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Withholding Taxes in Australia

Sydney CBDWithholding Taxes for resident companies

  • Dividends received from Australian resident companies

Since the 1st of July 2003 the assessable income of a company is to be grossed up to reflect the amount of the franking credit that had been allocated to the franked dividend. Companies will be entitled to receive a franking rebate for an amount that is equivalent to the franking credit attached to the distribution. In this way the receipt of a fully franked dividend should give rise to no tax in the hands of the recipient. However, the receipt of an unfranked dividend will be taxable in the hands of the recipient company.

  • Dividends paid by Australian resident companies

There is no withholding tax when dividends are paid to an Australian resident by an Australian company .
The way those dividends will be treated in the hands of the recipient Australian resident shareholder will depend on whether the dividend is franked or unfranked and what is the rate of tax applicable to the Australian-resident recipient.
The dividend is franked to the extent that the Australian company which pays the dividend has paid tax on the profits out of which the dividend is paid.
If the dividend is franked and received by an Australian resident taxpayer who has a 30% tax rate there will be no further tax to pay. If however the recipient has a 45% tax rate an additional 15 percent will be required to be paid on the franked dividend.
When an Australian-resident shareholder receives an unfranked dividend it is treated as normal income with no credits and accordingly will be taxed at the residents’ marginal rate.

When dividends are paid to a non-resident by an Australian company the following consequences apply:

  • If the dividend is franked there is no withholding tax payable; or
  • If the dividend is unfranked the standard rate of withholding tax would be 30 percent.

If however Australia has a DTA (double tax agreement) with the receiving country, the withholding tax rate will be reduced to the rate agreed in the treaty.

Withholding taxes for non-resident companies
Non-resident companies are taxed at the same rate as resident companies (i.e. 30%). Most of the income of a non-resident company will be subject to withholding tax and they will only be taxed on capital gains if the gain relates to an asset that is taxable Australian property.

Withholding tax in Australia is usually taxed as a final tax on the gross flow of interest, dividends or royalties. In calculating the amount on which withholding tax is applied there are no deductions available for expenses incurred.

Whilst the withholding tax is technically the obligation of the recipient, the amount subject to withholding tax is required to be deducted by the payer. Thus the payer withholds the relevant amount and pays it to the ATO (Australian Taxation Office) within 21 days after the end of the month in which the payment was made.

Withholding Taxes on Dividends
Withholding tax is deducted at source from dividends at a rate of 30% in the case of unfranked dividends subject to a reduction in the case of payments to a resident of a double tax agreement (DTA) country.
Franked dividends are not subject to withholding tax.

Withholding Taxes on Interests
Withholding tax is deducted at source from interest payments at a rate of 10%.

Withholding Taxes on Royalties
Withholding tax is deducted at source from royalties at a rate of 30% subject to reduction if the payment is to be made to a resident of a DTA (double tax agreement) country.

Other Types of Income Subject to Withholding Taxes
Rental income is not subject to withholding tax but would be taxed at ordinary rates under the assessment system.
There are new rules dealing with management investment trusts which will require withholding in respect of amounts distributed by an investment trust.

For more details: Australian Taxation Law

To register a company in Australia please visit www.Australia-Offshore.com

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Posted by on May 22 2012. Filed under Withholding Taxes. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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