US Stocks and Tax

[kolothuk]

Does anyone have any information on how easy it would be to fill in my tax return from Dividends/capital gains in stocks listed on the NYSE ? I'm guessing it would be the similar to my holdings in iShares listed on the ASX?

The reason I ask is my holdings won't be that big and getting an accountant for such small dividend payments doesn't make much sense to me.

 

[Trend Hunter]

Hi there.
I'm not an expert in Tax, but have been trading in the US market for a few year now and I believe if you have made income from the international markets there is a seperate section in your Tax return for foriegn income or something like that.

Hope that helps,
Cade

 

[bellenuit]

Does anyone have any information on how easy it would be to fill in my tax return from Dividends/capital gains in stocks listed on the NYSE ? I'm guessing it would be the similar to my holdings in iShares listed on the ASX?

The reason I ask is my holdings won't be that big and getting an accountant for such small dividend payments doesn't make much sense to me.

Dividends are a bit messy as you declare them under foreign income and that is a complex part of a tax return. I presume you have also paid US Withholding Tax on those dividends, which also should be included so that you get credited back whatever or most of whatever is paid. It is doable without an accountant, but it seems to change year to year, so you need to spend some time reading up on it. Remember to translate to Aussie dollars using the rate for the date the dividends were paid.

Capital gains or losses are much easier as you declare them along with your other capital gains for Australian Investments. The only thing to watch is how to handle the gain or loss calculation. You DON'T calculate the gain in US dollars and then translate this to aussies. What you must do is convert your purchase costs (share cost, broker fees etc) to Australian dollars using the rate from the date that these expenditures were incurred and convert your net proceeds (sale price less sale costs) to Australian dollars using the rate that applied when the sale took place. The gain or loss for Australian tax purposes is the difference between these two figures. This can lead to some anomalies such as depending on the exchange rates of these two separate dates, you can in fact end up with a gain in regards to Australian tax whereas you actually lost money in US dollar terms or vice versa.

The ATO website gives a complete list of all exchange rates in daily tables. For purchases pre July 2003 you are allowed use the average rate for the month instead of the rate for the particular day as daily rates are not available on the site for those earlier years.

 

[kolothuk]

Thanks.

I had a good read of the foreign income part of the tax return and associated documents on the ATO website. It seems US NYSE stock would be considered 'an interest in a foreign investment fund'. Though since most small investor holdings is less than AUD$50,0000, a small investor wouldn't need to declare it as FIF income as that meets one of the exemptions. So for small investors your simply declare the dividends, foreign tax paid and any capital gains from sale (using the ATO website for currency conversion on the relevant days). I also read that iShares is exempt from the FIF income rules as it is regulated investment company.

 

[bellenuit]

Thanks.

I had a good read of the foreign income part of the tax return and associated documents on the ATO website. It seems US NYSE stock would be considered 'an interest in a foreign investment fund'. Though since most small investor holdings is less than AUD$50,0000, a small investor wouldn't need to declare it as FIF income as that meets one of the exemptions. So for small investors your simply declare the dividends, foreign tax paid and any capital gains from sale (using the ATO website for currency conversion on the relevant days). I also read that iShares is exempt from the FIF income rules as it is regulated investment company.

I am not sure where the $50K comes in. There is a declaration in that section (2009 Supplementary Pack, Page S26, Part I) that you must make if you hold foreign assets in excess of $50K, but that is just a declaration. It doesn't mean you are not taxed if your assets are less than that.

Looking at last year's tax pack, foreign dividends come under the 2009 Supplementary Pack, Page S24, Part E. The category is "Modified Passive Income such as royalties or dividends".

"Interest in a foreign investment fund" seems like the wrong category IMO.

I have no idea what iShares are, so can't comment in relation to them.

 

[kolothuk]

My example is based on owning shares in a typical blue chip company listed on a American Stock Exchange Such as Wallmart, Microsoft, Coca Cola etc..

I am not sure where the $50K comes in. There is a declaration in that section (2009 Supplementary Pack, Page S26, Part I) that you must make if you hold foreign assets in excess of $50K, but that is just a declaration. It doesn't mean you are not taxed if your assets are less than that.

I'm not saying your not taxed. On the 2008-2009 tax return (supplementary section) for Question:

19 Did you have an interest in a foreign investment fund (FIF) or a foreign life assurance policy (FLP)?
(J) No [ ] Yes[ ]


The answer would be Yes as a US stock such as Walmart is a foreign controlled company ?.

FIF and FLP Income (C)[ ].00

This doesn't need to be answered for small investors with less than $50,0000 because of the exemption. http://www.ato.gov.au/individuals/content.asp?doc=/content/00191822.htm&page=30&H30

Looking at last year's tax pack, foreign dividends come under the 2009 Supplementary Pack, Page S24, Part E. The category is "Modified Passive Income such as royalties or dividends".

Agreed.

I have no idea what iShares are, so can't comment in relation to them.

They sell ETFs on the ASX of various worldwide index funds.

 

[bellenuit]

Actually Section 19 is something I never bothered about, though after reading your ATO link, it seems to apply to shareholdings in US listed shares, of which I have many. But I think that although I should answer Yes to the first question in section 19, I would end up answering No to the remaining three.

Foreign Income is a bag of worms when filling out the tax return.

 

[kolothuk]

Actually Section 19 is something I never bothered about, though after reading your ATO link, it seems to apply to shareholdings in US listed shares, of which I have many. But I think that although I should answer Yes to the first question in section 19, I would end up answering No to the remaining three.

Foreign Income is a bag of worms when filling out the tax return.

Hehe. It is indeed. Thanks for your help .