Equities, Managed Investment Trusts (MITs) - rates, eligibility, availability of relief etc. - Australia
Withholding Tax - Equities
Standard rate of withholding tax: | 0% - 47% | Preliminary requirements / Holding restrictions: | No |
Eligible beneficial owners | Relief at Source | Quick Refund | Standard Refund |
Residents of Australia (a) | Yes | No | Yes |
Tax-exempt beneficial owners | Yes | No | Yes |
Residents of a Double Taxation Treaty (DTT) country | Yes | No | Yes |
Non-residents of Australia (not tax-exempt or DTT resident) | Yes | No | Yes |
a. There is no relief at source or reclaim of withholding tax available through Clearstream Banking for undisclosed Australian residents.
Overview
The standard rate of withholding tax on dividends from Australian equities is 30% (non-resident withholding tax) in Clearstream Banking.
Note: A rate of 47% may be applied upon request from the customer if the underlying beneficial owner is an undisclosed Australian resident.
Under Australian tax legislation, several types of tax credits can be attached to a dividend payment. As a result, dividends can be:
- Unfranked - subject to the standard rate of 30%;
- Partially Franked - subject to the standard rate of 30%, but only for the unfranked portion of the dividend;
- Fully Franked - exempt from withholding tax. No action is required by the customer to ensure that no withholding tax is applied. Dividends will be paid gross.
Procedures are available as follows:
- Relief at source:
- Relief at source on the unfranked component is available if beneficial owners qualify for a reduced rate of withholding tax in accordance with a Double Taxation Treaty (DTT) between their country of residence and Australia.
Exemption at source is available if the beneficial owner:- Has been granted tax-exempt status by the Australian Tax Office (ATO); or
- is a resident of Australia.
- and if the appropriate documentation is submitted to Clearstream Banking.
- Relief at source on the unfranked component is available if beneficial owners qualify for a reduced rate of withholding tax in accordance with a Double Taxation Treaty (DTT) between their country of residence and Australia.
- Tax reclaim:
- If relief at source or an exemption at source has not been obtained by a beneficial owner eligible for relief, a standard refund of withholding tax is available if the beneficial owner:
- Is a resident of Australia;
- Qualifies for the benefit of a reduced rate of withholding tax in accordance with a DTT between its country of residence and Australia; or
- Has been granted tax-exempt status by the ATO; or
- Is a non-resident of Australia, other than a tax-exempt entity or a resident of a DTT country.
- The customer can reclaim withholding tax on behalf of the beneficial owner through Clearstream Banking by submitting the appropriate documentation.
- If relief at source or an exemption at source has not been obtained by a beneficial owner eligible for relief, a standard refund of withholding tax is available if the beneficial owner:
- Simplified procedure:
- Clearstream Banking provides a simplified procedure whereby, upon receipt of a duly completed and signed Request for Application of a Reduced Rate of Australian Withholding Tax on Dividends, Clearstream Banking applies, by default, withholding tax at source at 15% on dividend payments for Australian equities.
Withholding Tax - MITs
Standard rate of withholding tax: | 0% - 47% | Preliminary requirements / Holding restrictions: | No |
Eligible beneficial owners | Relief at Source (a) | Quick Refund | Standard Refund (b) |
Residents of Australia (c) | Yes | No | Yes |
Tax-exempt beneficial owners | Yes | No | Yes |
Residents of a Double Taxation Treaty (DTT) country | Yes | No | Yes |
Non-residents of Australia (not tax-exempt or DTT resident) | Yes | No | Yes |
a. Relief at source is currently available for “unfranked” and “interest” components only.
b. The exact refund procedure and availability depend on the types of components attached to the distribution and the residency of the beneficial owner, the various components being treated according to different tax legislation.
c. Undisclosed Australian residents, upon request from the customer, may be subject to the maximum withholding tax rate (47%).
Note: Dividend (“unfranked”) and interest components are covered by non-resident or DTT agreements only and not by Exchange of Information (EOI) agreements. For residents of EOI countries, relief at source and reclaim of withholding tax are not available through Clearstream Banking but they may be able to reclaim tax withheld on “other income components” directly via the Australian Tax Office (ATO).
Overview
Unit trusts generally return profits or excess income to unit holders in the form of a distribution, which typically consists of a number of different components, each subject to its own rate of withholding tax, that together make up a total distribution payment.
Note: A flat rate of 47% may be applied, upon request from the customer, on interest components and unfranked dividend components if the underlying beneficial owner is an undisclosed Australian resident.
The respective component taxation varies according to the applicable legislation, as follows:
- Income Tax Assessment Act 1936 (unfranked dividends and interest components):
- This legislation provision enforces transparency of the underlying beneficial owner and Australian custodians can make tax adjustments on dividend and interest payments according to the tax status of the final beneficial owner.
