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tax position on foreign shares?

Discussion in 'Accounting, Tax & Legal' started by pthm, 12th Jul, 2007.

  1. pthm

    pthm Well-Known Member

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    I have a tax question, and would like comments or views from NickM and others. We have a smsf and we have bought some US shares for the smsf. As you know, many US shares do not pay any dividend.

    My questions are:

    1. What is the tax position in relation to ownership of foreign shares? Since these shares do not pay any dividend, does this mean we don't have to pay any tax on them until we sell the shares?

    2. Do we have to revalue (translate) the shares into A$ at the end of each financial year and pay tax on any unrealised gains / losses? Does the ATO "deem" the value of the shares and tax accordingly?

    Many thanks in advance. :)
     
  2. MattR

    MattR Well-Known Member

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    What does pthm stand for?

    1. Foriegn shares held by an Aust Resident SMSF are subject to tax in Aust. If the shares did earn a dividend and had imputation credits (foreign tax credits) attached to those dividends, then those credits could be used by the fund to offset Australian tax up to the Aust tax liabilty amount i.e. if there are excess foriegn tax credits they will not be refunded in Australia. The other side of the ledger is capital gains tax which will occur on sale of the foreign shares. So in your case, no tax until sold if there is a capital gain.

    2. Generally, Yes you need to revalue annually for accurate member balances if the fund adopts the accounting standard AAS25, which the Commissioner says funds should use. Australian Taxation Office Superannuation Circular 2003/1 - Self Managed Superannuation Funds
    No you do not pay tax on any unrealised gain.
     
  3. pthm

    pthm Well-Known Member

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    THANKS, Matt, for your reply. Appreciate it!

    pthm stands for the 4 initials of my name. :)

    1. Good to confirm that since the shares we have bought for our smsf have never paid any dividend, so we don't have to worry about the tax implications for now until we sell them - which will be years away. Also the reason we bought these shares was the A$ is very strong at the moment. When the A$ dips we may get some currency benefit out of it.

    2. We will do the revaluation for our own purposes. However, last year our accountant said to make things simpler we should keep things (for tax and accounting purposes) in historical costs. We keep a separate spreadsheet to do the revaluation of all our shares.

    Regards
    May
     
  4. Rob G.

    Rob G. Well-Known Member

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    Confusing isn't it ?

    Revaluation to current A$ value for the audited financial statements.

    Technically, should this also include tax effect and also for your MCS balances ?

    Cheers,

    Rob
     
  5. MiddleClassMonkey

    MiddleClassMonkey Well-Known Member

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    Hi Matt, if I own shares in the Hang Seng or FTSE, does this count as FIF?
     
  6. Rob G.

    Rob G. Well-Known Member

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    Don't think it applies to small shareholders in listed companies.

    It is designed to catch people hiding income in overseas contolled entities.

    Cheers,

    Rob

    (NB - you may have specific circumstances that does not make this apply, e.g. an overseas trust or even a super fund account !!!)
     
  7. MattR

    MattR Well-Known Member

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    Plebian Primate ;)

    I agree with RobG
     
  8. MiddleClassMonkey

    MiddleClassMonkey Well-Known Member

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    RobG, MattR thanks - if I were to invest $100,000 in a Japanese growth fund (owned by a Japanese company and run in Japan), locked for 5 years, do I just pay capital gains when I sell my units?

    Thanks

    - MiddleClassMonkey
     
  9. MattR

    MattR Well-Known Member

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    Yep.......