Taxes on capital gains from stocks

119 posts in this topic

@ Tim

 

If you are not a Canadian tax resident you are not eligible for the Canada-USA treaty benefits of the reduced 15% US withholding rate on US source dividends. Almost all recent bilateral tax treaties have „limitation of benefits“ clauses that are designed to prevent ineligible residents of third countries from claiming treaty benefits.

 

Did you neglect to tell your Canadian broker that you had moved and were no longer a Canadian tax resident? Your broker almost certainly has a „qualified intermediary“ agreement with the IRS in place that allows it to claim treaty benefits on behalf of its customers. Assuming it is satisfied that you were/are a Canadian resident, it would not necessarily have required you to produce a US withholding certificate (Form W-8BEN) to cover its institutional butt with the IRS.

 

You are not cheating the US of anything because as a tax resident of Germany you are entitled to exactly the same 15% benefits under the US-Germany tax treaty.

 

But be warned: if your Canadian broker is audited under its QI agreement or somehow tumbles to the fact that you no longer reside in Canada, your US withholding rate could go to the statutory default rate of 30%.

 

If that happens you will want to send your Canadian broker a Form W-8BEN ASAP showing Germany as your residence country. It might perplex your broker and administratively might even be impossible for them to deal with, but since the entitlement to it is correct and the withholding rate is the same – your bank will have to look it up to verify that – you should continue to get the reduced 15% rate.

 

It may even be that your bank is used to it and won’t bat an eye. I suspect that many of the Canadian diaspora have continued to bank in Canada during their time abroad and many, like you, end up in countries that have similar treaties with the USA.

 

Don’t know what effect this might have for any securities you might hold in your RRSP account. The US-Canada treaty provides for mutual 0% withholding on dividends for securities held in Canadian RRSP’s or US IRA accounts. I suspect, however, that since RRSPs are set up as Canadian trusts, their eligibility for treaty benefits does not depend upon the beneficiary (i.e. you) remaining in Canada.

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@Tim

 

If you want to know more than you ever wanted to know about US tax withholding on nonresident alients, see IRS Publication 515:

 

http://www.irs.gov/pub/irs-pdf/p515.pdf

 

An excellent older - and shorter - summary that is perhaps obsolete in some respects but nevertheless a bit easier to comprehend:

 

http://www.crossborderalliance.com/Resources/NRA%20Tax%20guide.pdf

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@ HEM

 

The UK’s incredibly squirrely system of “remittance based” taxation, and its bizarre and hopelessly vague “definition” of who and who is not “resident” “ordinarily resident” “domiciled” or “non-domiciled” is quite likely the source of the schizophrenic differences you report seeing for UK based funds.

 

That, and the difference, between what your residence is on the fund or nominee’s books and your actual residence, domicile, etc. elsewhere.

 

Trying starting here to see if you can make heads or tails of what HMRC has to say on the subject:

 

http://www.hmrc.gov.uk/worksheets/sa106-notes.pdf

 

Personally, I don’t know squat about UK taxation and hope I never do.

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As an aside, I'd like to point out that even if you don't live in Canada, it seems that you don't have to declare yourself a non-resident.

 

Can anybody correct me on this?

 

It seems that CRA is more concerned with people becoming non-tax residents. My personal interpretation is that you could live abroad for an indefinite period and as long as you're still paying Canadian taxes on your worldwide income, they won't care:

 

 

Whom Should You Notify When Departing Canada?

 

...CCRA also invites but does not require individuals to complete and submit Form NR733 upon leaving Canada.

 

...CCRA allows individuals to request a ruling as to whether they would be considered to be non-residents of Canada.

http://www.cramagazine.com/issues/winter03/article03.htm

 

The bar seems pretty high to become a non-resident: no more companies, bank accounts, memberships, licenses, "strong ties", personal effects behind, etc..

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@Circuits

 

Until I followed the link you posted, I had not been aware that, like Germany, Canada imposes a "departure" tax on persons who abandon their Canadian residence. (The USA imposes an "expatriation tax" - IRC §877A - on certain citizens who abandon citizenship or long-term green card holders who abandon their green cards or US tax residency.

 

Clearly, Canada has no interest in forcing persons who physically depart Canada for any length of time to declare their abandonment of residency and pay the tax - provided that they continue to submit to Canadian income taxation on their worldwide income like all other Canadian tax residents.

 

Thanks for posting that very useful information.

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On 8/20/2013, 12:00:44, PandaMunich said:

No, they are normal capital income, like interest, which means that the first 801€ (1,602€ if you're a married couple) are exempted from tax through the Sparerfreibetrag as long as you have given your bank/broker a Freistellungsauftrag.

 

I would like to know how would this Sparerfreibetrag  work in the case of a bank's annual interest rate (Zinsen)?

 

How can I file one of these Freistellungsauftrag's documents (do I send directly to my banks) if I have multiple Sparkonto and Tagesgeld account at different banks?

 

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On 28/08/2013, 18:11:53, Straightpoop said:

@Circuits

 

Until I followed the link you posted, I had not been aware that, like Germany, Canada imposes a "departure" tax on persons who abandon their Canadian residence. (The USA imposes an "expatriation tax" - IRC §877A - on certain citizens who abandon citizenship or long-term green card holders who abandon their green cards or US tax residency.

