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I am an Australian citizen temporarily living overseas so I am a bit out of touch with up to date information on changing tax laws in Australia (that are to come into effect after July 1st). How will captital gains made on the stock market be taxed? Will there be a diffrernce in how much you are taxed if you own shares for over a year?
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>>How will captital gains made on the stock market be taxed?<<

Depends on when they were acquired as the laws changed in October 1999. You have a choice:-

The old way "If acquired and held for 12 months before that date the capital gains (after October 1999 only) may be indexed and taxed at the normal rate."

The new way "If acquired and held for 12 months before that date the capital gains are subject to 50% reduction in tax that applies when lodging your tax return if asset sold after October 1999. If your maximum freshhold is 48% personal income tax, your CGT will be 24.5%. Basically you are giving away the indexation for a reduced CGT rate."

The benefits in the new methology will dissappear in a high inflation period.

>>Will there be a diffrernce in how much you are taxed if you own shares for over a year? <<

Timing is the key. If you buy and sell a share within 12 months this is deemed to be taxable income and added to your gross earnings... if held onto for longer than 12 months this is deemed to be capital gains...

The real question you should be asking yourself is whether you are a resident or non resident for tax purposes. If a non resident than you basically only have to account for tax to the country that you are living in!

Mind you watch out for the withholding taxes as they will hurt a bit...
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Hi demiller

The real question you should be asking yourself is whether you are a resident or non resident for tax purposes. If a non resident than you basically only have to account for tax to the country that you are living in!

Mind you watch out for the withholding taxes as they will hurt a bit...


I follow all your posts with great interest but the piece above, regarding withholding tax has me a little puzzled. It seems to refer to some tax changes that are about to come into effect on July 1st.

Do I detect that there will, from that date, be a witholding tax placed on the capital gain of an ASX held Australian share, held by a foreign national living in a foreign country?

Maybe I have misunderstood the position as I thought the current situation was that there is no such tax on shares owned by foreigners.

Thanks for your help

applefoot


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Non Residents are liable for capital gains only if a CGT asset has a connection with Australia (which includes shareholding of a public listed company which is 10% or more of the issued capital). I think my remarks were a broad brush approach and i apologise.

Please refer below in regard to dividends. This may explain there treatment a bit better.

+++++++++++++++++++++++++++++++++++++++++++++


"Any payment of the unfranked dividend by BHP should only be made after a withholding tax is applied to the full unfranked dividend and the balance remitted to a non resident.(21) As his residency status is in another country and that country's taxation laws will determine his tax payable on the unfranked dividend and the other income earnt is subject to the general rates of tax for non-residents (22). This is not the onus of the Australian Taxation Office. The general rate of withholding tax is 30% (23), while non residents; whose country has concluded a comprehensive double taxation agreement; are subject to a 15% withholding tax. (24)

Should a non resident have received a franked dividend or partially franked dividend then the dividend will, to the extent that it has been franked, be exempt from the withholding tax (25), such income will still be excluded from assessible income as if it had been subject to a withholding tax." (26)
____________________________________________________

21: Section 128(B)(1) Income Tax Assessment Act 1997 unless an exemption applies under Section 128(B)(3) Income Tax Assessment Act 1997
22: Tax Rates and Tables 1998-99 Non residents, Australian Tax Handbook 1999 (ATP 1999) p1977
23: Regulation 135 – 136 of the Income Tax Regulations
24: Ibid
25: Section 128B (3) (ga) Income Tax Assessment Act 1997
26: Section 128D Income Tax Assessment Act 1997


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Hi demiller1

Thanks for the very prompt reply.

Non Residents are liable for capital gains only if a CGT asset has a connection with Australia (which includes shareholding of a public listed company which is 10% or more of the issued capital).

The particular company I have shares in (Novogen) pays no dividends therefore no problem there I assume. Also I own substantially less than 10% of the issued capital, again no problem. However still a little confused. What is meant by "only if a CGT (capital gains tax?) asset has a connection with Australia"?

Putting it another way do you mean (which does NOT include shareholding of a public listed company which is 9.99% or LESS of the issued capital)?

To this simple soul, the asset or share, of any Australian company has a connection with Australia by definition...... or am I just being particularly thickheaded today? (wouldn't be the first time). Maybe you meant "asset HOLDER"?

Thanks again for all your efforts, much appreciated,

applefoot

P.S.
(apologies for ommitting the 1 in your handle, last post)
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Term connection with Australia, is strictly in line with 'capital asset' and the application of the Capital Gains Tax Act to non residents on these assets.

This covers basically all assets within Oz, yet the way that the share markets works on a global scale, it is a little impossible for Carmody to tax every single transaction, as he does not know the worth nor net gain or loss of each transaction (although one suspects that he is trying very hard to tie in the share trading activities of CHESS through to TFN's so 'he does know' and can watch all taxpayers profits and losses **).

Connection within Oz means a BHP, NDY etal listed on the ASX whose principle activities are in Oz and that connection remains through the management and head office.

Therefore, an exception is made to share trades unless they are in excess of 10%. Why 10% ... it has to do with the 'control factor' and ability to monitor non residents transactions worldwide.

A public company can be controlled with less than 10% of the issued capital of a company [say de Crespney (?) in NDY] however, anything above 10% has to be reported to the ASX and can be easily monitored by the ATO.

It is far easier to monitor these and takes less resources, when we are looking at a global trading situation with those non resident shareholders that invest in more than 10% of listed companies (which as stated previously must declare and report shareholdings under the ASX guidelines).

Take Conrad Black and his involvement in Fairfax. Whilst a Canadian resident his sale of his interest in Fairfax, would have resulted in a CGT bill being directed his way (one presumes in this instance that a gain was made) under the ITAA, as it stands. I doubt that he could avoid payment and the scenario raises interesting parallels.

Hence non residents have it on a trust basis to report to their own tax authority.

(**) The hobby routine will not work as a means of not declaring capital profits in Oz, as the share is an asset and CGT applies regardless (to answer the residents query).
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Hi demiller1

Thank you for such a full and detailed reply.

Like some others here, I am now left feeling a bit guilty for taking up so much of your time.

Keep up the invaluable posts,

Regards

applefoot
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