Withholding tax on dividends

[drew]

Hi all

Im new to sharetrader and love the site and the discussions.

I have a question about withholding taxes on dividends. I own shares in the US personally and through a company with ASB Securities.

I noticed on my latest dividend statements tax has been withheld at 30% and i was under the impression that the NZ/US double tax treaty limited this to 15%. Has anyone encountered this issue with ASB or their own brokers?

Appreciate any comments on this.

Drew

[shasta]

Hi all

Im new to sharetrader and love the site and the discussions.

I have a question about withholding taxes on dividends. I own shares in the US personally and through a company with ASB Securities.

I noticed on my latest dividend statements tax has been withheld at 30% and i was under the impression that the NZ/US double tax treaty limited this to 15%. Has anyone encountered this issue with ASB or their own brokers?

Appreciate any comments on this.

Drew

Under the rules for double tax treaty countries, you will be limited to claiming the maximum amount allowable under the country you reside in.

So US dividends having with-holding credits are claimable to the same extent as if you were taxed in NZ.

You may well be "overtaxed" in this instance & may be due a refund in your tax return.

This may help you

http://taxpolicy.ird.govt.nz/international/DTA/index.html

[drew]

Hi Shasta thanks for the quick response!

Agree in my personal account I can claim the taxes as a foreign tax credits.

The company however will be paying NZ tax under the FDR method and since the dividends are exempt the taxes withheld on the dividends can not be claimed as foreign tax credits.

I thought that perhaps the US companies dont have my shareholder details therefore they are withholding at 30% but ASB Securities holds the shares as nominee therefore it is likely to be their mistake. But surely this is not just me having this problem? Others must have encountered this also :confused:

[shasta]

Hi Shasta thanks for the quick response!

Agree in my personal account I can claim the taxes as a foreign tax credits.

The company however will be paying NZ tax under the FDR method and since the dividends are exempt the taxes withheld on the dividends can not be claimed as foreign tax credits.

I thought that perhaps the US companies dont have my shareholder details therefore they are withholding at 30% but ASB Securities holds the shares as nominee therefore it is likely to be their mistake. But surely this is not just me having this problem? Others must have encountered this also :confused:

I'm with ASB Sec also, they should have passed on all relevent details.

Give them a call in the morning, they are very accessible.

Deriving income from overseas in a company, complicates things a bit.

Check the FIF thread in the newbies section, i posted more material in there

[777]

Drew I claim any tax paid on foreign income under the FDR regime. This year however I have not had any income to declare as using the CV method produces a loss. In this case I believe as there is no income then no claim of tax paid can be made. What was deducted is not a large amount so am not too concerned.

This is through my trust though which works as though you were an individual, except for the $50,000 minimus. Companies I am sure are different.

This is an old thread which may be of some help.

www.sharetrader.co.nz/showthread.php?t=5964&highlight=fdr

[Ish]

Hi Shasta thanks for the quick response!

Agree in my personal account I can claim the taxes as a foreign tax credits.

The company however will be paying NZ tax under the FDR method and since the dividends are exempt the taxes withheld on the dividends can not be claimed as foreign tax credits.

I thought that perhaps the US companies dont have my shareholder details therefore they are withholding at 30% but ASB Securities holds the shares as nominee therefore it is likely to be their mistake. But surely this is not just me having this problem? Others must have encountered this also :confused:

It is late and its been a long day so im a little fuzzy on this right now, but I believe your company can offset the US tax paid against its FDR income regardless of the dividends being exempt. Which for a company (that cant use CV) is bound to have tax to pay.

If you were an individual using the CV method and made a loss the answer may be different

I can check with more clarity in the light of day if you would like but I am pretty sure my above response is correct.

Cheers

[Jay]

Sorry if this has beem mentioned re FDR
I have a trust whom has shares - All Australian in the Top 500 on the ASX

Any one holding is less than $50K total holding over $50K.

My understanding is this:

As all shares are in the Top 500 Index normal tax on Dividends apply, ie FDR rules do not apply

Secondly please clarify - if I held XYZ Ltd $30K and ZYX LTD $35K which are outside the ASX 500 personally (as there is no threshold limit for trusts?) Does this come under the FDR rules .
Not sure whether it is your total portfolio or a singular holding that counts as the $50K, I'm thinking the former. :confused:

[shasta]

Sorry if this has beem mentioned re FDR
I have a trust whom has shares - All Australian in the Top 500 on the ASX

Any one holding is less than $50K total holding over $50K.

My understanding is this:

As all shares are in the Top 500 Index normal tax on Dividends apply, ie FDR rules do not apply

Secondly please clarify - if I held XYZ Ltd $30K and ZYX LTD $35K which are outside the ASX 500 personally (as there is no threshold limit for trusts?) Does this come under the FDR rules .
Not sure whether it is your total portfolio or a singular holding that counts as the $50K, I'm thinking the former. :confused:

Your total portfolio cost price must be under $50k.

Should the market value double to $100k, so long as you havent added to the cost price, you are ok.

I'm assuming DRP's add to the total cost price, but would need to look into this further

Non individuals have other considerations however, so please ensure you receive proper tax advise before setting up any structures!

[Jay]

Thanks Shasta.

