Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 179

Location, location, location! Is your ETF Australian domiciled?

Exchange traded funds (ETFs) that provide access to international markets, sectors and specific thematics continue to grow rapidly on the ASX, with now approximately 70 ETFs providing international equity exposures. International ETFs provide Australian investors with a simple and cost effective way to access growth opportunities, including under-represented (or even absent) sectors from the S&P/ASX200. However, as with any investment, it’s important to look at how the fund is structured. An often overlooked issue is the location or domicile of the fund, where the devil, of course, is in the detail.

Australian domiciled funds vs. CHESS Depository Interests (CDIs)

ETFs that invest in international (i.e. non-Australian) assets will generally come in one of two forms, largely indistinguishable on the surface but with quite different structures.

An Australian domiciled ETF is one that is formed, registered and regulated in Australia, is resident in Australia for tax purposes, and whose ‘home’ exchange is the ASX.

The alternative structure for international ETFs trading on the ASX is through a CHESS Depository Interest (CDI) in an already established offshore fund. In the case of ASX traded ETFs, all CDIs currently available are for funds based in the US. A CDI is a financial product quoted on the ASX which confers a beneficial interest in the underlying financial product to which it relates. A CDI will generally be listed by a global fund manager with an Australian presence and, though quoted on the ASX, it is actually a ‘cross-listing’ of the US fund.

Buying an interest in a fund that is domiciled in the US, for example, and cross-listed in Australia, presents certain considerations for investors:

  • Foreign governance: Offshore funds are governed primarily by the laws of the country of their original listing, not Australian law.
  • Additional administration: Because each CDI is an interest in the offshore fund, CDI holders are required to submit a W8-BEN form to the fund if they wish to reduce their withholdings tax (e.g. from 30% to 15% under the Australia-US double tax treaty). This is not a one-off and requires periodic updating.
  • Legal implications: Being governed primarily by foreign law, investors in offshore funds may have to contend with legislation that does not exist in Australia, such as potential US Estate Taxes for US domiciled investments.
  • Extra layer of withholdings tax – generally, an Australian resident holding a CDI on a US listed global exposure is subject to potential withholdings tax twice, ie from the foreign companies into the US and then into Australia.

By contrast, an investor in an Australian domiciled fund does not need to fill out individual W8-BEN forms because they are filled out once at the fund level, by the fund manager. Also, being governed primarily by Australian law, there are minimal, if any, direct foreign law impacts for investors. The investor is only subject to withholdings tax once on a global exposure – on the distributions from the foreign companies into Australia.

Australian domiciled or CDI? It’s worth ‘looking under the bonnet’ before you invest.

 

Adam O'Connor is Manager of Distribution at BetaShares. BetaShares is a sponsor of Cuffelinks and all their international funds are Australian-domiciled. This article does not consider the personal circumstances of any investor.

RELATED ARTICLES

Global ETFs: insights into a multi-trillion-dollar industry

Australian ETFs: end of year reviews 2018

Active or passive ETFs: how do you decide?

banner

Most viewed in recent weeks

Three steps to planning your spending in retirement

What happens when a superannuation expert sets up his own retirement portfolio using decades of knowledge? He finds he can afford much more investment risk in his portfolio than conventional thinking suggests.

Five stock recoveries not hanging on COVID predictions

The focus on predicting the recovery from the pandemic is the wrong emphasis. Better to identify great companies benefitting from market changes over a three- to five-year horizon with or without COVID.

Peak to peak, which LIC managers performed during COVID?

A comprehensive review of dozens of LICs shows how they performed in the crucial 'peak to peak' of COVID. This 14 months tested the mettle and strategies of a sector often under fire, with many strong results.

Finding sustainable dividend stocks on the ASX

There is a small universe of companies on the ASX which are reliable dividend payers over five years, are fairly valued and are classified as ‘negligible’ or ‘low’ on both ESG risk and carbon risk.

Blink and you missed a seismic shift in these stocks

Blink and it happened. If announcements in this sector were made by a producer of iron ore, gas, copper or some new tech, the news would have been splashed across the front pages. Have we witnessed a major change?

How inflation impacts different types of investments

A comprehensive study of the impact of inflation on returns from different assets over the past 120 years. The high returns in recent years are due to low inflation and falling rates but this ‘sweet spot’ is ending.

Latest Updates

Shares

Platinum’s four guiding investment principles

Buying mispriced stocks is often uncomfortable when companies are outside the spotlight and markets are driven by emotions. And it's inescapable that the price paid ultimately determines the end result.

Interviews

Andrew Lockhart on corporate loans as an income alternative

Loans to corporates were the traditional domain of banks, but as investors look for income alternatives to term deposits, funds have combined hundreds of loans into a single structure to create a diversified investment.

Retirement

10 things I learned in my faux-retirement

Pre-retirees should ‘trial run’ their retirements. All those things you want to do - play golf, time with the family, a hobby, write a book - might not be so appealing in reality, but you might discover other benefits.

Retirement

Achieving a sufficient retirement income portfolio

Retirees require a reliable income stream to replace the wages they received when they were working and should focus on the dollar income generated over time rather than the headline yield percentage.

'Wealth of Experience' podcast and ASA webinar on ETFs v LICs

Peter reveals some top stock picks with an emphasis on long-term assets like Sydney Airport, Graham discusses spending in retirement and valuing assets, the key to Amazon, guest Andrew Lockhart and plenty more.

Strategy

Lucy Turnbull’s three lessons on leadership and successful careers

From promoting women to boost culture to taking opportunities as they arise, Lucy Turnbull AO says markets should not drive decision-making and leaders must live and breathe the company's mission and values.

Economy

Are concerns about inflation inflated?

While REITs and some value stocks are considered 'inflation-sensitive' assets, the data provide little support that they are good inflation hedges, and energy stocks and commodities are too volatile. So what works?

Sponsors

Alliances

© 2021 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. Any general advice or ‘regulated financial advice’ under New Zealand law has been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. For more information refer to our Financial Services Guide (AU) and Financial Advice Provider Disclosure Statement (NZ). You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.

Website Development by Master Publisher.