The ATO has issued an update concerning ATO ID 2013/63 (issued in November 2013). The ID concerns circumstances where a trustee of an Australian resident trust makes a foreign resident beneficiary (who is a resident of an information exchange country) entitled to an amount that is reasonably attributable to a fund payment the trust receives from a managed investment trust (MIT). The ATO ID provides that the trustee calculates the amount that is required to withheld by reference to the withholding rate in para 12-390(6)(a) of Sch 1 to the TAA and the income year of the MIT to which the fund payment relates.
The ATO says Australian resident trustees making these types of payments to foreign resident beneficiaries should be given notice from the MIT trustee in respect of any fund payment they receive. The notice should outline the details of the part of the payment that has a withholding tax obligation and the MIT income year to which the fund payment relates.
The ATO says it is reviewing its records to confirm that MIT withholding tax payments that Australian trustees have reported to it are correct. The ATO has also asked tax agents to check their clients are working out the amount to withhold using para 12-390(6)(a) of Sch 1 to the TAA with the correct income year of the MIT. If an error has been made, the ATO says to make a voluntary disclosure.
[LTN 14, 22/1/14]
12-390(6)(a) of Sch 1 to the TAA – Withholding by custodians and other entities
Withholding by custodians
(1) A * custodian must withhold an amount from a payment (the later payment ) it makes if:
(a) all or some of the later payment (the covered part ) is reasonably attributable to the part of an earlier payment received by the custodian that was covered by a notice or information under section 12-395; and
(b) the later payment is made to an entity covered by section 12-410.
Note 1: The covered part referred to in paragraph (1)(a) is attributable to a fund payment made by a managed investment trust, or 2 or more fund payments made by one or more managed investment trusts.
Note 2: An entity may be covered by section 12-410 if the entity has an address outside Australia or payment is authorised to be made to a place outside Australia.
Note 3: If the payment is made to a recipient not covered by section 12-410, the custodian is required to give a notice to the recipient or publish information on a website setting out certain details about the payment: see section 12-395.
(2) The amount the * custodian must withhold is:
(3) The rate is:
(a) if the address or place for payment of the recipient is in an * information exchange country:
(i) 22.5% for * fund payments (except to the extent that they are, or are attributable to, fund payments from a * clean building managed investment trust) in relation to the first income year starting on or after the first 1 July after the day on which the Tax Laws Amendment (Election Commitments No. 1) Act 2008 receives the Royal Assent; or
(ii) 15% for fund payments (except to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust) in relation to the following income year; or
(iii) 7.5% for fund payments (except to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust) in relation to later income years starting before 1 July 2012; or
(iv) 15% for fund payments (except to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust) in relation to later income years starting on or after 1 July 2012; or
(v) 10% for fund payments to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust in relation to the income years starting on or after 1 July 2012; or
(b) otherwise–30%.
Withholding by other entities
(4) An entity that is not a * managed investment trust or a * custodian must withhold an amount from a payment it receives if:
(a) the payment or part of it (the covered part ) was covered by a notice or information under section 12-395; and
(b) a foreign resident (the recipient ) is or becomes entitled:
(i) to receive from the entity; or
(ii) to have the entity credit to the recipient, or otherwise deal with on the recipient’s behalf or as the recipient directs;
an amount (the attributable amount ) reasonably attributable to the covered part.
Note: If the recipient not a foreign resident, the entity is required to give a notice to the recipient or publish information on a website setting out certain details about the payment: see section 12-395.
(5) The amount the entity must withhold is:
(6) The rate is:
(a) if the recipient is a resident of an * information exchange country:
(i) 22.5% for * fund payments (except to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust) in relation to the first income year starting on or after the first 1 July after the day on which the Tax Laws Amendment (Election Commitments No. 1) Act 2008 receives the Royal Assent; or
(ii) 15% for fund payments (except to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust) in relation to the following income year; or
(iii) 7.5% for fund payments (except to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust) in relation to later income years starting before 1 July 2012; or
(iv) 15% for fund payments (except to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust) in relation to later income years starting on or after 1 July 2012; or
(v) 10% for fund payments to the extent that they are, or are attributable to, fund payments from a clean building managed investment trust in relation to the income years starting on or after 1 July 2012; or
(b) otherwise–30%.
(7) An entity is a resident of an * information exchange country if:
(a) the entity is a resident of that country for the purposes of the taxation laws of that country; or
(b) if there are no taxation laws of that country applicable to the entity or the entity‘s residency status cannot be determined under those laws:
(i) for an individual–the individual is ordinarily resident in that country; or
(ii) for another entity–the entity is incorporated or formed in that country and is carrying on a business in that country.
(8) An amount required to be withheld under subsection (4) must be withheld:
(a) if the recipient is so entitled when the entity receives the payment–immediately after receipt; or
(b) if the recipient becomes so entitled at a later time–immediately after the later time.
Meaning of custodian
(9) An entity is a custodian if the entity is * carrying on a * business that consists predominantly of providing a custodial or depository service (as defined by section 766E of the Corporations Act 2001 ) pursuant to an * Australian financial services licence.
Exceptions
(10) This section does not apply:
(a) to a company unless the company would, apart from section 12-420, be acting in the capacity as * agent for the recipient; or
(b) to an amount paid or received by an entity to the extent that no * managed investment trust withholding tax is payable in respect of the amount or an amount reasonably attributable to the amount.