128D of the ITAA 1936.

As it becomes exempt income, not subject to non resident tax rates.

What i have been told, accountants have a special number to call to reduce 'wait' times, however, there calls still end up in the same place as us regular folks.

Back to the main part of thread.

As you have stated that you are an australian resident for tax purposes, you will be subject to tax in Australia on your capital gain.

Assuming the $20,000 is the net capital gain (ie after losses and discounts applied), then your first $6000 is tax free, the remaining amount ($14,000) will be taxed at 15%. As an Australian resident for tax purposes, you will get a low income tax offset ($600 in 2007 Income tax return - i think $750 in 2008 income tax year).

arae said:

Hi all,

This is my debut post and I'm new on the trading/investing scene.

I plan to sell a share which will return around a $20 000 profit. Obviously I'd like to reduce the tax liable to be paid on this amount.

I live overseas and have no taxable income. Yet I'm also currently an Australian resident for taxation/election etc. purposes.

I read from another post that being a non-resident means that no tax is paid on investment returns. Could anyone confirm or deny this?

Alternatively, are any other strategies recommended as a means of reducing the tax?

Thanks all

Click to expand...

Can you clarify some points please:

1. Are you an Australian resident? If not, then under what circumstances are you currently in Australia and on what visa?

2. Was the stock purchased while you were outside of Australia?

Thanks for all your replies so far. It's much appreciated.

From what you've all said, it seems I should've filed as a non resident before I purchased the share for no tax to be paid on selling it. As it stands, I'll need to pay the tax on this one, but should file for non residency ASAP to ensure no tax is paid on any future shares I purchase and sell.

This may sound like a silly question, but what is franking credit?

In answer to your questions Chorlton;

1. I'm an Australian citizen, but have been living living in Indonesia for the last 4 years.

2. The shares were purchased whilst in Indonesia

Thanks

arae said:

Thanks for all your replies so far. It's much appreciated.

From what you've all said, it seems I should've filed as a non resident before I purchased the share for no tax to be paid on selling it. As it stands, I'll need to pay the tax on this one, but should file for non residency ASAP to ensure no tax is paid on any future shares I purchase and sell.

This may sound like a silly question, but what is franking credit?

In answer to your questions Chorlton;

1. I'm an Australian citizen, but have been living living in Indonesia for the last 4 years.

2. The shares were purchased whilst in Indonesia

Thanks

Click to expand...

Ah.... In that case I can't offer any advice as I didn't realise that you were an Australian citizen. ... sorry......

Good Luck though........

arae said:

Thanks for all your replies so far. It's much appreciated.

1. I'm an Australian citizen, but have been living living in Indonesia for the last 4 years.

2. The shares were purchased whilst in Indonesia

Thanks

Click to expand...

Arae,

I suggest that you go onto www.ato.gov.au, and bring up the ATO's "Am i a Resdient?" web based tool. (type 'resident tool' in search facility). to check your residency for TAX PURPOSES.

Residency for tax purposes is different to immigration/citizenship requirements. I am a bit rusty, but am sure ATO use to have a ruling stating that if you overseas for a period greater than 2 years, they deem you to be a non resident.

Why did you go overseas? If for work and contract greater than 2 years, you maybe deemed a non resident from when you left Australia.

If in doubt, give them a call, or apply for a free private ruling (type 9188 in search facility to get applications)

It maybe a case you are a non resident, if so, you may not having and CGT to pay in Australia.