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Something from the ATO site, but from quite a few years ago I suppose. Can you make out what they are saying about the example.
What does this mean- "interest distribution - 10%
dividend distribution - 15% (excluding franked dividends)
royalty distribution - 10%
business/rental income - taxed at non-resident rates to the trustee on account of the non-resident beneficiary under section 98(3) or 98(4) of the Act."
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Tax treatment of distributions to overseas beneficiaries.
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Presentation to the Federal Commissioner of Taxation by Michael D'Ascenzo Chief Tax Counsel Australian Taxation Office, on the 30 August 1996.
The Legislation
The Income Tax Assessment Act 1936 (ITAA) draws a basic distinction between people (including companies) who are residents of Australia and people who are not residents of Australia. In relation to interest, dividends and royalties received from Australia, non-residents generally pay tax under the withholding tax system.
Put simply, the withholding tax system provides that a flat rate of 10%, is to be deducted at source from gross interest income paid by a resident to a non-resident. Generally, the rate of withholding tax for dividend and royalty income paid to non-residents is 30%. However, for dividends and royalties paid to residents of countries with which Australia has a double tax agreement, the rate is usually 15% and 10% respectively.
Dividend, interest and royalty income paid by a resident to a non-resident is brought into the withholding tax regime by subsections 128B(1), 128B(2) and 128B(2B). Liability is imposed by subsections 128B(4) (5) and (5A).
Dividend, interest and royalties included in the income of a trust retains its character when distributions are made to beneficiaries. Subsection 128A(3) deems dividend, interest and royalty income of a trust to be dividend, interest and royalty income derived by the beneficiary when the beneficiary becomes presently entitled to such income.
Once income is caught by the withholding tax provisions, section 128D of the ITAA operates to exclude it from assessable income.
Generally, trust income (not caught by the withholding tax provisions) distributed to a non-resident beneficiary by an Australian trust estate is taxed at non-resident rates to the trustee on account of the non-resident beneficiary under section 98(3) or 98(4) of the Act.
Example -
A resident trust distributes income to non-resident beneficiaries in Italy. The withholding tax system provides that a flat rate be deducted from source before the income is remitted overseas. There are four types of income distributions. They are taxed (in accordance with Australia's Double Tax Agreement with Italy) as follows -
interest distribution - 10%
dividend distribution - 15% (excluding franked dividends)
royalty distribution - 10%
business/rental income - taxed at non-resident rates to the trustee on account of the non-resident beneficiary under section 98(3) or 98(4) of the Act.
It should be noted that in cases where distributions of interest, dividend and royalties purportedly made to non resident beneficiaries is (in the Commissioner's opinion) income to which no beneficiary is presently entitled, the income will be taxed in the hands of the trustee - sections 99A or 99.
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