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MrChats(Initiate)Initiate
10 Mar 2021

Hi there,

I am an Australian resident and a Sole Trader with an ABN and have recently registered for GST.

I do regular contract work for various companies in Australia and send them invoices to be paid into my Australian bank account, I then set aside a portion of the income to be payed as income tax at the end of the tax year.

Since registering for GST I also now set aside income to be paid as GST quatertly for my BAS.

I have recently been contacted by a US based company for a month long contract, and after letting them know about my Sole Trader status they have sent me a form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals)) form to complete and send back to them.

I am having trouble understanding the form and what it means for my tax liabilities, and was hoping someone here may be able to shed some light on it for me.

It sounds to me from the name of the form that the US will withold tax on my income from this company. If this is the case, will I be able to claim an offset at tax time so that I don't get double taxed on my income in both countries?

Will I have to submit a tax return in the US at the end of the year?

I don't understand how this works, since I would be under the tax free threshold in the US, so how do they know how much tax to withold?

Thank you for any help and forgive my ignorance on the subject,

-Mark

3,646 views
5 replies
3,646 views
5 replies

Most helpful response

Most helpful reply

_TombRadyr(Champion)Champion
10 Mar 2021

Hi MrChats,

I understand your questions to be:

  1. How to complete the form W-8BEN?
  2. How does foreign income impact my Australian Tax liabilites?
  3. How do double tax agreements (DTA) work with relation to withholding tax?
  4. Will I have to submit a US tax return?

Good question MrChats there is definetly a bit to unpack here.

  1. Complete the form W-8BEN with your current details. You should have received (I have previously received) an instruction page on how to complete the form which may help. The purpose of this form is for your US client to understand what withholding obligations they have. More detail at point 5.
  2. As an Australian resident you are taxed on your worldwide income. Meaning you must declare all income you received from foreign sources in your income tax return. Foreign income you receive as an Australian resident may be taxed in both Australia and the country from which you received it. If you have paid foreign tax in another country on foreign income you received, you may be entitled to an Australian foreign income tax offset. The code for foreign income tax offset in an individuals return is 20.O.
  3. Australia currently holds a double tax agreement with the US providing a withholding of 15 percent. The benefit of completing the W-8BEN is to access this 15 percent withholding as opposed to 30 percent.
  4. It is recommened you engage a US tax agent or the equivalent to determine if you are or are not required to lodge a US tax return.

I hope I have provided some clarrity in relation to your questions.

TombRadyr

All replies

Most helpful reply

_TombRadyr(Champion)Champion
10 Mar 2021

Hi MrChats,

I understand your questions to be:

  1. How to complete the form W-8BEN?
  2. How does foreign income impact my Australian Tax liabilites?
  3. How do double tax agreements (DTA) work with relation to withholding tax?
  4. Will I have to submit a US tax return?

Good question MrChats there is definetly a bit to unpack here.

  1. Complete the form W-8BEN with your current details. You should have received (I have previously received) an instruction page on how to complete the form which may help. The purpose of this form is for your US client to understand what withholding obligations they have. More detail at point 5.
  2. As an Australian resident you are taxed on your worldwide income. Meaning you must declare all income you received from foreign sources in your income tax return. Foreign income you receive as an Australian resident may be taxed in both Australia and the country from which you received it. If you have paid foreign tax in another country on foreign income you received, you may be entitled to an Australian foreign income tax offset. The code for foreign income tax offset in an individuals return is 20.O.
  3. Australia currently holds a double tax agreement with the US providing a withholding of 15 percent. The benefit of completing the W-8BEN is to access this 15 percent withholding as opposed to 30 percent.
  4. It is recommened you engage a US tax agent or the equivalent to determine if you are or are not required to lodge a US tax return.

I hope I have provided some clarrity in relation to your questions.

TombRadyr

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