13 May 088 Managed Investment Trusts - final withholding for non-residentsThe Government will replace the existing 30% non final withholding tax applying to distributions of Australian source net income (other than dividends, interest and royalties) of Australian managed investment trusts (MITs) to foreign residents with a final withholding tax regime. The measure will have effect for fund payments made in relation to the first income year after the date of Royal Assent of the enabling legislation, intended to be the 2008-09 income year.
The new withholding tax regime will apply to fund payments that are distributions of Australian source net income (other than dividends, interest and royalties) of Australian MITs to foreign residents. It will cover distributions made directly from MITs to foreign residents as well as distributions made through other intermediaries (including custodians). Distributions of dividends, interest and royalties will continue to be covered by the existing final withholding tax arrangements.
However, to support the integrity of the arrangements and in keeping with the Government’s commitment to minimise international tax evasion and avoidance, the nature of the new withholding tax regime will vary depending on whether the foreign investor is resident in a jurisdiction with which Australia has effective exchange of information (EOI) arrangements on tax matters.
Residents of such jurisdictions will be subject to:
- a 22.5% non final withholding tax for fund payments of the first income year after the enabling legislation receives Royal Assent;
- a 15% final withholding tax for fund payments of the second income year; and
- a 7.5% final withholding tax for fund payments of the third and later income years.
For the first income year, as an interim measure, investors resident in EOI jurisdictions will be eligible to claim a deduction for expenses relating to fund payments. The net amount will be subject to tax at a new rate of 22.5%.
The list of jurisdictions with which Australia has effective EOI will be specified in regulations.
Residents of other jurisdictions will be subject to a 30% final withholding tax, with effect for fund payments of the first income year in which the enabling legislation receives Royal Assent.
For a copy of the Assistant Treasurer's media release, No 2008/43, 13 May 2008, go here