aussie expat : buy US vs IRISH vs AUSSIE ETF

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Topic Author
Arun
Posts: 9
Joined: Sat Jun 29, 2019 8:26 am

aussie expat : buy US vs IRISH vs AUSSIE ETF

Post by Arun »

Dear all

hope life is treating you well . I am reaching out to you after a while as was away from this forum as well as index investing - dabbling in growth stocks in the pandemic times

Now that am back to looking at investing in indexes, as an Aussie expat living in dubai - does the estate tax really come back to bite if we invest in the US based VOO / VTI ?
Their liqiuidity, performance & low fees are a deadly trio

As per advise on these forums , the option then is to sell off all the US positions once i am ready to relocate back home to aussie ( save on the CGT , but lose on the compounding journey)

if we go with the IRISH ones - the accumulating ones ( ISHARES or Vanguard), the volumes are low - and the growth too lower ?

As i am bound to go back to aussie any day ( am 48) in the future , is it practically better to just buy the Aussie Vanguard ETFs ? Will i still need to pay CGT retropectively for all the years i stay abroad if i hold this aussie domiciled fund ?

So basically as an expat Aussie in a no tax domicile like Dubai, what is ideal : US IRISH OR AUSSIE ETFs ? Why dont all expats just invest in their own home country ETFs if thats where they will retire to ?

hope these dilemmas are worth your time to reply and advise

cheers mate
TedSwippet
Posts: 4040
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: aussie expat : buy US vs IRISH vs AUSSIE ETF

Post by TedSwippet »

Arun wrote: Thu Jan 13, 2022 8:44 am Now that am back to looking at investing in indexes, as an Aussie expat living in dubai - does the estate tax really come back to bite if we invest in the US based VOO / VTI ?
Their liqiuidity, performance & low fees are a deadly trio
Not just the US estate tax, but you will also overpay US withholding tax on dividends if you hold US domiciled ETFs. 30% US tax on everything for an investor in a country without a US tax treaty, compared to between 15% and 0% (depending on the ratio of US to non-US stocks) from holding non-US domiciled ETFs.
Arun wrote: Thu Jan 13, 2022 8:44 am As per advise on these forums , the option then is to sell off all the US positions once i am ready to relocate back home to aussie ( save on the CGT , but lose on the compounding journey)
You probably want to sell off all positions, not just US ones, to sidestep any issues with Australian capital gains tax (note though that I know nothing about how these would work in practice; just extrapolating from what other countries do here). If you immediately repurchase equivalent investments, while living in a tax-free jurisdiction such as Dubai, you have emphatically not lost anything on the "compounding journey".

Assuming no capital gains tax, moving from holding a bunch of stock through fund A to holding the exact same stocks through fund B changes nothing realistic in your portfolio. What it can do though is break a chain of ownership if you are then going to move to a country that does have a capital gains tax.
Arun wrote: Thu Jan 13, 2022 8:44 am if we go with the IRISH ones - the accumulating ones ( ISHARES or Vanguard), the volumes are low - and the growth too lower ?
Volumes in accumulating shares will naturally be lower because investors do not need to trade in order to reinvest dividends. However, this does not imply low liquidity. An ETF's liquidity derives from the liquidity of the things that it holds.

I am puzzled as to why you would think growth would be lower. As mentioned above, if you hold the exact same stocks in Ireland domiciled ETFs as you hold (or would have held) in US domiciled ones, you will get the exact same capital growth. And your results will be better than if you held US domiciled ETFs when adding in the effect of dividends, because you avoid overpaying US withholding tax. For you, in Dubai, the tax saving on Ireland (or any other non-US) domiciled ETFs generally more than makes up for any slightly higher fund TERs.
Arun wrote: Thu Jan 13, 2022 8:44 am As i am bound to go back to aussie any day ( am 48) in the future , is it practically better to just buy the Aussie Vanguard ETFs ? Will i still need to pay CGT retropectively for all the years i stay abroad if i hold this aussie domiciled fund ?
I don't know (again) how Australian capital gains tax works in detail, but as a general rule many countries seem to tax the full gain from purchase to sale, without regard to any period spent outside the country. Not necessarily all -- Canada provides a 'step-up' basis, under a 'deemed acquisition' rule -- but many.

Again, the way to defuse this is to sell and repurchase equivalent assets while still a resident of a tax-free country.

As to what to hold when back in Australia, it would seem that for sheer convenience, lack of currency issues, and so on, holding Australian domiciled funds makes the most sense. Holding Ireland domiciled funds while in Dubai and then transitioning just before the move seems the likely best option, at least to me. You need to understand Australian tax laws in detail to reach your own proper conclusion, though.
Topic Author
Arun
Posts: 9
Joined: Sat Jun 29, 2019 8:26 am

Re: aussie expat : buy US vs IRISH vs AUSSIE ETF

Post by Arun »

hi Ted

Am still taking in all the wisdom provided in your replies , but the gist advice remains to keep away from any US domiciled funds and select couple of the Irish ones
keep investing in the IRISH ones till its time to go back to Aussie - sell everything and then reinvest the same, gotcha :)

If i can go further on the selection aspect , CSPX seems a good one for the S & P 500 index
Do i then go for the EIMI ( numbers are down recently) or with a Vanguard global stock index fund / ETF ?

The sheer number of choices on Justetf.com is mind boggling & I gave up after a while looking at all the different thematic options across sectors , across regions , across ethics :) etc

.. and before i die wondering - does the index funds perform 12 % returns in the looong run ?

cheers

Arun
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