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  • Dividends paid or credited to non-resident shareholders

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    Dividends paid or credited by Australian resident companies to non-residents of Australia are taxed differently from dividends paid or credited to resident shareholders.

    Both Australian resident and non-resident individuals can be paid or credited franked dividends or unfranked dividends from Australian resident companies.

    Franked dividends

    Franked dividends are said to carry 'imputation credits', a credit for the tax paid by the company on its income. Franked dividends can be either fully franked-meaning that the whole amount of the dividend carries an imputation credit-or partly franked-meaning that only part of the amount of the dividend carries an imputation credit.

    Note: If you are a non-resident of Australia, any franked dividends you are paid or credited are exempt from Australian income and withholding taxes. However, you are not entitled to any franking rebate for franked dividends. You cannot use any imputation credit attaching to franked dividends to reduce the amount of tax payable on other income and you cannot get a refund of the imputation credit. Do not include the amount of any franked dividend or any imputation credit on an Australian tax return.

    Unfranked dividends

    The other type of dividend a resident company may pay or credit you is an unfranked dividend. There is no imputation credit attaching to these dividends.

    Note: Any unfranked dividends paid or credited to a non-resident are subject to a final withholding tax. Withholding tax is imposed on the full amount of the dividends-that is, no deductions may be made from the dividends-and a flat rate of withholding tax is applied whether or not you have other taxable Australian income. Withholding tax is also deducted from the unfranked portion of any partly franked dividends that you are paid or credited.

    Withholding tax is deducted by the company before a dividend is paid, so you will be paid or credited only the reduced amount. It is deducted at a rate of 30 per cent unless you are a resident of a country with which Australia has entered into a taxation agreement.

    Australia has entered into taxation agreements with more than 35 countries and the rate of withholding tax on dividends is limited to 15 per cent in most of these agreements. Details of the rates that apply to residents of specific countries can be obtained from the ATO.

    The withholding tax on unfranked dividends is a final tax, so you will have no further Australian tax liability on the dividend income. If you are completing an Australian tax return do not include in your assessable income any dividends which have been subject to dividend withholding tax. If the only income you earned was dividend income which was a fully franked dividend or an unfranked amount of a dividend which was subject to withholding tax, you do not need to lodge an Australian tax return.

    If you were paid or credited dividends which were not franked-and from which withholding tax was not deducted-you must include those dividends on your Australian tax return.

    Deductions

    You cannot claim any expenses incurred in deriving dividends which are not assessable in Australia, including any dividend which you do not need to show on your Australian tax return.

    Last modified: 23 Dec 2019QC 16138