This blog post provides instructions on how to fill out a W8BEN as an Australian tax resident as well as a general summary of the main Australian income tax implications of an investment by an Australian investor in Exchange Traded Funds (“ETFs”) that are domiciled in the United States (“US”) and are cross listed for quotation on the Australian Securities Exchange (“ASX”).
Stockspot makes completing a W-8BEN easy by doing most of the work for clients so all you need to do is print, sign and send. Two such ETFs form part of the Stockspot Model Portfolios – the iShares Emerging Markets ETF (ASX: IEM) and iShares Global 100 ETF (ASX: IOO).
Why should Stockspot clients complete the W-8BEN Form?
Stockspot clients own investments in exchange traded funds (ETFs) that derive their income from the United States (US). These include the iShares Emerging Markets ETF (IEM) and iShares Global 100 ETF (IOO) which are invested in businesses like Samsung and General Electric. These ETFs are subject to US withholding tax.
For investors who are non-US residents, the good news is that the US withholding tax rate is typically reduced from 30% to 15% under the Australia/US Double Tax Agreement.
What do I need to do?
In order to take advantage of this reduced withholding tax rate, Stockspot clients are required to complete a W-8BEN form to establish that they are not a US resident and that they are the beneficial owner of the income received.
Stockspot will make your pre-filled W8BEN form available in the investment dashboard before the required lodgement date. You can return the form by email to iSharesUSTaxForms@computershare.com.au or post to: Computershare Investor Services Pty Limited, Reply Paid 2975, Melbourne VIC 8060 (No postage required if posted within Australia).
Without lodging a W-8BEN form, US withholding tax will be deducted on your US income at the full rate of 30%.
When must the W-8BEN form be completed?
In order for the lower withholding rate to apply, a W-8BEN form must be completed and submitted before any income is paid or credited. Typically the US domiciled ETFs that make up the Stockspot Model Portfolios pay distributions in June and December. It is therefore important to lodge your W-8BEN before your first distribution is received.
For how long is a W-8BEN form valid?
Generally a W-8BEN form will remain in effect until 31 December, 3 years after the date of signing. For example, a form signed on 15 June 2014 will remain in effect until 31 December 2017. However, if any details provided on the form change, an investor will need to lodge a new W-8BEN form providing the new details.
How many W-8BEN forms do I need to complete?
A W-8BEN form needs to be completed for each security an investor holds which may distribute US sourced income. For clients in the Stockspot Model Portfolios this means one W-8BEN form for each of the iShares Emerging Markets ETF (IEM) and iShares Global 100 ETF (IOO). Where a form is not completed, US WHT may be applied on that ETFs distributions at a higher rate.
What happens if a W-8BEN form has not been lodged?
If the W-8BEN form is not completed, US withholding tax may be deducted at an applicable rate of 30% of the income distributed. However, clients may be able to claim back any US WHT charged in the form of a foreign income tax offset (FITO) which reduces your net tax payable in Australia.
Investors who have not submitted a W-8BEN form and have been charged a higher rate of US WHT will therefore generally be able to claim the additional WHT back in the form of a larger FITO.
For individuals or super funds in the accumulation phase, WHT is an allowable tax offset (that is, the Australian Tax Office (ATO) will reduce your net tax payable by any foreign tax paid).
For super funds that pay no tax on their assessable income, there can be no tax offset. You should obtain independent professional taxation advice applicable to your individual facts and circumstances.
What if I’m not an Australian resident?
Where an investor is a resident for tax purposes of a country with which the US has negotiated a double tax agreement (“DTA”), in completing the W-8BEN form, the investor may be able to claim a reduced rate of, or exemption from, US withholding tax. Please refer to the IRS website for more detail.
What if I’m a US resident?
US resident investors are required to complete a W9 Form (Request for Taxpayer Identification Number and Certification) as non-resident WHT is not applicable for these account holders. We recommend that US investors seek independent taxation advice in relation to the US taxation obligations.
Where can I find more information?
Where can I find a sample / replacement W-8BEN form?
You can obtain a sample form here.
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The comments outlined in this blog assume that the investor: (a) is an Australian resident for income tax purposes with an income year ending on 30 June; (b) is an individual taxpayer or a complying superannuation fund; (c) does not carry on a business of either trading or dealing in shares or otherwise hold investments on revenue account – any subsequent disposal of the investment in an iShares fund will therefore be subject to the capital gains tax regime; and (d) returns dividend distributions from holding iShares funds on a cash basis. This blog post is based on the Australian taxation laws in force and the administrative practices of the Australian Taxation Office generally accepted as at 30 June 2013. Taxation laws may change in the future without notice. Please refer to the full Stockspot disclaimer here.
Note: The information in this blog is of a general nature only and does not address all of the taxation issues, which may be relevant to a particular investor. Accordingly, this blog does not constitute legal, financial or tax advice and should not be relied upon. Australian taxation laws are complex and may change over time. Investors should obtain their own professional taxation advice applicable to their own individual facts and circumstances.