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I am not tax resident in Australia. More specifically I am in Hong Kong which does not have a Double Tax Agreement with Australia.
My international brokerage account allows me to buy ETFs (Exchange Traded Funds) on the Australian Stock Exchange. I'm trying to understand what tax treatment to expect on the dividends, so I can evaluate this as an investment vehicle.
The funds I'm interested in (such as VDGR or VCF) are AMITs and they post a "distribution tax estimates" document online for each dividend distribution, which breaks down the dividend into the various tax categories. But I can't find anywhere a definitive list of how much withholding tax will be deducted for most categories. And, I have spent a lot of time online looking for it! Perhaps I'm just looking in the wrong place. :/
Some categories are explained on the ATO website and elsewhere (eg franked and unfranked Australian company dividends at 0% and 30% WHT, and interest derived from Australian investments at 10% WHT).
(Q1) Can someone point me to a clear explanation of how much WHT applies to each category of earnings? (See the list below, lifted from the Vanguard VCF docs since I happen to have that one handy.) There are about 15 categories.
(Q2) From something I read on the ATO website, if I understood correctly, earnings within the fund from overseas investments should not have any WHT when paid to me as a non-resident ... provided the fund has declared those earnings as Conduit Foreign Income. But I can't see anything which tells me that Vanguard (as the manager of the VDGR ETF mentioned above) has ever actually made such a declaration. Is that something which should apply to the distributions to individual foreign shareholders, or should I expect to see it somewhere in their documentation of the fund? Or does this requirement not apply to ETFs?
Any pointers would be appreciated, thanks!
The categories of earnings within the dividend distribution (at least in the Vanguard VCF document) are:
** AUSTRALIAN INCOME **
Dividends - Franked
Dividends - Unfranked
Dividends - Unfranked CFI
Interest (subject to non-resident withholding tax)
Interest (NOT subject to non-resident withholding tax)
** CAPITAL GAINS **
Discounted capital gain TAP
Discounted capital gain NTARP
CGT concession amount
Capital gains - other method TAP
Capital gains - other method NTARP
** FOREIGN INCOME **
Assessable foreign source income
** OTHER NON-ASSESSABLE AMOUNTS **
Non-assessable Non-Exempt amounts
** NET CASH DISTRIBUTION **
There are also these items which I am pretty sure are not relevant to me:
** NON CASH ITEMS **
Franking Credits (cents per unit)
Foreign Income Tax Offset (cent per unit)
Hi Kylie, thanks for responding.
I find it surprising that there is nothing on the ATO website that you can point me to, that sets out a simple list of what WHT rates apply to the components of an AMIT's distributions - even for the case where there is no tax treaty. Further, as I understand your answer, any non-resident who wants to invest into the Australian stock market needs to personally contact the early engagement team to find out what rates of WHT apply! I would guess that there are approximately zero non-residents who would actually bother to go through that process (even if they had any idea that the early engagement team actually exists). Surely the usual response is either to invest elsewhere or to proceed in happy ignorance.
I think this also means that the ATO is not making available the information needed to check whether the right tax has been withheld. How then can a foreign investor fulfil their obligation to make up any shortfall in WHT? How could a foreign investor even know?
Are you able to pass on the message to the right people that (from my viewpoint at least) this seems a very unsatisfactory omission from the website? It shouldn't be this hard to find this information!
In case anybody else is looking for this, here's what I eventually found.
Implications of MIT withholding for foreign residents
Withholding tax on MIT fund payments and dividend, interest or royalty (DIR) payments (including deemed payments) received from Australian MITs (and AMITs) is a final tax imposed on foreign residents. Payments (including deemed payments) received by a foreign resident that are subject to withholding tax are non-assessable non-exempt income for income tax purposes.
If you are a foreign resident, your liability for withholding tax will generally be met by the amount being withheld by the trustee of an Australian MIT, custodian or other entity. If your only Australian income is a fund payment or DIR payment from a MIT, you are not required to lodge an Australian tax return, as long as tax has been correctly withheld from your payment.
However, mismatches in withholding amounts can occur in certain situations, such as where the address of the recipient of the payment (such as a global custodian) is different from the address of the ultimate foreign investor. As a result, the withholding tax paid to us could be greater (or less) than the foreign investor's actual withholding tax liability.
If the amount of withholding tax paid to us by the MIT is greater than your liability, you can apply for a refund of the overpaid amount. You will need to make a top-up payment of withholding tax if the amount paid to us is less than your liability.
- Withholding on fund payments for MITs
- Withholding on dividend, interest and royalty payments for MITs
- MIT withholding tax refund or top-up payment
Withholding on dividend, interest and royalty payments for MITs
A MIT or AMIT must withhold tax from unfranked dividends, interest and royalty (DIR) payments it makes to foreign resident members.
Generally, the amounts withheld from a payment are:
- 10% for interest, regardless of whether a tax treaty is in place
- 15% for unfranked dividends and royalties where there is a tax treaty in place
- 30% for unfranked dividends and royalties where there is no tax treaty in place.
Fully franked dividends are not subject to withholding, as the underlying profits have already been taxed. Foreign residents are not entitled to claim any imputation credit attached to the dividend.
Partially franked dividends will require withholding to be applied to the unfranked portion.Withholding on dividends, interest and royalties for AMITs
The withholding requirements for DIR payments apply to all AMITs, not just those that are withholding MITs.
The withholding rules apply to:
- an AMIT dividend payment, defined in subsection 12A-30(4) of the Tax Administration Act 1953 (TAA)
- an AMIT interest payment, defined in subsection 12A-35(4) of the TAA
- an AMIT royalty payment, defined in subsection 12A-40(4) of the TAA.
The amount of an AMIT dividend, interest or royalty payment is worked out according to the method statement in section 12A-30 of the TAA. The withholding rules apply to actual DIR payments and, for AMITs that are withholding MITs, the withholding rules will also apply to deemed DIR payments.
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