 

Clearly, Canada has no interest in forcing persons who physically depart Canada for any length of time to declare their abandonment of residency and pay the tax - provided that they continue to submit to Canadian income taxation on their worldwide income like all other Canadian tax residents.

 

Thanks for posting that very useful information.

The actual term is Deemed Disposition but it's pretty much the same thing. . 

 

I asked TD helps on the question of withholding tax on ROC (Return of Capital) I can't seem to link to the actual question so here is the text.

 

U.S. Reits

  • No U.S. withholding tax is applied on Return of Capital (ROC) or Capital Gains regardless of the account type.
  • U.S. Withholding tax is applied to dividends held in a non-registered account and in a registered account if the client has lived outside of North America over 5 years


CDN Reits

  • ROC and Capital Gains may be subject to non-resident tax (Treaty Rate) – this is based on the company's tax factors.
  • Non-resident tax is applied to distributions other than ROC and Capital Gains (again, ROC and Capital Gains may be subjected to non-resident tax (Treaty Rate) based on the company' s tax factors)
  • Foreign non business income type is also subjected to non-resident tax and may also be taxed at source for all clients.

 

It should be noted that in Germany ROC is considered "getting your own money back" so it's not taxed and more importantly it doesn't reduce you ACB (Adjusted cost base) rather unusual. 

 

I just asked about withholding taxes within an RSP  got a part answer here

 

if the link doesn't work than search Withholding Tax US dividends Non Resident RRSP

 

 

 

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5 hours ago, AttilaV said:

How can I file one of these Freistellungsauftrag's documents (do I send directly to my banks) if I have multiple Sparkonto and Tagesgeld account at different banks?

 

 

Each bank has its own Freistellungsauftrag form. You will need to fill in your Steuer-ID into each form.

You fill into each form the amount of interest that you want exempted from tax, e.g. 200€ into bank A's form, 300€ into bank B's form and 301€ into bank C's form. Be careful that the total that you exempt across all banks should not be more than the Sparerfreibetrag of 801€ (if you're married and your spouse lives in Germany: 1,602€).

 

Also take care, if you close all your accounts at a bank, this does not make the Freistellungsauftrag invalid, you have to do that separately.

I run afoul of that when, after having moved my savings to another bank and having closed all the accounts at the old bank (which I had thought would also annul the related Freistellungsauftrag), I suddenly got a letter from the Finanzamt asking why I had Freistellungsaufträge exempting in total more than the Sparerfreibetrag.

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On 17/3/2016, 11:16:40, AttilaV said:

I would like to know how would this Sparerfreibetrag  work in the case of a bank's annual interest rate (Zinsen)?

 

How can I file one of these Freistellungsauftrag's documents (do I send directly to my banks) if I have multiple Sparkonto and Tagesgeld account at different banks?

 

 

The way it works is simple: if you're single, the first €801 of interest that you earn is not taxed. If you're married, it gets slightly more complicated.

You can usually fill out the Freistellungsauftrag in online banking.

If you have multiple accounts, you just split the Freistellungsauftrag between them, depending on how much interest you'll be expecting from each bank. Just make sure that the sum works out to €801.

 

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On 28/08/2013, 18:11:53, Straightpoop said:

@

On 17/03/2016, 14:54:55, Tim Hortons Man said:

The actual term is Deemed Disposition but it's pretty much the same thing. . 

 

I asked TD helps on the question of withholding tax on ROC (Return of Capital) I can't seem to link to the actual question so here is the text.

 

U.S. Reits

  • No U.S. withholding tax is applied on Return of Capital (ROC) or Capital Gains regardless of the account type.
  • U.S. Withholding tax is applied to dividends held in a non-registered account and in a registered account if the client has lived outside of North America over 5 years


CDN Reits

  • ROC and Capital Gains may be subject to non-resident tax (Treaty Rate) – this is based on the company's tax factors.
  • Non-resident tax is applied to distributions other than ROC and Capital Gains (again, ROC and Capital Gains may be subjected to non-resident tax (Treaty Rate) based on the company' s tax factors)
  • Foreign non business income type is also subjected to non-resident tax and may also be taxed at source for all clients.

 

It should be noted that in Germany ROC is considered "getting your own money back" so it's not taxed and more importantly it doesn't reduce you ACB (Adjusted cost base) rather unusual. 

 

I just asked about withholding taxes within an RSP  got a part answer here

 

if the link doesn't work than search Withholding Tax US dividends Non Resident RRSP

 

 

 

 

OK I have more information. From TD Helps

 

I have confirmed that withholding taxes do apply for non-residents of Canada who receive a dividend payment from a Canadian stock; this would be applicable for RRSP as well.

 

Also I found an online calculator which is quite helpful as well and generally speaking the withholding tax rate is 15% and 25% on a lump sum RRPS withdrawal. . 

 

Non-resident tax calculator

 

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Dear PandaMunich, Straighpoop or whoever that can help me.

First of all thanks for your valuable advice.