- Dividend and interest payment taxation is only covered by non-resident or Double Taxation Treaty (DTT) agreements and not by Exchange of Information (EOI) arrangements.
- Relief at source and standard refund are available for eligible beneficial owners through Clearstream Banking.
- Taxation Administration Act 1953 (other income/ fund components):
- Section 12 has no provision that enforces transparency of the underlying beneficial owner and Australian custodians cannot make adjustments but are obliged to apply the tax status of the "first tier beneficiary" or account held directly with the Australian custodian (that is, Clearstream Banking Luxembourg) for the various components.
- Fund payment taxation is only covered by EOI agreements and not by the DTT arrangements that many countries hold with Australia.
- Clearstream Banking Luxembourg is considered to be resident in an EOI country and therefore the EOI withholding tax rate is applied by default to fund distribution payments.
- No relief at source or refund is available through Clearstream Banking to beneficial owners who qualify for the benefit of a reduced rate of withholding tax in accordance with EOI agreements. Residents in EOI countries may however be able to reclaim tax withheld on “other income components” according to the fund payment tax rates for recipients in EOI countries directly via the Australian Tax Office (ATO).
The final component breakdown of the distribution is not always known before payment date. The actual tax withheld on payment date therefore varies according to whether the distribution components are or are not known, as follows:
- All components known on or before payment date:
- Withholding tax will be deducted at specific rates defined for each of the components of an MIT distribution at the time of the payment and, as a consequence, no annual reversal or re-processing of taxation reporting will be required.
- All components not known on payment date:
- Withholding tax will be deducted at the rate of 45% on the total distribution and tax adjustments will be made when components are available or at the end of the unit trust’s financial year.
Example of an MIT fund distribution
A typical distribution might consist of any or all of the following taxable components, each taxed at the rate indicated:
- Income Tax Assessment Act 1936:
Component | Residents of a DTT country | Residents of Australia and tax-exempt entities | Non-residents of Australia (a) | Rate for undisclosed Australian residents (b) |
Unknown (MITs) | 47% (c) | 47% (c) | 47% (c) | 47% (c) |
Unknown (non-MITs) | 45% (d) | 45% (d) | 45% (d) | 47% |
Unfranked | DTT rate | 0% | 30% (e) | 47% |
Unfranked NIL CFI (f) | DTT rate | 0% | 30% (e) | 47% |
DWT unfranked | DTT rate | 0% | 30% (e) | 47% |
Interest IWT | DTT rate / 10% (g) | 0% | 10% (e) | 47% |
Fully franked | 0% | 0% | 0% | 0% |
a. Not tax-exempt entities and not resident in a DTT country.
b. Upon request from the customer.
c. From 1 July 2014, the rate on distributions derived from income in the financial year, 30 June 2014 onwards, is 47%. The rate for the previous period was 45%.
d. From 1 July 2017, the rate for Unknown income type for non-MITs on distributions derived from income in the financial year 30 June 2017 onwards, is 45%. The rate for the previous period was 47%.
e. Clearstream Banking default rate for uncertified positions.
f. CFI: Conduit foreign income.
g. Whichever is lower.
- Taxation Administration Act 1953:
Component | Tax rate (%) | Component | Tax rate (%) |
Tax deferred | 0 | Other method capital gain | 30 |
Tax free (YTXFR or TXFR) | 0 | Discounted capital gain a | 60 |
Sundry other income (SOIC) | 15, 10 | Concession capital gain a | 0 |
Sundry other income for non-MITs (SOIC) | 45 b | Discounted capital gain (NTAP) c | 0 |
Sundry other tax (SOIT) | 30 | Concession capital gain (NTAP) | 0 |
Unknown tax (UT) | 0 | Domestic rent | 30 |
Loan | 0 | Domestic interest | 10 |
Conduit foreign income (CDFI) | 0 | Non-primary production income | 10 / 30 d |
Unfranked CFI | 0 | Other method capital gain (NTAP) | 0 |
Foreign income | 0 | Tax exempt | 0 |
Foreign other | 0 e | Australian franking credit | 0 |
Foreign capital gain | 0 | Foreign tax credit | 0 |
Franked income | 0 |
a. Where both Discounted and Concession capital gain components have equal value, they are released as a summarised item taxed at 30%
b. From 1 July 2017, the rate on distributions derived from income in the financial year 30 June 2017 onwards is 45% for the Sundry Other Income component for non-MITs. The rate for the previous period was 47%.
c. NTAP: Non-Taxable Australian Property.
d. Depending on confirmation from the MIT.
e. This component may be subject to the tax and certification requirements of the country that is the source of the income.