Australian tax booklet for US domiciled ishares

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Australian tax booklet for International
(US-domiciled) iShares ETFs
[2]  AUSTRALIAN TAX BOOKLET FOR INTERNATIONAL (US-DOMICILED) iSHARES ETFs
1.  Introduction
1.1  The Australian Tax Booklet for International iShares
Funds (“Booklet”) provides a general summary of
the main Australian income tax implications of an
investment by an Australian investor in iShares
Exchange Traded Funds (“ETFs”) that are domiciled
in the United States (“US”) and are cross listed for
quotation on the Australian Securities Exchange
(“ASX”) (“International iShares”).
1.2  The information in this Booklet is of a general
nature only and does not address all of the taxation
issues which may be relevant to a particular
investor. Accordingly, this Booklet does not
constitute legal, financial or tax advice and may not
be relied upon as such.
1.3  Australian taxation laws are complex and may
change over time. Accordingly, it is recommended
that each investor obtains their own independent
professional taxation advice applicable to their own
individual facts and circumstances.
1.4  The Booklet also provides limited information in
respect of estate and withholding tax obligations
in the US. This information is very general and does
not constitute advice. Investors must seek their
own advice.
2.  Assumptions
2.1  The comments outlined in this Booklet assume that
the investor:
(a)  is an Australian resident for income tax purposes
with an income year ending on 30 June;
(b) is an individual taxpayer or a complying
superannuation fund;
(c)  does not carry on a business of either trading or
dealing in shares or otherwise hold investments
on revenue account – any subsequent disposal
of the investment in an iShares fund will
therefore be subject to the capital gains tax
regime; and
(d) returns dividend distributions from holding
International iShares funds on a cash basis.
2.2  This Booklet is based on the Australian taxation
laws in force and the administrative practices of
the Australian Taxation Office generally accepted
as at 30 June 2015. Taxation laws may change in
the future without notice. Furthermore, legislation
introduced to give effect to any announcements
regarding tax may contain provisions which
were not contemplated at the time of the
announcements.
2.3  The government is currently reviewing the Australian
taxation system, including a review of Australia’s
anti-deferral rules. You should consult your tax
adviser to understand how any of these future
changes may affect your iShares ETF investment.
2.4  This Booklet includes:
Appendix A: Information to assist you to complete
your tax return
3.  iShares ETFs – background
3.1  Your investment consists of a class of shares (a
“Fund”) issued by iShares, Inc. or iShares Trust
(“collectively iShares”) on the ASX. Each iShares
company is a managed investment company
incorporated in the US and registered with the
US Securities & Exchange Commission under the
Investment Company Act of 1940.
3.2  In Australia, both iShares companies are registered
foreign investment companies (iShares, Inc. ARBN
125 632 279, iShares Trust ARBN 125 632 411). For
Australian tax purposes, your investment is a share
in a foreign company, being iShares, Inc. or iShares
Trust. The term iShares is used in this document to
refer to either iShares entity.
3.3  The buying and selling of International iShares ETFs
on the ASX is settled by way of Chess Depositary
Interests (“CDIs”).
3.4  Computershare Investor Services Pty Limited
(“Computershare”) is the registrar of the funds in
Australia. Computershare is not responsible for any
information contained in this Booklet.
3.5  On March 18, 2010 the United States Congress
enacted The Foreign Account Tax Compliance
Act (“FATCA”) as a part of the Hiring Incentives to
Restore Employment Act (“HIRE”). FATCA requires
financial institutions and certain non-financial
institutions to identify and disclose their US
account holders. The goal of FATCA is to combat
offshore tax evasion through increased tax
transparency. Among other things, FATCA requires
the US-domiciled iShares ETFs to request selfcertifications from investors certifying certain tax
attributes inclusive of the investors FATCA status.
The self-certifications are made by investors on
U.S. Internal Revenue Service form(s) W-9 and W-8.
AUSTRALIAN TAX BOOKLET FOR INTERNATIONAL (US-DOMICILED) iSHARES ETFs  [3]
We may request a W-9/W-8 to ensure compliance
with our FATCA obligations. Failure to provide a
complete and accurate W-9 or W-8 may result in a
higher rate of U.S. withholding taxes and reporting
your account to the Australian Taxation Office.
Please consult your professional advisor should you
wish to understand the implications of FATCA on
your particular circumstances.
