Ask Paul: Should I sell my shares to avoid paying tax on dividends?

Dear Paul,

I am 23 and emigrating to Japan to start my first job after graduating from university.

I will be away for at least a year and possibly five years or more, then return to Australia.

I have a $48,000 student debt and $20,000 in blue-chip Australian shares.

As a non-resident, I would rather avoid a tax of 32.5c for every dividend dollar of investment income I receive.

What options do I have? I could keep the blue-chip stocks or reinvest into low-risk, high-growth stocks, with no dividends? Which high-growth stocks might be worth researching? 

My dilemma is: I'm unsure how significantly the blue-chip stocks will grow in the coming years with a pandemic.

I could hold onto those stocks and pay the additional burden of a non-resident tax on those dividends, which amount to $1400 yearly. - Geoff

That is exciting, Geoff. I am sure you have spent good amounts of time in Japan before accepting a job there, but it is a country and people we love.

My long-standing money rule No. 1 is "spend less than you earn". Money rule No. 4 is "do not let tax drive investments".

By this I mean we plan good investments and most certainly think about the tax implications, but never forget we only pay tax on returns and profits.

By the time you pay CGT, buy and sell costs and possibly end up with an inferior portfolio, I am wondering if the $500 or so of tax you would pay is that big a problem?

Sure, you could go for growth stocks. There are good ones out there, and a growth portfolio at your age is quite appropriate. Maybe a growth-style global exchange traded fund would work for you.

Another possible option before you leave is super, but there you pay 15% tax inside the fund, and you can't touch the money for many decades.

I am not against a switch to low-income growth stocks, but if you go this way, do look at an ETF to do the work for you.

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