Tax on US and International Shares for Australian Investors

Buying US and international shares is easier than ever from Australia, but the tax picture stretches across two countries. You can owe tax here and have tax taken out overseas, and the two need to be squared up. Here is how foreign dividends, withholding tax and the paperwork fit together.

You are taxed on worldwide income

As an Australian tax resident, you are taxed on income from everywhere, not just Australia. Dividends from foreign shares are assessable here, and selling foreign shares is a CGT event calculated in Australian dollars. The 50% CGT discount still applies to foreign shares you have held for more than 12 months, the same as local ones.

Foreign dividends have no franking credits

Unlike Australian shares, dividends from foreign companies do not come with franking credits, because no Australian company tax was paid on them. You declare the full foreign dividend as income, converted to Australian dollars, without the imputation benefit you get at home.

Foreign withholding tax

Many countries take a slice of your dividend before it reaches you. On US shares, completing a W-8BEN form generally reduces US withholding tax on dividends to 15% under the Australia-US tax treaty. Without it, the rate can be much higher, up to 30%. The W-8BEN is usually a quick form your broker provides, and it needs renewing every few years.

Avoiding double tax

To stop the same income being taxed twice, you can usually claim a foreign income tax offset in Australia for the foreign tax already paid. You still declare the full foreign income, then offset the overseas tax against your Australian bill. For total foreign tax of $1,000 or less, you can generally claim it without detailed calculations. Above that, the offset is worked out against the Australian tax on your foreign income.

Currency makes it fiddly

Every buy, sell and dividend has to be converted to Australian dollars using the exchange rate on the right date. A purchase, a sale and each dividend can all sit at different rates, which means your gain is driven by both the share price and the currency move. This is where foreign share records get complicated fast.

A quick example

You buy US shares for US$10,000 and later sell for US$13,000. Your gain is not simply US$3,000. You convert the purchase to Australian dollars at the rate on the buy date, and the sale at the rate on the sell date, and the difference between those Australian dollar figures is your gain. A falling Australian dollar can add to the gain even when the US dollar price barely moved.

Keep the paperwork straight

Summ handles the conversions and keeps foreign income, withholding tax and capital gains in one place, so both sides of the border reconcile.

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Frequently asked questions

Do I pay Australian tax on US shares? Yes. As a resident you are taxed on worldwide income, so US dividends and gains are assessable here.

What does the W-8BEN do? It generally reduces US withholding tax on dividends to 15% under the tax treaty. Without it, more can be withheld.

Will I be taxed twice? Usually not. You can claim a foreign income tax offset for the overseas tax already paid, up to the Australian tax on that income.

Do foreign shares get the 50% CGT discount? Yes, if you are an individual and held them for more than 12 months.

Do foreign dividends have franking credits? No. Franking credits only attach to dividends from Australian companies.

This article is general information only and does not take your personal circumstances into account. For advice specific to your situation, speak to a registered tax agent.