Tax Consequences of Buying US Equities

[CenturionDroid]

Hi all,

I have a question that I cannot seem to find a straight-forward answer to.
If an individual purchases US equities and makes a capital gain after say, 12 months - do they pay Capital Gains Tax in the USA at their rates? or in Australia?

Also, if the gain is made in less than 12 months, how is that treated for tax purposes?

A poorly-trained girl on the ATO phone line has hastily advised me that capital gains made in the USA are taxable here, and said that the 50% discount applies if the assets were sold after 12 months. They also said that you receive tax offsets for any tax paid in the USA, though they wouldn't tell me if CGT is payable in the USA if you are Australian (they said contact the IRS) - is this at all correct??

I just want to know if CGT is payable in the USA as an Australian, and also what is the rate? (I believe it is just a flat 15%?) and what is their tax year? (I believe it is the same as the calendar year?)

Also most importantly - will I have to fill in a USA tax return through an accountant?? If so I will not bother buying US equities because the accounting fees do not justify it.

Thanks guys

 

[Beej]

Hi all,

I have a question that I cannot seem to find a straight-forward answer to.
If an individual purchases US equities and makes a capital gain after say, 12 months - do they pay Capital Gains Tax in the USA at their rates? or in Australia?

Also, if the gain is made in less than 12 months, how is that treated for tax purposes?

A poorly-trained girl on the ATO phone line has hastily advised me that capital gains made in the USA are taxable here, and said that the 50% discount applies if the assets were sold after 12 months. They also said that you receive tax offsets for any tax paid in the USA, though they wouldn't tell me if CGT is payable in the USA if you are Australian (they said contact the IRS) - is this at all correct??

I just want to know if CGT is payable in the USA as an Australian, and also what is the rate? (I believe it is just a flat 15%?) and what is their tax year? (I believe it is the same as the calendar year?)

Also most importantly - will I have to fill in a USA tax return through an accountant?? If so I will not bother buying US equities because the accounting fees do not justify it.

Thanks guys

When you set up an account with a US broker you complete a form (W-9 form "Request for Taxpayer Identification Number and Certification") which declares you as a non-US resident for tax purposes. You need to re-complete one of those forms each year. With this in hand the broker is not required to keep any US withholding tax, and you have no obligation to lodge a US tax return or pay tax in the US.

Of course that means you DO have to pay tax on any capital gains, income etc in Australia, just as you would if you were trading ASX shares. As the ATO advised you, the rules are the same (50% discount if held for 12 months and everything else).

As always please DYOR, and also I would check with your accountant about the best strategy to use (and is allowable by the ATO) wrt how you include the currency exchange rate in your tax calculations.

Cheers,

Beej

 

[CenturionDroid]

Thanks Beej

My broker is an Australian firm, not a US firm...

I'm not sure if they have those forms (they did not notify me of anything when I enquired about buying US equities.)

 

[CenturionDroid]

When you set up an account with a US broker you complete a form (W-9 form "Request for Taxpayer Identification Number and Certification") which declares you as a non-US resident for tax purposes. You need to re-complete one of those forms each year. With this in hand the broker is not required to keep any US withholding tax, and you have no obligation to lodge a US tax return or pay tax in the US.

Of course that means you DO have to pay tax on any capital gains, income etc in Australia, just as you would if you were trading ASX shares. As the ATO advised you, the rules are the same (50% discount if held for 12 months and everything else).

As always please DYOR, and also I would check with your accountant about the best strategy to use (and is allowable by the ATO) wrt how you include the currency exchange rate in your tax calculations.

Cheers,

Beej

I just did a bit of reading about that form - I can't seem to see anything about US withholding tax or anything to do with foreigners and CGT. Are you sure that is the right form? I just contacted my broker who have also never heard of it...

 

[Beej]

I just did a bit of reading about that form - I can't seem to see anything about US withholding tax or anything to do with foreigners and CGT. Are you sure that is the right form? I just contacted my broker who have also never heard of it...

Sorry working from memory - it might be W-8? See http://www.investopedia.com/terms/w/w8form.asp and/or http://en.wikipedia.org/wiki/IRS_Form_990#W-8BEN for some info.... (just googled that).

A US broker is required by law to have something (and it is one of those W-something forms) from you otherwise they have to withhold tax - it maybe if you operate through an AU broker that this is not required? I don't know - but either way, you do not have to pay tax in the US if you are paying it in Oz. What you need to ensure is that no withholding will occur on your account in the US to cover tax you are not required to pay!

Cheers,

Beej

 

[Uncle Festivus]

I have Newmont CDI's which pay a dividend and I am required to fill in the W-8BEN form to lower the withholding tax from 30% to 15% as we have a tax treaty with the US. They do take out 15% of the dividen in US dollars, which should be shown on a 1042-S form. All my correspondence is via the Aus share register Computershare. So, not sure if this applies to US trading profits as well?