How to process a disposal of foreign investment with Foreign Tax Withheld?

Support Query:

At disposal of foreign investment, there may be foreign tax withheld. This article provides a potential solution as to how to process this transaction.

Please note BGL does not provide tax advice. Users may find other options that suit better.

In this example, 1000 units foreign shares are sold for an equivalent of AU$20,000, with AU$4,000 foreign tax withheld from overseas. 

Solution:

As an option, the Investment Expense (37500) can be utilised to record the tax withheld in a way that does not affect the CGT consequence. 

Navigation:

From the Main Toolbar, navigate to Accounting.
Select Chart of Accounts.

1. Use the filter on the top right to search for the 37500 account and locate the subaccount for the shares disposed of.

2. Click anywhere on the line to access and select More Details.

3. Update the SMSF Tax Label to Not Applicable and then select Save to complete.

4. Navigate to Transaction List and select Bank Statement from the drop-down under New Transaction.

5. The journal entry to record the tax withheld would be as below.

6. To claim the foreign tax offset/credit, an adjustment can be made via Tax Adjustment before Create Entries. 

7. On the Tax Adjustment screen, select Add Tax Adjustment, and choose Credit for foreign resident capital gains withholding (H8). Input a claimable amount and click Save to finalise. This way, the foreign credit will be included in the tax return.

Note the status of the fund (e.g. Pension Fund) may affect the foreign credits that can be claimed. Also check article Foreign Income Tax Offset