Tuesday, 3 April 2007

Yippee, my form 1042S arrived!

There's nothing wrong with giving each form a unique ID number, after all the names of some forms like the "Foreign Person's U.S. Source Income Subject to Withholding" form don't exactly roll of the tongue. What amazes me is that even common forms (equivalent to our Australian annual "tax summary" statement) seem to get referred to by their "code name" eg/ "W2" or whatever.

Anyhow, back to the topic of this post - my 1042S arrived in the post today. It's really just of academic interest to me. As a non-resident I don't have to do a US tax return (as far as I know). The information provided is also of no practical use in filling in my Australian tax return (due after June 30). Even though there's a tax agreement between the US and Australia so I can claim a tax credit on my Australian return for any US tax already paid on my US dividends, the Australian system requires me to report all transactions in the Australian tax year (1 July - 30 June), so a Calendar year statement from the US isn't really much help. Also, the Australian return must list each individual transaction converted to the equivalent AUD value applicable at the time of the transaction. Theoretically this would mean looking up the exchange rate for the date each dividend was paid into my US broker account. But I'll probably just use the exchange rate that was applied to the funds I transferred each month to make my stock purchase - the variation in exchange rate will not have a material impact on the calculated amounts, as the totals for Jun-Dec 06 are only USD$60.25 in dividends and USD$9.04 US Federal tax withheld. As the Australian tax return often only requires whole dollar amounts for many items, the rounding error is likely to be much larger than any difference in exchange rate that occurred during a month.

I haven't quite worked out what my US broker is doing with my US dividend amounts - the first dividend sat in the cash account, and then was deducted from the amount due for the next stock purchase I made. However, subsequent dividends have simply accumulated in the cash balance of my US stock account for several months, and weren't credited against the amount due for subsequent monthly stock purchases. The amount is trivial, but it's still annoying to have a cash balance sitting in my US account unused and not earning any interest, when I then have to borrow that amount in Australia to pay for my next stock purchase in full! Hopefully when I start selling my first US "Little Book Portfolio" stock purchases at the end of the year (once they've been held 18 months) the amounts will be added to the current cash balance and be used to fund subsequent monthly stock purchases.

Enough Wealth


mOOm said...

What broker are you using? I really don't get what you wrote there. But it doesn't sound good. You should be paid interest and all dividends credited as received.

The lack of synchronization of tax years is a real pain... I now just report for the 2006 tax year the distributions of my Aussie funds for 2005-6 etc. Also I use the exchange rate on the last day of the tax year. That is allowed in Aus too I think.

enoughwealth@yahoo.com said...

The Broker is Comsec-Pershing (ie, the US Broker is Pershing, but through a relationship with Comsec in Australia). The main plus of using this account is that settlement for US stock orders is done in AUD from my Australian bank account automatically 3 days after purchase. The main con is that they aren't cheap. Hence the experiment with CFDs (which I'll start this month).

My explanation of the dividend issue wasn't very clear. I am receiving the US dividends into the "cash account" of my Pershing brokerage account. This account doesn't earn any interest, which wouldn't matter except that the money for recent dividends is just sitting there, rather than being cleared out each month by deducting any cash account balance against the amount due to settle that month's stock purchase. What is mystifying is that the cash balance was cleared out once by crediting against one of my earlier stock purchases, but in recent months this hasn't been happening. If nothing happens again this month I'll have to give the Comsec help desk a call (at least they have an Australian contact number).