I have a big doubt about Capital Gains, I have tried to look for info on internet and also ask to a Steuarberater but the conclusion is not clear.

I am Spanish, german resident and I have a brokerage account in Spain connected to a Spanish back, with and account with Spanish stocks. I have done some operations in 2016 (Spanish stocks selling) last year, most of them are quick operations (less then 1 year owning the stocks) and some of them over 1 year (oldest stocks bought in 2014). My Spanish bank did not withhold any kind of tax when I sold them (regular practice in Spain for stocks).

My question is:

1        1) Do I need to declare and pay the 26,4% as a flat tax for all net gains in Germany when I present my tax declaration late this year?

2    2) Or do I need to pay based on my overall income at my tax rate (44%) for the ones with less than 1 year and the ones over 1 year are exempted.

I wa fully sure it was the first option but the Steuarberater I consulted told me the second, that is why I am a little bit lost know. She says that the reason is because the stocks are deposited in a foreign country. It is a huge difference in my case, I am very worries I took the wrong selling decisions.

Thanks a lot!

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Dear PandaMunich, Straighpoop or whoever that can help me.

 

 

First of all thanks for your valuable advice.

 

 

I have a big doubt about Capital Gains, I have tried to look for info on internet and also ask to a Steuarberater but the conclusion is not clear.

 

 

I am Spanish, german resident and I have a brokerage account in Spain connected to a Spanish back, with and account with Spanish stocks. I have done some operations in 2016 (Spanish stocks selling) last year, most of them are quick operations (less then 1 year owning the stocks) and some of them over 1 year (oldest stocks bought in 2014). My Spanish bank did not withhold any kind of tax when I sold them (regular practice in Spain for stocks).

 

 

My question is:

 

 

1        1) Do I need to declare and pay the 26,4% as a flat tax for all net gains in Germany when I present my tax declaration late this year?

 

 

2    2) Or do I need to pay based on my overall income at my tax rate (44%) for the ones with less than 1 year and the ones over 1 year are exempted.

 

 

I was fully sure it was the first option but the Steuarberater I consulted told me the second, that is why I am a little bit lost know. She says that the reason is because the stocks are deposited in a foreign country. It is a huge difference in my case, I am very worries I took the wrong selling decisions.

 

 

Thanks a lot!

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It's option 1.

And let me hazard the opinion that the lady you consulted is not a Steuerberaterin, but just a Steuerfachangestellte. Did you by any chance consult a Lohnsteuerhilfeverein?

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Thanks a lot PandaMunich, it reliefs me a lot.

 

Indeed, it was a real Steuerberatin based in Berlin and supposed to be specialized in Spanish people living in Germany (at least it is what the webpage and her signature on the emails says

 

I then understand I need to pay for all net gains (deducting losses, based always on the same type of asset) the 26,4% (I exited the church when I arrived) no matter period of generation (more /  less than 1 year) and no matter where the stocks are deposited (in this case Spain).

 

I also understand this is not increasing my tax base.

 

Thanks a lot again for your great and quick support.

 

Best,

Luis

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General question - do German tax authorities allow for indexation benefit of overseas capital gains?

If so, is there an official indexation table provided?

I can't find much success getting answer from dr. google, but I maybe using wrong search terms..

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1 hour ago, nannorcha said:

do German tax authorities allow for indexation benefit of overseas capital gains

 

No.

All of us in Germany have to live with the fact that our capital and interest on capital gets eaten up by inflation, since the present interest rates/gains are below the inflation rate.

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6 minutes ago, PandaMunich said:

 

No.

All of us in Germany have to live with the fact that our capital and interest on capital gets eaten up by inflation, since the present interest rates/gains are below the inflation rate.

 

I don't suppose then it exists for overseas at all. Would've been more complex though.

For instance, which inflation figures to use - overseas country or Germany's own.

 

thanks, as usual @PandaMunich

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  Hello PandaMunich,

 

Does the children in the family also have 801euro  Sparefeibetrag?

 

 

On 8/20/2013, 12:00:44, PandaMunich said:

 

You have a small typo in there, it's:

25% Abgeltungsteuer

+ 1.375%, which is 5.5% Solidaritätszuschlag on those 25% Abgeltungsteuer, i.e. 0.055 x 0.25 = 0.01375

____________________________

= 26.375%

 

If you also pay church tax (yes, I know you left the church, but as information for others), it will be more than 26.375%.

 

 

No, they are normal capital income, like interest, which means that the first 801€ (1,602€ if you're a married couple) are exempted from tax through the Sparerfreibetrag as long as you have given your bank/broker a Freistellungsauftrag.

 

 

That is allowed.

Though with transaction fees being what they are in Germany, I would look for a broker with flat transaction fee if you intend to do a lot of trades, e.g. Flatex (5€ flat fee + at least 1.89€ stock exchange fee): http://www.modern-banking.de/vergleich-brokerage-2.php

But Flatex does have a 5€ fee for dividends from non-German stocks.

 

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If the assets that generate the capital income are in the child's name, and therefore the capital income is also in the child's name, that child gets an 801€ tax-free amount - but not if the assets belong to the parents!

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