What Is Deemed Disposal and How Does It Affect Australian Expats? – today we wanted to talk about what is deemed disposal and no, it doesn’t have anything to do with taking out the rubbish.
Deemed disposal applies to the asset class, non-taxable Australian property (NTAP). These type of assets include direct shares, exchange traded funds, managed funds, listed investment companies, or Australian real estate investment trusts.
As this is a unique asset class where the ATO does not levy any capital gains tax on it once we have left, you must consider opting into deemed disposal if you hold existing NTAP assets before you move overseas.
Deemed disposal essentially states to the ATO as of the date that you left that you are paying any accrued capital gains tax (if you’re shares have increased in value up until the date of departure) and you declare this in your final Australian tax return.
By declaring your deemed disposal it means that if you continue holding these shares, whilst you’re a non-resident, that you won’t continue to accrue a capital gains tax liability with the ATO whilst you are overseas.
When you come back to Australia, that’s when the ATO sees this as you purchasing that share portfolio back at the new cost basis. Any prior years of capital growth, whilst you were classified as a non-resident for tax purposes, is not taxable.
As you can see, it’s a useful tool in a non-resident’s arsenal to consider. In the event you don’t opt into deemed disposal, then that portfolio is still taxable by the ATO and you will continue to accrue a capital gains tax liability.
If you sell the portfolio down whilst you are overseas, and you have not elected to use deemed disposal, then you have to declare that to the ATO and pay capital gains tax at unfavourable non-resident marginal tax rate.
Things that will tie into whether or not you use deemed disposal is your planned time overseas. If you’re only heading overseas for one to two years, you might chose to ignore deemed disposal.
However if you are going to head overseas for a lot longer then it is something that you might want to consider, depending on the types of shares that we’re holding and if you think you’re going to produce some good capital growth over the coming years.