Tax on Fully Franked Dividends

[TokyoWart]

Can someone explain to me what I need to do for paying taxes on my overseas ETF dividends? I'm on a work permit, but have lived in Japan since 2010. My ETFs have generated about 1 million Yen over the last 5 years. My dividends are from ETFs traded on the Toronto Stock Exchange, and my account is in Europe. I think my brokerage in Europe takes taxes from dividends

Your local tax office can help. You do have to file a 確定申告. In my experience those foreign dividends get reported on the 第三表 not the first one (第一表) starting on line 66 then also on 74 with tax shown on 82. There's an opportunity to claim a credit for the foreign taxes you've paid on the 外国税額控除に関する明細書 but that form gets complicated. In any case, if you can bring some evidence of the the foreign taxes you paid, it can lower your final Japanese tax.

[Henners]

Hi all,
was there ever an answer to this one?
I have been searching for a while and can't seem to find an answer.

[Tkydon]

See

https://www.ato.gov.au/Forms/You-and-yo ... 21/?page=4
https://www.ato.gov.au/Forms/You-and-yo ... idendspaid

Franked dividends

If you are a non-resident of Australia, the franked amount of dividends you are paid or credited are not subject to Australian income and withholding taxes. The unfranked amount will be subject to withholding tax. However, you are not entitled to any franking tax offset for franked dividends. You cannot use any franking credit attached to franked dividends to reduce the amount of tax payable on other Australian income and you cannot get a refund of the franking credit. You should not include the amount of any franked dividend or any franking credit on your Australian tax return.

As a non-resident for tax purposes, you can claim reduced rate of Withholding on various types of income in Australia under the Japan Australia Tax Treaty Dividend and Interest Income Withholding is 10% for both.

The Text of the Japan - Australia Tax Treaty is here
https://www.mof.go.jp/tax_policy/summar ... 00131b.pdf

These are probably the most relevant sections as an individual:
Article 10 - Dividends
According to Article 10, Paragraph 2(b), as a Resident of Japan for Tax Purposes, you should be able to claim a reduced amount of Withholding Tax on Dividend Income in Australia of 10%, instead of the standard 30%.
Article 11 - Interest
According to Article 11, Paragraph 4, as a Resident of Japan for Tax Purposes, you should be able to claim a reduced amount of Withholding Tax on Interest Income in Australia of 10%
Article 17 - Pensions and Annuities.

https://www.ato.gov.au/business/payg-wi ... ts/?page=5

https://www.ato.gov.au/individuals/work ... variations

https://www.ato.gov.au/Forms/PAYG-withh ... plication/

You need to submit PAYG Withholding Variation Application (Online or Paper NAT 2036) to reduce the amount of pay as you go (PAYG) tax withheld from income paid to you in the application year, and the payer (Aus Broker) can't vary the withholding rate until they receive an official variation notice from the ATO. You can submit the application in April for the following Tax Year starting in July.

You should be able to go back and reduce the tax for previous years if you have overpaid.

According to Article 10, Paragraph 2(b), as a Resident of Japan for Tax Purposes, you are only required to pay 10% Withholding Tax on Dividend Income in Australia, instead of the standard 30%.


As a Permanent Resident of Japan for Tax Purposes (resident in Japan for longer than 5 years), you have to declare the actual dividend amounts gross in Japan on the Kakutei Shinkoku before March 14th. for Dividends received in the previous Japanese tax year Jan-Dec.

You cannot use Aggregate Taxation Method or the Dividend Allowance for Overseas Dividends, so you have to use the Separate Taxation Method, so you have to submit Form B, pages 1&2 AND Page 3
They will then charge you Dividend Income Tax at 20.315% (National 15%, Reconstruction 0.315%, and Residential Taxes 10%).

If you paid taxes in Aus, when you receive your notification of Taxes withheld in Aus, probably in June, then you can go back and revise your Kakutei Shinkoku by adding the Foreign Tax Credit information to claim back the credit for the 10% tax paid in Aus. Form B, Page 1, Item 46 - Foreign Tax Credit.
The total amount of tax you will end up paying is still 20.315% (10% in Aus and a total of 10.315% in Japan - 5% National, 0.315% Reconstruction and 5% Residential Taxes).
If you didn't pay any Tax in Aus then end up paying the full 20.315% to Japan (15% National, 0.315% Reconstruction and 5% Residential Taxes).

You can go back and amend you Kakutei Shinkoku for the last 3 years to claim back any Foreign Tax Credits for those years.

[Vander]

Tkydon,

Thank you so much for this. At the moment, most of my portfolio consists of listed investment companies (AFIC, ARGO and a few others)

All of my portfolio is set to a Dividend Reinvestment Plan (DRP) so the text is automatically taken out from the stocks

However, AFIC and one other LIC I own have Dividend Substitution Share Plan (DSSP.) This is a way to accumulate shares over time. The main difference from the DRP is that no income tax is payable at the time of receipt of the dividend. With this system when Australian resident taxpayers receive DSSP shares, no income tax is payable until the shares are sold.

I assume this will this mean when I reach the five years of being in Japan that I will need to pay tax on both DSSP and DRP dividends and it will be 10 percent?

Regards

[Haystack]

Tkydon,

Thank you so much for this. At the moment, most of my portfolio consists of listed investment companies (AFIC, ARGO and a few others)

All of my portfolio is set to a Dividend Reinvestment Plan (DRP) so the text is automatically taken out from the stocks

However, AFIC and one other LIC I own have Dividend Substitution Share Plan (DSSP.) This is a way to accumulate shares over time. The main difference from the DRP is that no income tax is payable at the time of receipt of the dividend. With this system when Australian resident taxpayers receive DSSP shares, no income tax is payable until the shares are sold.

I assume this will this mean when I reach the five years of being in Japan that I will need to pay tax on both DSSP and DRP dividends and it will be 10 percent?

Regards

Where did you get the 10% from? It should be 20% I believe. Flat capital gains tax here.

[Tkydon]

That is 10% Australian Withholding Tax to be withheld in Australia and paid to the Australian government.

If you do not process the application for reduced rate of Aus withholding as an Overseas Resident under the Jqapan-Australia Tax Treaty, then your Australian Broker will be obliged to withhold 30% Australian Withholding Tax.

You then need to file in Japan.

Japan does not care about the status of 'Franked' Dividends.

You have to declare the Australian Dividends Gross, which will then be taxed under the Separate Taxation Method Dividend Tax Rate of 20.315% (15% National, 0.315% Reconstruction and 5% Residents' Taxes).
You then claim Foreign Tax Credit for any Tax withheld in Aus (10%), so that you are not double taxed, and the Total Tax Rate is still 20.315% (10% Australian Withholding, 5% National, 0.315% Reconstruction and 5% Residents' Taxes).