Appreciate your thoughts

[impacman]

Hi Jay. Not sure you were just using ASX company's as an example but my understanding is that ASX listed company's are exempt from FDR entirely i.e. can hold whatever value you like.

Cheers.

Have reread your post and see you were onto that one!

[drew]

I have spoken with ASB Securities and they will check why taxes are being withheld at 30% and get back to me. From my discussion with them it sounds like ASB hold the shares through a custodian that is based in the US. I suspect this is the reason why the tax is being withheld at 30% not the DTA rate of 15%, reason being the US/NZ treaty states the maximum withholding on dividends is 15% provided the "beneficial owner" is not carrying on business in the US through a permanent establishment.

"Beneficial owner" is not defined but its likely that ASB have taken the position that for the DTA they are the beneficial owner and not me. I dont know if this is correct but will wait to hear a reply.

So the ASB nominee either is incorporated in the US or has an establishment over there which means the treaty does not provide relief.

777 and Ish - you are correct my mistake. Foreign taxes can be claimed using either the FDR or CV method provided you have income to offset against. Im surprised and this makes the FDR and CV methods even more appealing to me. A company paying tax at 30% only needs to achieve a dividend yield of 5% with taxes withheld at 15% will cover half of the tax cost alone, 30% taxes withheld fully cover the tax cost, under the FDR method assuming no quick sales.

Companies claiming foreign tax credits on dividends that are withheld at 30% will not going to be an issue so long as there is sufficient taxable income to claim the credits. Foreign taxes not utilised cannot be carried forward to future years so if there is not sufficient income to utilise all of the credits, the 30% witholding is not a good result.

For individuals that pay tax at marginal tax rates below 30% that 30% withholding tax will work against them.

I will wait for ASB to get back to me regarding this and see if anything can be done. If they cannot fix this then I will need to shift to another broker where i can hold the shares in my own name rather than through a nominee. Holding the shares in your own name will ensure that any taxes are only withheld at the DTA rate of 15%.

Investors should pay attention to their dividends and see what the withholding actually is. In some cases, eg if you are using the CV method and have losses then taxes withheld at 30% not 15% is money lost. Even if you do end up claiming them in your tax return there is still an opportunity cost of not being able to use the funds/taxes withheld.

[OldRider]

Drew: Prior to shifting ownership of your US shares from ASB's nominee company to yourself it would be prudent to discuss the ramifications of this move with others who may have made this move previously.

For myself I found the regular filling in of the documentation I was sent a pain, as well withholding tax deductions were made after some sales and repatriation of cash which I was never able to recoup, a year or two ago this was not too much of a problem because it became a local tax deduction, I don't think it would be the same today

If your investments are substantial it may all be worthwhile, but I did not consider it so,
and have shifted from direct ownership. However, things may be different today but a little investigation would do no harm. As well I found the service from US share registries
to querying correspondence quite poor, mostly no replies to Email, little better for mail, and difficulties getting the right person by phone.

[Jay]

No worries impacman.
One reason i will stick to ASX shares only (outside of NZ) so much simpler!

[impacman]

No worries impacman.
One reason i will stick to ASX shares only (outside of NZ) so much simpler!

Cool. Pretty much my philosophy as well.:)

[shasta]

I have spoken with ASB Securities and they will check why taxes are being withheld at 30% and get back to me. From my discussion with them it sounds like ASB hold the shares through a custodian that is based in the US. I suspect this is the reason why the tax is being withheld at 30% not the DTA rate of 15%, reason being the US/NZ treaty states the maximum withholding on dividends is 15% provided the "beneficial owner" is not carrying on business in the US through a permanent establishment.

"Beneficial owner" is not defined but its likely that ASB have taken the position that for the DTA they are the beneficial owner and not me. I dont know if this is correct but will wait to hear a reply.

So the ASB nominee either is incorporated in the US or has an establishment over there which means the treaty does not provide relief.

777 and Ish - you are correct my mistake. Foreign taxes can be claimed using either the FDR or CV method provided you have income to offset against. Im surprised and this makes the FDR and CV methods even more appealing to me. A company paying tax at 30% only needs to achieve a dividend yield of 5% with taxes withheld at 15% will cover half of the tax cost alone, 30% taxes withheld fully cover the tax cost, under the FDR method assuming no quick sales.

Companies claiming foreign tax credits on dividends that are withheld at 30% will not going to be an issue so long as there is sufficient taxable income to claim the credits. Foreign taxes not utilised cannot be carried forward to future years so if there is not sufficient income to utilise all of the credits, the 30% witholding is not a good result.

For individuals that pay tax at marginal tax rates below 30% that 30% withholding tax will work against them.

I will wait for ASB to get back to me regarding this and see if anything can be done. If they cannot fix this then I will need to shift to another broker where i can hold the shares in my own name rather than through a nominee. Holding the shares in your own name will ensure that any taxes are only withheld at the DTA rate of 15%.

Investors should pay attention to their dividends and see what the withholding actually is. In some cases, eg if you are using the CV method and have losses then taxes withheld at 30% not 15% is money lost. Even if you do end up claiming them in your tax return there is still an opportunity cost of not being able to use the funds/taxes withheld.

Drew

I also use margin lending thru ASB, you own the securities, they own the loan against them.