Taxation for US ETF, ASX Global ETF, and Australian ETF

[Hatemalaa]

Hi, since I'm new to investment in stocks/ETFs, I keep reading many posts around how ETFs and stocks are being taxed. However, for a reason, I got confused, especially with the difference between taxation of Australian ETF, US ETF (i.e. traded via Stake app), or Global ETF i.e. Vanguard Global Infrastructure that is listed on ASX. So may someone to help me with the following questions?
- Is there a difference in taxation between US ETF and the above mentioned global ETF?
- In any of them, am I going to pay double taxes (here in Australia + US (or other country)?

Thank you

 

[Sharkman]

i'm not a qualified accountant so treat the below with caution, if you need professional advice, then you really should speak to one.

my understanding is that there are a couple of considerations - where the ETF is domiciled and where the ETFs income is sourced from. these are not necessarily the same thing!

for example IVV is domiciled in Aust, but it's an ETF over the S&P 500, so its income is sourced from the US. even though it's not necessary to fill out a W-8 BEN form for it thanks to the Aust domicile, 15% of the dividends are automatically withheld and every year the fund will send a statement saying how much they actually paid you and how much they withheld. you need to declare the sum of the two as foreign sourced income, and the withheld amount in the foreign income tax offset box when you do your tax return, and the latter then gets lopped off the tax you would otherwise have to pay. you do not get double taxed.

if i was to sell IVV units (i have never sold any to date so i can't confirm this) then since it is domiciled in Aust, that would get treated as Aust capital gains (or losses), just like it was an ASX stock.

whereas with VEU (domiciled in the US), i do have to fill out a W-8 BEN form every year or two (or in my case W-8 BEN-E since i invest thru a corporate trust), and both the dividends and capital gains (upon disposal of units) would be subject to US withholding tax. there is still no double taxation as Aust and the US have a tax treaty preventing this.

again, if you're unsure about any of this, do yourself a favour and talk to an accountant about it. there's no point scrimping on accountancy fees only to get mercilessly hounded by the ATO and fined if you don't declare things correctly.

 

[Hatemalaa]

i'm not a qualified accountant so treat the below with caution, if you need professional advice, then you really should speak to one.

my understanding is that there are a couple of considerations - where the ETF is domiciled and where the ETFs income is sourced from. these are not necessarily the same thing!

for example IVV is domiciled in Aust, but it's an ETF over the S&P 500, so its income is sourced from the US. even though it's not necessary to fill out a W-8 BEN form for it thanks to the Aust domicile, 15% of the dividends are automatically withheld and every year the fund will send a statement saying how much they actually paid you and how much they withheld. you need to declare the sum of the two as foreign sourced income, and the withheld amount in the foreign income tax offset box when you do your tax return, and the latter then gets lopped off the tax you would otherwise have to pay. you do not get double taxed.

if i was to sell IVV units (i have never sold any to date so i can't confirm this) then since it is domiciled in Aust, that would get treated as Aust capital gains (or losses), just like it was an ASX stock.

whereas with VEU (domiciled in the US), i do have to fill out a W-8 BEN form every year or two (or in my case W-8 BEN-E since i invest thru a corporate trust), and both the dividends and capital gains (upon disposal of units) would be subject to US withholding tax. there is still no double taxation as Aust and the US have a tax treaty preventing this.

again, if you're unsure about any of this, do yourself a favour and talk to an accountant about it. there's no point scrimping on accountancy fees only to get mercilessly hounded by the ATO and fined if you don't declare things correctly.

That is quite useful Sharkman! Thank you so much.

 

[Zaxon]

whereas with VEU (domiciled in the US) and both the dividends and capital gains (upon disposal of units) would be subject to US withholding tax. there is still no double taxation as Aust and the US have a tax treaty preventing this.

I agree with everything you've said, except this part. My understanding is that while US dividends are taxed by the IRS, capital gains aren't. Typically dividends will have tax withheld upfront. Whereas when you sell a US stock, triggering a gain/loss, the IRS doesn't get involved.

Capital gains are declared (along with dividends) to the ATO.

 

[Sharkman]

I agree with everything you've said, except this part. My understanding is that while US dividends are taxed by the IRS, capital gains aren't. Typically dividends will have tax withheld upfront. Whereas when you sell a US stock, triggering a gain/loss, the IRS doesn't get involved.

Capital gains are declared (along with dividends) to the ATO.

you could be right. i've never actually sold any VEU units either (IVV and VEU are my primary FIRE investments), so i don't know for sure. was planning on checking with my accountants the first time i did so (i don't intend to sell any before i hit FIRE).

there's a whole bunch of rules to navigate in this field, for eg. some Aust companies with overseas sourced earnings are able to declare their dividends as conduit foreign income (CSL is one). meaning that if the investor is an overseas resident, the dividend never passes thru Aust to get taxed, it goes straight to the investor's tax jurisdiction and only gets taxed there.

hence the most important tip - if one is unsure about anything, speak to an accountant!