4.  Tax overview
4.1  Australian residents are taxable on their
worldwide income for Australian tax purposes.
Australian residents may also be taxable in the
US on any income derived from the US. A reduced
rate of tax may apply in respect of US sourced
income where the Australia/US Double Tax
Agreement applies.
5.  Distributions
5.1  Frequency and payment of dividend distributions
Distributions declared by each iShares ETF are
usually paid quarterly, semi-annually, or annually
depending on the iShares ETF’s distributions
calendar. You must be a registered CDI holder in
a iShares ETF to which a distribution is payable
as of the iShares ETF’s record date to receive a
distribution. Details of the distributions calendar
for each iShares ETF are available on iShares.
com.au (“Website”). There is no guarantee that any
distributions will be declared in the future, or that if
declared, the amount of any distributions will remain
at current levels or increase at any time.
Distributions in Australia will typically be paid by
Computershare, approximately 18 business days
following the record date of the respective iShares
ETF. These payments will be made to entitled
shareholders in Australian dollars.
5.2  Assessability of dividend distributions
As a shareholder, you will be assessed on all
dividend distributions from each iShares ETF in the
financial year in which they are paid. For Australian
tax purposes, the assessable amount should be the
dividend distribution you receive gross of the US
withholding tax deducted.
Since dividend distributions from an International
iShares ETF represent foreign income, there are no
franking credits attached.
5.3  Withholding tax
US withholding tax will generally be levied on
dividend distributions paid to you as an Australian
shareholder of a CDI. The US withholding tax rate
is typically 30%, but is generally reduced to 15%
under the Australia/US Double Tax Agreement. In
order to take advantage of this reduced rate, you
should complete a W-8 form (refer 5.4).
You should be entitled to a foreign income tax offset
for the US withholding tax, up to the amount of any
Australian tax payable on the dividend distribution
of your CDIs. Please note, a foreign income tax
offset may only be used to offset the Australian
tax arising from your dividend distribution or your
other foreign income. This may therefore result in
unutilised foreign income tax offsets.
Your Dividend Payment Advice from
Computershare will show the net amount in
Australian dollars of any distribution of your
CDIs. It will also show the rate of withholding
tax, the withholding tax amount deducted from
your dividend payment in US dollars and the
exchange rate applied to convert the net dividend
distribution from US dollars to Australian dollars.
5.4  Forms issued by the US tax authorities:
W-8 form
Computershare provide a pre-populated W-8BEN
form for individuals and a pre-populated W-8BEN-E
form for entities (such as a Self Managed
Superannuation fund) for ease of completion.
Copies of these forms can be obtained from
computershare or the iShares website (iShares.
com.au).
The US tax authorities require you to complete a
W-8 form to determine how much withholding tax to
deduct from your dividend distributions. Generally, if
you do not complete this form, a higher withholding tax
rate will apply to your distribution, typically 30%.
W-8 forms are valid for the year of lodgement and
the following three years. Computershare will send
you a new form to complete before the expiry of the
current form. This will ensure that you can continue
to receive the lowest possible withholding tax rate
on your dividend payments.
[4]  AUSTRALIAN TAX BOOKLET FOR INTERNATIONAL (US-DOMICILED) iSHARES ETFs
Other US form – Form 1042
The US tax authorities require Computershare to
issue a statement called a Form 1042 each year to
every Australian CDI holder, after the end of each
calendar year. This contains information which is
relevant for US tax obligations but it is not relevant
for Australian tax obligations. You should consult
your taxation adviser concerning tax obligations
outside Australia.
5.5  Return of capital
From time to time, a iShares ETF may return capital
to their investors. A return of capital is a return of
part of the cost which you outlaid in making your
original investment in the iShares ETF.
As soon as practical, following 30 June each
year, the Website will disclose the breakdown
between “dividend” and “return of capital” for any
distributions paid during the financial year.
Please note that the Dividend Payment Advice you
will receive from Computershare will disclose each
distribution payment only as a dividend. To check
that none of this payment is a return of capital,
please refer to the Website before you complete
your annual income tax return. You should do
this because dividends are treated differently to
returns of capital, for Australian tax purposes (see
Appendix A for more details).
5.6  Foreign exchange gains and losses
On the assumption that income is assessed
to you on a cash basis, you will calculate your
dividend or return of capital in Australian dollars, in
accordance with the exchange rate shown on your
Computershare-issued Dividend Payment Advice.
