How to Buy US Shares in Australia: The Full Process

Investing in the United States stock market offers Australian residents access to a vast array of companies and industries. The US market is characterized by its significant size and diverse range of innovative businesses. This guide provides an overview of the process, from selecting an investment platform to managing tax obligations.

Choosing an Investment Platform

Selecting an investment platform is an initial step for Australians looking to invest in US shares. Investors typically consider Australian-based brokers offering US market access or international brokers catering to Australian residents.

Understanding fee structures is important. Common fees include brokerage commissions charged per trade and foreign exchange (FX) fees, as Australian dollars (AUD) must be converted to US dollars (USD). These FX fees are often between 0.5% and 1.5% of the transaction value. Account keeping or inactivity fees may also apply.

Beyond costs, the range of markets and products offered should align with an investor’s goals. Some platforms offer access to specific US exchanges, while others provide a broader selection of securities, including exchange-traded funds (ETFs) or options. The platform’s user interface and customer support are also practical considerations.

Account Setup and Funding

Establishing an investment account requires providing documentation. Investors need identification documents, such as a passport or driver’s license, along with proof of residential address. An Australian Tax File Number (TFN) is also required for tax reporting.

The W-8BEN form is a crucial document. It certifies the investor is not a US resident for tax purposes, preventing the default 30% US withholding tax on dividends. The brokerage platform usually provides this form, which requires personal information. Correctly submitting the W-8BEN form is essential to benefit from reduced tax rates under the Australia-US tax treaty.

Account opening generally involves an online application. After approval, fund the account by transferring Australian dollars through various methods like direct bank transfers or BPay.

Once funds are received, Australian dollars must be converted into US dollars before purchasing shares. This currency conversion typically occurs within the brokerage platform. The exchange rate and any associated FX fees determine the amount of US dollars available for investment.

Navigating Tax Requirements

Australian residents investing in US shares face tax obligations in both Australia and the United States. In Australia, profits generated from selling US shares are subject to Capital Gains Tax (CGT). If shares are held for more than 12 months before being sold, individual investors may be eligible for a 50% discount on the capital gain, reducing the taxable amount. The net capital gain is then included in the investor’s assessable income for the financial year.

Dividend income received from US shares is also taxable in Australia. These dividends are considered assessable income and must be declared in an investor’s Australian income tax return.

In the United States, a withholding tax is generally applied to dividends paid by US companies to foreign investors. However, due to the tax treaty between Australia and the US, this withholding tax is typically reduced to 15% for Australian residents, provided the W-8BEN form has been correctly filed. Without the W-8BEN form, the default withholding rate can be as high as 30%.

The Australia-US tax treaty aims to prevent double taxation on income, including dividends. Australian investors can generally claim a foreign income tax offset (FITO) in their Australian tax return for the US tax withheld on dividends. This offset reduces the amount of Australian tax payable on that foreign income. All income and gains from US share investments must be reported to the Australian Taxation Office (ATO) in an investor’s annual tax return. Consulting a qualified tax professional is often advisable for personalized guidance.

Executing Trades

Once an investment account is established, funds are converted to US dollars, and an investor can proceed with executing trades. Locate the desired US company on the brokerage platform, typically by searching for its stock ticker symbol. Platforms provide real-time or near real-time price data and company information.

When placing an order, investors have two primary choices: a market order or a limit order. A market order instructs the broker to buy or sell shares immediately at the best available current price. A limit order allows an investor to specify a maximum price they are willing to pay for a purchase or a minimum price they are willing to accept for a sale. This order will only execute if the market price reaches the specified limit or better.

Placing an order involves inputting the stock ticker, specifying the number of shares, and selecting the order type. Before confirming, the platform displays a summary of the order, including estimated costs and commission fees. Reviewing these details carefully is recommended.

Be aware of the difference in trading hours between US and Australian markets. US stock exchanges operate during their local business hours, which translates to overnight trading for Australian investors. After execution, investors receive a trade confirmation. The settlement period for US stock trades is T+2, meaning ownership and fund transfer finalize two business days after the trade date.