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I am thinking about buying some blue-chip US shares. My rationale being that the Australian dollar is currently buying a lot of US dollars, so this is a way to directly invest in some large US companies while minimizing cost. (The AUD is currently about $1.10 USD, usually it hovers around 80c-90c.) Assuming that the USD bounces back one day, I hope to make a bit of a bonus on the exchange rates. I am considering it as a medium term investment (5+ years).

I know this is doable, but I do not know the tax implications. If I buy US shares, am I subject to US tax on any dividends paid? When I eventually sell those shares, am I subject to US tax at that point in time?

Long and short: what do I need to know? Has anyone here had personal experience in this?

Thanks.

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Under the assumption that taxation of foreign investments for an Australian is similar as for a Canadian, I urge you to read the International Tax Essentials for individuals at the Australian Taxation Office website. I see that the US and Australia have a tax treaty which I understand would allow you to not worry about any US tax guidelines and handle all taxes on your foreign investments through your return with the ATO. What you should read specifically at that link is the Investing overseas section under Basic topics. There are numerous articles in that section that should answer your questions.

To give you an idea, in Canada, basically any US dividend income would incur a 15% withholding tax, which you can claim as a tax credit when filing your return. Capital gains and interest are not subject to withholding, and the proceeds and cost basis for calculating gains must be converted from USD to CAD on the day of each trade (more or less).

If you are in Australia while investing in US instruments, you are not a non-resident alien of the United States. You're just a foreign investor.

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You could refer to the US Tax Guide for Aliens.

To answer your question (for stocks)

  1. A non-alien resident won't be taxed for capital gains.
  2. A non-alien resident is subjected to 30% dividend withholding.
  3. The above rules assume that there's no tax-treaty among your country with US.

There're exceptions for mutual fund in particular.

** Please refers to one of my unanswered question: Dividends and tax withholding for ETF vs Mutual Fund for U.S. Non-Resident Alien?

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