Trump's Big Beautiful Bill set to slug Australian stock investors with tax hikes

Accountants are scrambling to assess the bruising impact of President Trump's signature legal reforms, which are set to lift tax on US dividend income and certain capital gains by 5% for all Australian investors. 

If the One Big Beautiful Bill Act (OBBBA) passes the US Senate to become law, the higher tax rates for Australian retail investors in US stocks and fixed income products are likely to come into effect from January 1, 2026. 

"A lot depends on whether it's ultimately applied, the feedback I get it is it will probably be passed," said Dr Shane Oliver the chief economist at AMP. 

"But from my point of view it lacks logic as we were told the point of the reciprocal tariffs was to compensate the US for all things it didn't like about other countries, so it's a bit of a double-up and disincentive to invest in the US."

The new laws will come into effect under the proposed Section 899 of OBBBA, which allows the US to retaliate against what it views as any foreign country that imposes unfair taxes on US citizens or companies. 

Australia is likely to be designated given it's deemed to have a Digital Services Tax (DST) enforced under its News Media Bargaining Code and a Diverted Profits Tax (DPT).

Investors, big super funds hit

For retail investors deemed Australian tax residents, the proposed tax grab means the witholding tax on dividends from US stock market businesses will increase from 15% to 20%. 

Under the current law, Australian retail and other eligible overseas investors can claim the reduced 15% rate by completing a W8-Ben form usually via their broker or asset manager, which is then filed with the US Internal Revenue Service (IRS). 

The act also provides for applicable taxes such as withholding tax to increase by 5% annually and override the reduced treaty rates under the US / Australia Double Tax Agreement.

This means theoretical tax rates on dividend income could rise from 15% to 35% over four years for Australian retail investors. 

"Whether you are a multinational or an individual with superannuation savings, you will be adversely impacted by this proposed tax," SW Accountants warned.

The tax grab will also affect the potential returns of large Australian super funds and reflects the US government's need to find more revenue to fund another round of sweeping income tax cuts, alongside lifts to military spending. 

Overseas investors are seen as a relatively soft target given they have no political sway in the Trumpian economy. 

"It strikes me as odd, because Trump has been trying to encourage Australian super funds to invest in the US," said Dr Oliver. "That's why the super funds had that seminar there earlier this year to highlight just how much they invest in the US."