What Happens to Your Investment Portfolio When You Move Overseas and Become an Australian Expat

Many Australians hold shares, exchange-traded funds (ETFs), or other listed investments at the time of relocating abroad. However, they often overlook what happens to your investment portfolio when you move overseas, particularly the substantial implications that a change in tax residency can have on your investments and long-term financial position.

If you're becoming an Australian Expat and are classified as a non-resident for tax purposes, the tax situation for your investment portfolio will experience several changes. In this blog, we’ll explore how moving abroad affects your shares, ETFs, managed funds, and tax obligations, and what you can do to manage the transition smoothly.

Understanding Tax Residency: The First Step

Before we get into your investment portfolio, it's crucial to understand your Australian tax residency status and ensure it is recorded correctly with the Australian Tax Office (ATO). If you retain your Australian tax residency status, there is little to no change to your investment portfolio from an Australian tax perspective.

For most Australian Expats, you will become a non-resident for tax purposes upon departure, which will be noted in your Australian tax return (permitting your specific situation supports this). When this is triggered, your investment income, capital gains, and reporting obligations with the ATO may be significantly altered.

Shares and ETFs: Capital Gains Tax (CGT) and the “Deemed Disposal” Rule

When you move overseas and become a non-resident for tax purposes, your Australian shares, ETFs, and certain other CGT assets consider “non-taxable Australian Property” (Non-TAP) are impacted by the Deemed disposal rules.

Deemed Disposal (A form of Exit Tax)

On the day you cease to be a resident, the ATO may treat your assets as if you sold them at market value, even though you haven’t actually sold anything. This is called "deemed disposal", and it can create a capital gains tax liability. However, any further gains your investment portfolio experiences as a non-resident are exempt from CGT with the ATO.

You can instead choose to defer this event until you actually sell the asset, though any gain on shares sold later may then be subject to foreign resident tax rates with the ATO.

Exceptions

Australian real property (e.g., investment properties) is excluded from the deemed disposal rule, along with certain other assets that are considered “Taxable Australian Property” (TAP). See our fact sheet for a breakdown of assets considered TAP and Non-TAP.

Dividends and Investment Income

As a non-resident, the tax treatment of your dividends and investment income changes and becomes subject to Australian withholding taxes.

Dividend Withholding Tax

• Fully franked dividends (i.e., already taxed at the company level) are not taxed further.

• Unfranked dividends are subject to withholding tax, typically 15% (depending on the tax treaty with your new country).

You’ll no longer need to lodge a tax return for this income if it’s subject to final withholding tax and no other Australian sourced income is earned.

Managed Funds and Real Estate Investment Trusts (REITs)

If you hold Australian managed funds or real estate investment trusts (REITs), you'll likely face non-resident withholding tax on distributions, depending on the underlying assets in the fund. Some managed funds may restrict non-residents from holding units, requiring you to redeem your investment upon ceasing tax residency.

Opportunities for Australian Expats

One of the key advantages for Australian Expats with an investment portfolio as a non-resident for tax purposes is the potential exemption from capital gains tax (CGT). Under Australian tax law, non-residents are generally not subject to CGT on the sale of assets considered non-taxable Australian property, such as shares, ETFs and managed funds.

This means Australian Expats can invest in these assets, and in many cases, sell them free of CGT liability in Australia. Additionally, fully franked dividends from these shares are not taxed further for non-residents, making them a highly tax-efficient investment vehicle while living overseas. Combined, these benefits create an attractive opportunity for Australian expats to grow their wealth with minimal Australian tax implications.

Practical Tips for Managing Your Portfolio as an Expat

Employing these practical tips now can ensure a better financial and tax outcome later:

• When moving abroad with an existing investment portfolio, applying the deemed disposal rules correctly to your situation is crucial

• Get a valuation of your portfolio when your tax residency changes for CGT tracking.

• Consult a Tax Adviser familiar with working with Australians moving abroad and who understands the deemed disposal rules.

• Review your broker or platforms to ensure they support non-residents. Australian brokers often restrict non-residents, and in some instances, require you to sell down or in-specie transfer your holdings to another platform.

Tax in your host country

This blog discusses the Australian implications of what happens to your investment portfolio when you move overseas. It does not consider your host country and any relevant tax laws that may apply to you. Some countries do not impose any capital gains tax (CGT), which means all gains on shares may be completely exempt from taxation. Several countries impose tax only on income remitted into the country, so if the income is not transferred to the country, the only tax to pay could be the Australian withholding tax.

Specific rules apply to Australian Expats moving to the United States holding certain shares and ETFs, and managed funds. See our blog on Passive Foreign Investment Companies (PFICs) here for more info.

Conclusion

So, what happens to your investment portfolio when you move overseas? The answer depends on your underlying investments, your new tax residency status, and your host country. For Australian expats, transitioning to non-resident status introduces a new layer of complexity, but with the right planning and professional guidance, it can be navigated smoothly.

It is highly encouraged to speak to a cross-border tax and Financial Adviser in the early stages of becoming an Expat to ensure the best tax outcome for your investment portfolio.

Runway Wealth Management is the trusted Financial Adviser to the Australian Expat community. Our tailored advice is backed by expertise, education and experience, which allows us to be at the forefront of Australian Expat Financial Planning.

If you would like to speak to one of our Expat Financial Advisers about this blog or if you have other queries, we would be more than happy to speak with you. Feel free to send us an enquiry through the ‘Contact Us’ tab provided in the below link:

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General Advice Disclaimer: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.