I am an Australian resident for tax purposes. I’m thinking of diversifying into some direct shares in the US. However, I’m unclear on how the tax works in the US and my online research has come up empty.
I understand the Australia side of it (ATO website thank you very much), but what about the US side? If I get dividends or make a capital gain, do I have to pay tax in the US?
Is this done automatically? Are there forms I need to fill in? Do I have to lodge a US tax return? Anything else I need to do?
Any help or point in the right direction would be greatly appreciated.
A: Australia has a double taxation agreement with the USA. Provided a valid W-8BEN form has been lodged with the US Department of Inland Revenue, then a 15% withholding tax will be applied to any dividend payment and there will be no deduction to any sale proceeds. If the W-8BEN has not been provided or is not valid, then a withholding tax of 30% will be applied to both dividends and sale proceeds. The latter is effectively a capital gains tax.
If you are resident for Australian taxation purposes, the Australian Taxation Office considers all income (whether derived in Australia or a foreign country) as assessable for income tax. You will receive a credit for any foreign tax (ie withholding tax) paid.
Your custodian/broker/share registry will contact you are about lodging the W-8BEN form. It is one of the most incomprehensible/poorly designed forms you will ever experience – but it must be 100% accurate – and I strongly advise you to complete it. You wont be required to lodge a US tax return.