Accordingly, for Australian tax purposes, you should
not disclose any foreign exchange gains or losses in
relation to your distributions of CDIs.
6.  Capital gains/losses
6.1  General
The sale or other disposal of your CDIs will
constitute a capital gains tax (“CGT”) event for
Australian tax purposes. You will make a capital
gain if the capital proceeds you receive as a result
of the CGT event are greater than the cost base of
the CDIs. Subject to the comments at 6.2 below,
the cost base (or reduced cost base) of your CDIs
is generally the amount that you paid for the
investment and any incidental costs you incur on its
acquisition and disposal (e.g. broker’s fees).
If you are eligible for the discount capital gains
concession, you may reduce the realised nominal
capital gain by 50% if you are an individual or by 33
1/3% if you are a complying superannuation fund.
This concession will apply if you have held the CDIs
for at least 12 months prior to the CGT event.
If the capital proceeds you receive on the disposal of
your CDIs are less than their reduced cost base, the
difference is treated as a capital loss. Such losses
can be offset against capital gains arising in the
current or future income years, but cannot be used
to reduce the tax payable on your ordinary income
(such as dividends).
6.2  Return of capital
For the purposes of calculating a capital gain/loss,
you should reduce the cost base of your CDIs by any
amount you received which was a return of capital.
You can obtain the return of capital component
from the Website. Please note that this is not
available from Computershare (refer 5.5). If you sell
your CDIs many years after you receive a return
of capital, you must ensure you keep appropriate
records so you can reduce your cost base in the
year you sold your CDIs.
Where the total returns of capital exceed the cost
base of your CDIs – i.e. the cost base has been
reduced to zero, the excess is assessable as a
capital gain, even if you have not sold your CDIs.
7.  Accruals taxation –
FIF and CFC provisions
7.1  FIF provisions
Foreign Investment Fund (“FIF”) accrual
provisions do not apply to your CDIs as the FIF
accrual provisions have been repealed for the
2010/2011 income year and later income years.
7.2  CFC provisions
The Controlled Foreign Companies (“CFC”) rules
are unlikely to apply to your CDIs on the basis that
each international iShares ETF is a large US listed
company and the requisite investor control tests
should not be satisfied. However, if an investor has
reason to believe that these provisions may be
relevant, they should seek independent tax advice.
AUSTRALIAN TAX BOOKLET FOR INTERNATIONAL (US-DOMICILED) iSHARES ETFs  [5]
8.  Pay As You Go (PAYG)
8.1  You may be required to pay tax instalments on your
dividend distribution under Australia’s PAYG system.
If this applies, you should include your iShares
dividend distribution in your personalised Business
Activity Statement (“BAS”) or Instalment Activity
Statement (“IAS”) which is lodged on a monthly,
quarterly or annual basis (depending on your
circumstances).
Your tax adviser can assist you with your PAYG
obligations.
8.2  If you are liable to PAYG instalments, the Dividend
Payment Advice sent with each distribution
payment will show you the amount of your iShares
distribution to include in your BAS or IAS.
9.  Other item – US estate tax
An investor (who is not a US citizen and is not
domiciled in the US) may be subject to US estate
tax if at the time of their death, they beneficially
own CDIs.
The amount of the estate tax is determined by
reference to the value of iShares (CDIs) held at
death. However the amount of any such tax may
be reduced pursuant to an Australian/US estate
tax treaty. The reduction can include a credit of
US$13,000 for the first USD$60,000 of US situated
assets (including iShares ETFs). Depending on the
structure/vehicle that owns the US situated assets,
estate tax may not apply.
In addition to the estate tax, an investor can also
be subject to US generation-skipping transfer tax
where they transfer CDIs to a grandchild or a more
remote descendant at death.
The estate and generation-skipping taxes are levied
on a self assessment basis such that the estate is
responsible for making the appropriate tax filings
and paying the taxes. Investors must obtain their
own advice about the impact of these taxes to their
specific circumstances.
