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When an Australian company in which an Australian investor holds shares through their superannuation fund (commonly referred to as a “Superfund”) redomiciles to a U.S. stock exchange like NASDAQ, the impact on the shares held in the super fund account depends on the structure of the redomiciliation transaction and the specific arrangements made by the company and the super fund. Here’s a detailed explanation of what typically happens:
1. Understanding Redomiciliation
•Definition: Redomiciliation involves a company changing its legal domicile from one jurisdiction (e.g., Australia) to another (e.g., the United States) while maintaining its business operations. This often includes moving its primary listing from the Australian Securities Exchange (ASX) to a U.S. exchange like NASDAQ.
•Purpose: Companies may redomicile to access deeper capital markets, achieve better valuations, align with international operations, or facilitate mergers and acquisitions using U.S.-listed shares.
•Mechanism: Redomiciliation is typically achieved through a “top-hatting” structure, where a new foreign entity (e.g., a U.S. company) becomes the parent company of the Australian company, and shareholders receive shares in the new entity in exchange for their existing shares.
2. What Happens to the Shares in the Super Fund?
•Share Swap: In most redomiciliation transactions, the Australian company’s shares held in the super fund are exchanged for shares in the new U.S.-domiciled parent company listed on NASDAQ. This is typically done on a one-for-one basis or at a predetermined ratio, as outlined in the scheme of arrangement or transaction documents. For example, if you held 100 shares in the Australian company, you would receive an equivalent number (or a proportionate number based on the exchange ratio) of shares in the new U.S. entity.
•Automatic Process: The share swap is generally handled automatically by the company’s share registry and the super fund’s custodian or administrator. The investor does not need to take direct action, as the super fund’s holdings are updated to reflect the new shares.
•Listing on NASDAQ: After the redomiciliation, the new shares will be listed on NASDAQ, and the Australian company’s shares may be delisted from the ASX (unless a secondary listing on the ASX is maintained). The super fund will now hold foreign securities (U.S. shares) instead of Australian shares.
3. Implications for the Super Fund
•Investment Compliance: Australian super funds, especially large ones like AustralianSuper, are permitted to hold international securities, including U.S.-listed shares, as part of their diversified investment portfolios. Many super funds already invest in global markets, so holding NASDAQ-listed shares is generally compliant with their investment mandates.
•Valuation and Performance: The value of the new U.S. shares may differ from the original Australian shares due to factors like market perceptions, currency fluctuations, and differences in valuation multiples on NASDAQ compared to the ASX. For example, U.S. markets may offer higher valuations for certain industries (e.g., technology), potentially benefiting investors, but this is not guaranteed.
•Currency Risk: Since the new shares are listed in U.S. dollars on NASDAQ, the super fund’s holdings will be exposed to currency risk. Fluctuations in the AUD/USD exchange rate will affect the value of the investment when reported in Australian dollars.
•Tax Considerations:
•Capital Gains Tax (CGT): In Australia, super funds are subject to tax on capital gains, but redomiciliation transactions are often structured to qualify for “rollover relief” under Australian tax law. This means that the share swap may not trigger an immediate CGT event, deferring any tax liability until the shares are sold. However, this depends on the transaction structure and whether the Australian Taxation Office (ATO) issues a class ruling confirming rollover relief. Investors should confirm with their super fund or seek professional tax advice.
•Dividend Taxation: Dividends from U.S.-listed shares may be subject to U.S. withholding tax (typically 15% under the Australia-U.S. tax treaty), which could reduce the net income received by the super fund. The super fund may be able to claim a foreign tax credit to offset this against Australian taxes.
•Administrative Adjustments: Super funds like AustralianSuper or Hostplus, which offer member-directed investment options, will update their records to reflect the new U.S. shares. If the super fund uses a custodian or platform for holding shares, the custodian will manage the transition, ensuring compliance with reporting and regulatory requirements.
4. Potential Challenges
•Liquidity and Trading: NASDAQ-listed shares may have different liquidity profiles compared to ASX-listed shares. While NASDAQ often offers deeper liquidity, the ability to trade these shares within a super fund may depend on the fund’s platform and whether it supports trading in U.S. securities. Some super funds may restrict trading in foreign shares for member-directed accounts, requiring investors to hold the shares rather than actively trade them.
•Fees and Costs: Holding U.S. shares may incur additional costs, such as foreign exchange fees, international brokerage fees, or custodial fees, depending on the super fund’s structure. Investors should check with their super fund for details on any additional costs.
•Regulatory Differences: The U.S. corporate law environment (e.g., Delaware or other state laws) differs from Australia’s, affecting shareholder rights, dividend policies, and governance. Super funds and investors should be aware of these differences, though they are unlikely to directly impact the holding of shares unless governance issues arise.
5. Example from History
•A notable example is Amcor’s redomiciliation in 2019, where it moved its primary listing from the ASX to the NYSE. Shareholders, including those with shares held in super funds, received shares in a new Jersey-domiciled entity listed on the NYSE, with a secondary listing maintained on the ASX. The transaction was structured to minimize tax impacts for Australian shareholders, with rollover relief applied in many cases.
6. What Should the Investor Do?
•Check with the Super Fund: Contact the super fund (e.g., AustralianSuper, Hostplus, or Australian Ethical) to confirm how the redomiciliation will be handled, including any changes to the investment option, fees, or trading restrictions.
•Review Transaction Documents: The company will typically provide a scheme booklet or shareholder notice outlining the redomiciliation process, including the share exchange ratio, tax implications, and timelines. This information is often available on the company’s website or through the ASX.
•Seek Tax Advice: If the transaction does not qualify for rollover relief or involves complex tax implications, consult a tax professional to understand the impact on the super fund’s holdings.
•Monitor Currency and Market Risks: Be aware of the potential for currency fluctuations and differences in market performance between the ASX and NASDAQ.
7. Conclusion
In summary, when an Australian company redomiciles to NASDAQ, the shares in an Australian investor’s super fund are typically exchanged for shares in the new U.S.-domiciled entity. This process is managed automatically by the super fund’s custodian and the company’s share registry. The investor will now hold U.S.-listed shares, which may introduce currency risk, different tax treatments, and potential changes in valuation. Super funds are generally equipped to handle such international securities, but investors should confirm with their fund and review transaction details to understand any specific impacts, such as fees or tax consequences. For further details, check the super fund’s investment guidelines and the company’s redomiciliation announcements.
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