Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Hi James and Team Generally speaking, would I be correct in saying that when investing in overseas equities (e.g. US) instead of Australia equities, I would forego any franking credits that would have been available on Australian dividends? In other words, is it possible to receive franking credits on overseas dividends? Cheers Mark
Hi Mark,
You are correct, there are no franking credits on international shares. Australia does have a tax treaty with the US, whereby, Australian investors sign a W-8BEN form to reduce the tax US authorities withhold. The form needs to be signed every three years. If the form is signed, there is 0% tax on sale proceeds while dividend payments are taxed at 15%. If no form is signed, the Internal Revenue Service (IRS) will charge 30% tax on sale proceeds and a 30% tax on dividend income.
Franking credits are a very overlooked factor in the Australian investment landscape. For some context here, we measure investment returns including franking credits. They make a big difference to returns. 10.95% CAGR for Australian shares including franking, 9.31% without and 8.82% for the MSCI World Index
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