US Share Investments and Australian Tax Implications
Tax Considerations for Australian Investors
When investing in US shares from Australia, it's crucial to be aware of the potential tax implications. While foreign investors in US shares are exempt from US capital gains tax, they are subject to Australian tax on those gains.
Capital Event Triggers
When you trigger a capital event, such as selling your US shares, you are required to calculate your capital gain or loss. This is the difference between the sale proceeds and your original purchase price.
Australian Tax on Foreign Capital Gains
In Australia, capital gains on foreign investments are subject to income tax at your marginal tax rate. You can reduce your Australian tax liability by claiming any foreign income tax already paid (known as a foreign tax offset) against the Australian tax due.
US Withholding Tax on Dividends
When trading US shares from Australia, investors are also subject to US withholding tax on dividends received. This tax is deducted from the dividend amount before it is paid to you.
Withholding Tax Leakage
Withholding tax leakage occurs when your company covers the corporate tax rate on foreign income earned by its subsidiaries. This can reduce the amount of franking credits available to you, leading to a higher tax liability.
Capital Gains Tax and Income Tax Return
When you sell US shares and realize a capital gain, you must report this on your Australian tax return. The capital gains tax is calculated according to the formula: Capital Gains Tax = Capital Gain * Marginal Tax Rate - Foreign Tax Offset
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