[6]  AUSTRALIAN TAX BOOKLET FOR INTERNATIONAL (US-DOMICILED) iSHARES ETFs
The information in this appendix will assist an Australian
resident individual or an Australian resident complying
superannuation fund which has invested in international
iShares ETFs, to complete their Australian tax return for
the financial year ending 30 June 2015. An Australian
resident superannuation fund which is a self-managed
superannuation fund, must complete the 2015 Selfmanaged superannuation fund annual return (‘SMSF
annual return’). All other superannuation funds must
complete the Form F tax return. All references to the
TaxPack Supplement form, the Form F tax return and the
SMSF annual return are to the 2015 paper versions of
each form.
It assumes that the shares (or CDIs) in International
iShares ETFs are held on capital account and subject to
the capital gains tax regime when they are sold. If the CDIs
are held on revenue account or as trading stock, please
consult your tax adviser.
It also assumes that the investor returns dividend
distributions from holding the CDIs on a cash basis.
The information in this appendix should be read in
conjunction with the general information which comprises
the “Australian tax booklet for international (US-domiciled)
iShares ETFs”.
The information in this appendix is of a general nature only
and does not address all of the taxation issues which may
be relevant to a particular investor. Accordingly, it does not
constitute legal, financial or tax advice and may not be
relied upon as such. Australian taxation laws are complex
and may change over time.
It is recommended that each investor obtains their own
independent professional taxation advice applicable to
their own individual facts and circumstances.
DIVIDENDS
You should show dividends paid by iShares ETFs in your tax
return at:
for individuals
  item 20, labels M and E of the tax return for individuals
(supplementary section).
for superannuation funds
  item 10, labels D1 and D of the form F tax return and
item 11, labels D1 and D of the SMSF annual return.
  item 17, label D of the form F tax return as “Y” or “No”.
This question is not relevant for SMSF investors.
FOREIGN TAX OFFSET
You should disclose the withholding tax you can claim as
an income tax offset in your tax return at:
for individuals
  item 20, label O of the tax return for individuals
(supplementary section).
for superannuation funds
  item 12, label C1 of the form F tax return and item 13,
label C1 of the SMSF annual return.
CAPITAL GAINS TAX
Capital gains from disposing of your iShares ETFs (CDIs) are
disclosed at:
for individuals
  item 18 in the tax return for individuals (supplementary
section).
for superannuation funds
  item 10, labels G, M and A of the form F tax return and
item 11, labels G, M and A of the SMSF annual return.
You may also have to complete a Capital Gains Tax
Schedule.
Appendix A
INFORMATION TO ASSIST YOU TO COMPLETE YOUR 2015 INCOME TAX RETURN
AUSTRALIAN TAX BOOKLET FOR INTERNATIONAL (US-DOMICILED) iSHARES ETFs  [7]
RETURN OF CAPITAL
A return of capital is not disclosed in your income tax
return, however if you dispose of your CDIs, it is included
as part of your capital gains calculation, via a cost base
reduction. If the return of capital exceeds your cost base
(or reduced cost base), you should calculate a capital gain
even if you have not sold your CDIs.
SUMMARY OF USEFUL AUSTRALIAN TAX OFFICE (ATO)
BOOKLETS
The following booklets may be useful to you and are
available at ato.gov.au.
The versions available at the time of printing this Booklet
are in respect of the 30 June 2015 year.
  Foreign income return form guide 2014-15
  Guide to foreign income tax offset rules 2014-15
  You and your shares 2015
  Introduction to Pay As You Go (PAYG) instalments
iSH–4901–07.15
Want to know more?
1300 474 273  iShares.Australia@blackrock.com  iShares.com.au
IMPORTANT INFORMATION
Before investing in an iShares exchange traded fund, you should carefully consider whether such products are appropriate for you, read the applicable
prospectus available at iShares.com.au and consult an investment adviser.
Issued by BlackRock Investment (Management) Australia Limited ABN 13 006 165 975 AFSL 230 523 (“BIMAL”), a wholly owned subsidiary of BlackRock, Inc.
(collectively “BlackRock”).
BlackRock believes the information in this document is correct at the time of issue, but no warranty of accuracy or reliability is given and no responsibility
arising in any way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock.
This information is general in nature, and has been prepared without taking into account any individual’s objectives, financial situation, or needs.
Transaction costs are incurred when buying or selling shares of an iShares fund on the Australian Securities Exchange (“ASX”) and brokerage commissions if
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is not a reliable indicator of future performance. Shares of an iShares fund trade on ASX at market price (not, net asset value (“NAV”)).
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