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

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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.

ask paul clitheroe should i sell my shares to avoid paying tax on the dividends

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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Paul Clitheroe AM is founder and editorial adviser of Money magazine. He is one of Australia's leading financial voices, responsible for bringing financial insight to Australians through personal finance books, the Money TV show, and this publication, which he established in 1999. Paul is the chair of the Australian Government Financial Literacy Board and is chairman of InvestSMART Financial Services. He is the chair of Financial Literacy at Macquarie University where he is also a Professor with the School of Business and Economics. Click here to ask Paul your money question. Unfortunately Paul cannot respond to questions posted in the comments section. Please view our disclaimer here.
Comments
Henry Dunn Dunn
March 16, 2022 5.35pm

I am 80 years old. I live in Melbourne with my wife, in an expensive part of real estate. I am contemplating to sell, If I do sell what would be the best way to then organise my life. I an an age pensioner could this affect my pension. Should I buy shares, or invest in superannuation, what would be the besr outcome.

Money team
Verified
March 17, 2022 8.25am

Hi Harry

Thank you for your question. While our team can't answer it here in the comments section, we will pass it on to Paul Clitheroe for his consideration for a future Ask Paul.

- Money team

David P
March 16, 2022 8.30pm

Great rules - one and four.

But what are rules two, three, five etc...

Rachael Wass
March 24, 2022 8.23am

Really need help, I've been trying to sell some UK share holdings as a first time trader and am finding it ridiculously difficult! Who can I trust to sell them as a one off trade, that are based in Australia and will deal with the relevant international processes for me? #atmywittsend

Money magazine
Verified
April 6, 2022 8.24am

Hi Rachael,

Thanks for your comment.

Unfortunately, Paul cannot respond to comments, but we will pass your question along to him for his consideration for a future issue of Money magazine.

- Money team

Jared Byrne
April 4, 2022 8.42pm

Non residents for tax purposes don't need to declare fully franked dividends in Australia. Tax implications would be based on how Japan taxes their tax residents' foreign sourced income.

https://www.ato.gov.au/Forms/Y...

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