Non-Resident Withholding Tax

Income Subject to Non-Resident Withholding Tax

The following types of income paid to non-residents are subject to Non-Resident Withholding Tax:

  • interest
  • amounts in the nature of interest
  • profits on the transfer of a qualifying security (where the sum of the payments to be made, excluding periodic interest, exceeds the issue price)
  • charges under hire purchase and similar financial arrangements
  • the discount element of payments to offshore acceptors of bills of exchange and promissory notes; and
  • any unfranked component of dividends paid

Non-Resident Status

For the purpose of deducting non-resident withholding tax, a non-resident is:

  • an investor who has advised the investment body of non-resident status or
  • an investor who has authorised payment to be made to an address outside Australia and its territories
  • an investor whose address for service of notices/statements is an overseas address

Australian residents who temporarily live overseas and provide an overseas address for income payments and/or statements (as per 2. and 3. above), are not subject to non-resident withholding tax. Where the resident advises the investment body of their continued Australian residency for taxation purposes, non-resident withholding tax should not be deducted, however, the TFN provisions will apply.

Exemptions

In certain circumstances non-resident investors may claim an exemption from having non-resident withholding tax deducted. An investor is required to produce the original exemption advice issued by the Australian Taxation Office to the investment body.

Joint Accounts with a Resident and Non-Resident Holders

If the resident/s do not satisfy their TFN/ABN obligations (ie. to quote a TFN, ABN or claim an exemption), then TFN provisions apply to the total amount of interest or dividends payable to a joint account with a non-resident.

If the resident/s do satisfy their obligations, then non-resident withholding tax must be deducted for the total amount of interest or dividends paid.

Interest

The amount of tax to be withheld is 10% of the total interest paid.

Dividends

The non-resident withholding tax treatment of a dividend will depend on whether it has been franked or is unfranked.

If a dividend is partially or completely unfranked, non-resident withholding tax must be deducted from the unfranked amount at the applicable rate which will depend upon the country of the residence of the investor.

Time of Deduction

Non-resident withholding tax should be deducted/withheld at the time of paying or crediting interest or dividends.

Remitting of Amounts Withheld

The deduction made from the interest and/or dividend payment must be sent by the investment body to the Australian Taxation Office within 21 days after the end of the month in which the dividend and/or interest is paid or credited to the investor.

Penalties

Severe penalties apply for non-deduction and/or late payment of non-resident withholding tax.

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