Potential Australia Expat Finalising Investment Policy Statement

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Tortilla
Posts: 1
Joined: Mon Jun 21, 2021 9:10 am

Potential Australia Expat Finalising Investment Policy Statement

Post by Tortilla »

Are there any expats on this forum that can share their experiences on doing FI/RE while living a digital nomad lifestyle?

BACKGROUND

I'm a computer science uni student and I'm in the process of forming an Investment Policy Statement but I'm still not sure about my future residency plans. A lot of the big tech firms here in Australia offer overseas opportunities and it's relatively easy to do stints over in the EU or US for people in tech.

I've talked to an Australian expat financial advisor (Atlas Wealth) recently about building an """expat proof""" portfolio, because there's a lot of tax implications when moving overseas (especially in the US).

At first, I was considering buying VTS (Developed world, US domiciled) and VEU (Developed world ex-US, US domiciled) instead of VGS (Developed world, Aus domiciled) so I have a US domiciled fund. This means I avoid any issues with PFICs if I ever move to the US. But other issues would arise if I were to become a tax resident of other countries.
This [dividend tax] doesn't affect Australian residents, but if you're a tax resident of a country with no tax treaty with the US (e.g. Singapore), then buying a US domiciled fund with US shares (e.g. VTS) will require 30% tax on dividends.
If you purchased an Ireland or Australian domiciled version, you would pay only 15% tax on dividends of US shares since the fund is domiciled outside the US and in a country with a dividend income taxation treaty with the US.

source: passive investing australia https://www.passiveinvestingaustralia.c ... e-us-taxes
The advisor I talked to recommended building a portfolio as if I would be staying in Australia and then talk to a financial advisor 1 or 2 years before I actually plan to move overseas. There's too much uncertainty in my future to be making decisions about tax minimisation.

As of now, my plan is to follow the below allocation (note: 10% of my portfolio will be in a 3% high interest savings account)

EQUITIES PLAN 1
  • VGS (Developed world): 65%
  • VGE (emerging market): 10%
  • VAS (Australian): 25%
Then, in 5 years time, see where my life is at and if it seems like I'll be in Australia for a while, add VGAD and lower VGS.

EQUITIES PLAN 2 (staying in Australia)
  • VGAD (AUD hedged, developed world): 15%
  • VGS (Developed world): 50%
  • VGE (emerging market): 10%
  • VAS (Australian): 25%
The plan is to put money into whatever is underperforming and then rebalance once a year (if things are >5% out of alignment).

If after 5 years, it looks like I'll be moving, I'll stick with plan 1 and then just talk to an expat tax/financial advisor when moving is imminent. With plan 1, if I ever have to sell all of VAS for residency reasons, it won't hurt as much. If I have to move, I'll also have to consider moving brokers to an international one (currently with SelfWealth, a popular cheap broker here in Aus).

TO FRANK OR NOT TO FRANK?
Franking credits are are credits for tax already paid by Australian companies so that shareholders are not taxed twice on the same earnings.

I previously thought that franking credits are totally useless if you're not an Australian resident for tax purposes. You can actually offset some or all of your Non-Resident Withholding Tax ([from ATO] (https://www.ato.gov.au/Forms/Guide-to-f ... 21/?page=3)), so they're not *totally* useless for non-residents.

FURTHER READING

If anyone else is interested in this stuff, here's some resources I found useful
  • Millionaire Expat by Andrew Hallam. If you've already read a lot about passive investing, he doesn't cover a lot of new ground and it gets repetitive at times but I reckon the book is still worth a skim
  • There are subreddits for this but they're either largely US based (r/ExpatFinance) or they're just about retiring in a different country (/r/ExpatFIRE).
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