Tax due on shares held in the US

geoid

I'm looking to transfer money to the us to buy and sell shares with an online broker. I'm wondering about the tax implications at the end of each year and if I need to file any profit or loss or is this done when I bring the money back. I intend to leave it there for a few years buying and selling regularly over this time.

I know there is a 20% CGT calculation but don't know if this needs to be done each year even if a profit or loss is encountered. Is it the case that the tax is due once the money is brought back even though I won't be doing this for a couple of years.

Anyone help from anyone who has done this before would be great.

Tnx.

ck1

In relation to CGT, this would only be payable when you sell any shares and of course only if you make a profit over and above your annual exemption. Remember losses can be carried forward to offset against profits.

You are however liable to Income Tax on distributions in the year you received them regardless if you decide to leave the money over there.

Take care that you are not seen by Revenue to be a Trader.

There are two types of taxes attributed to these types of dividends, Foreign Tax and Withholding tax. The net amount that you get needs to be regrossed by the lower of the Irish Effective Rate or the Foreign Rate in order to give you the actual amount that is subject to Irish Tax, i.e added to your income.

And if you can get your head round this on first read your doing well. These calculations are a nightmare.

Here is the fun bit, how to calculate the effective rate of tax - well the foreign one is easy, divide the tax paid on the foreign income by the gross dividend. The Irish rate is rather more complicated to calculate, you need to find your actual effective rate of tax by calculate your total income including the dividend income which gives you your tax liability (you cannot here take any deduction for Withholding Tax, DIRT, actual PAYE paid) then divide this by your total gross income and multiply this by 100. This gives you the Irish Effective Rate.

To regross the Dividend you then multiply the net dividend by 100 and divide it by (100 minus the effective rate)

You then get a credit under Double Taxation for tax paid however this is not the actual amount that was deducted it is the amount of tax liable by utilising the effective rate of tax to the dividend after regrossing it.

Told you it was a nightmare. I have not actually calculated these manually for quite some time as I have a package that does it for me but the above is as close as I can get to explaining it. Best of Luck.

air

CK1, By distributions do you mean dividends?
Do you mean dividends from shares held offshore when you say "these" dividends?

On the CGT side, as I understood it you pay 20% on your profits above your allowance at the end of the year.
I'd love to know how the revenue decide if someone is a trader.
Most of the above post went completely over my head.

I would think that most people would be primarily concerned about the cgt side, I dont like companies that pay dividends in any case.

ck1

Yes by distributions I do mean dividends and in relation to the CGT it is only payable if you make a profit after selling and realising the value not just because the value went up in the year.

I'd love to know what is the defination of trader as per the Revenue too but it is not in any statement of practice I have seen. Bacically I would say it is decided on the merits of the case. I would say it really only could be applicable if the person did it on a really regular basis, like someone giving up their job just to trade or possibly if they went to part-time or something. No idea what their thinking is on this one.

When I said these dividends, I really mean offshore dividends but if you hold Irish dividend, tax applies to these also but not so complicated. The most complicated are US and Canadian.

As I stated, the calculation are nightmares if you are doing them manually. Remember, the Revenue Commissioners have double taxation treaties with most countries and they share information. They could request details from the relevant goverments of Irish Resident Accounts just like what they are now doing for the Single Premium Investigating, so if the dividends were not returned (when I say returned I mean, detailing them to the Revneue as income in the year) they could catch up with you later. Best thing to do, if you want to stay legit, would be just to detail the income to the Revnue and they would calculate the tax liability for you.

The alternative to distributions woudl be to opt to purchase shares in lieu of dividends if available on the specific share, but if the dividend payable is insufficient to purchase share it will be paid out as a dividend.

geoid

Thanks for the info guys. With regard to dividends I didn't actually receive any over the period I held the shares as mostly I only held them for a couple of months or they didn't pay dividends. The only income earned was due to profit being made on the sale of the shares. Because of the tax treaty between the us and ireland I didn't pay any tax as there was a form to be filled out specifically to avoid that scenario in getting double taxed.

How do the revenue treat some different if they are a trader who trades reguarly (20/30/30 trades a day) to someone who maybe trades 2 or 3 times a month. I didn't actually know there was a difference.

What happens in the case for example where you buy and sell shares a couple of times in the year and you use the profit gained on a previous sale to purchase more shares in another company. For example you sell 1000 shares in company A and make a profit of $2000. You then invest your original amount (eg $5000) plus the $2000 in company B. Is that $2000 profit liable for tax at the end of the year even if you still hold those shares in company B.

Maybe I just need to get an accountant to have a look through the statements, very confusing stuff alright.

Tnx.

air

ck1 wrote:

Best thing to do, if you want to stay legit, would be just to detail the income to the Revnue and they would calculate the tax liability for you.

Sounds like a plan!
In fairness I think the vast majority of people want to pay their taxes and have a bit of peace of mind that they dont have to worry about things down the road.

geoid wrote:

What happens in the case for example where you buy and sell shares a couple of times in the year and you use the profit gained on a previous sale to purchase more shares in another company. For example you sell 1000 shares in company A and make a profit of $2000. You then invest your original amount (eg $5000) plus the $2000 in company B. Is that $2000 profit liable for tax at the end of the year even if you still hold those shares in company B.

As I understand it you would still be liable for CGT on your profits (less losses) in the trading year.
So in this case even if you did still own the additional shares thay you bought with the profit, you would still owe $400 to BC at the end of the year.
If you made a loss on another trade you could reduce the 400 by that amount so you only pay tax on your net gain over the entire year.
nb. This is all heresay on my part!

ck1

air wrote:

Sounds like a plan!
As I understand it you would still be liable for CGT on your profits (less losses) in the trading year.
So in this case even if you did still own the additional shares thay you bought with the profit, you would still owe $400 to BC at the end of the year.
If you made a loss on another trade you could reduce the 400 by that amount so you only pay tax on your net gain over the entire year.
nb. This is all heresay on my part!

You are totally correct, the charge would be €400 (20% of the actual gain after exemption).

In the past there was a facility called bed and breakfasting whereby you could realise you gain on paper and further invest thus not actually making any realised gain in the year thus pushing your tax liability into the future but this is not around any more.

geoid

ck1 wrote:

You are totally correct, the charge would be €400 (20% of the actual gain after exemption).

In the past there was a facility called bed and breakfasting whereby you could realise you gain on paper and further invest thus not actually making any realised gain in the year thus pushing your tax liability into the future but this is not around any more.

Is it also the case that the 1270 band can be taken into account. So for example above if I had made a profit of €2000 (after US$ conversion say 1:1) that I can subtract (2000-1270=730 @ % 20) = €146 tax due.

What happens in the case where for example the next year I make a loss of say €2000 euro after conversion. If you are allowed offset your loss and profit how does this work if I already paid the profit the year earlier and now i am making a loss but can't offset it against the previous profit. Is it only the case that a loss can be carried forward to the next year's figures and not back which would make sense I guess.

Tnx.

ck1

Losses can only be carried forward and not carried back. And yes you are right with regards to your exemption but the exemption is a total exemption offset against your total gains. One further point, Capital Gains up to end of Sept must be reported to the Revenue by the 31st October in the actual year and gains made between 30th Sept and 31st Dec are returned by 31st January the following year.

On another matter, if you are married, can you register the share account in joint names therefore if you are making any gains you get two exemptions offset against gains.