Withholding is required from investment income for which the investor has not:
- quoted a tax file number (TFN) or Australian business number (ABN) before the payment became payable
- informed the investment body that they are exempt from quoting (either a TFN or ABN).
If an investment is held in a business capacity, the business may quote either a TFN or ABN in connection with the investment.
Investment bodies are required to report withheld amounts in the Annual investment income report (AIIR).
The withholding provisions don't apply if the:
- payment is a fully franked dividend from a public company
- income paid for the whole financial year is less than the withholding threshold.
Investors who are exempt from the Medicare levy can claim that exemption on their tax return. Exemption from the Medicare levy is not a matter for investment bodies to consider when withholding amounts from investment income.
If we can't find the TFN or ABN quoted for an investor on our client register, the investor is 'deemed not to have quoted'.
In this situation the investment body is required to withhold at the top rate of tax from future payments of investment income that are subject to withholding. This rate applies to all investors, including companies.
The amount to be withheld and reported in the AIIR is the whole dollar amount – don’t include cents. If cents have been withheld incorrectly, the cents need to be included in the AIIR.
We contact investors who are deemed not to have quoted and advise them to quote their correct TFN or ABN to the investment body to avoid having withholding imposed.
Investor quotes TFN or ABN after withholding
If the investor either quotes a TFN or ABN in relation to the investment or claims an exemption from quoting, the withholding will cease. If amounts have been withheld, don't repay them to the investor - they can claim a credit for amounts withheld in their income tax return.
Don't withhold from fully franked dividends from public companies, even if the investor has failed to provide a TFN or ABN or claim an exemption.
If a dividend is partly franked and the income is unattributed, you should withhold from the unfranked portion of the dividend using the calculation:
(Amount of payment – franked amount) x top tax rate
Unit trusts that pass franked dividends from investments in companies onto their unit holders should withhold from the total income payment made where a TFN or ABN has not been quoted, regardless of franking credits.
If two or more people hold an investment jointly, at least two of the investors must either:
- quote a TFN or ABN
- claim an exemption.
If an account is held jointly by a resident and non-resident:
- the TFN/ABN withholding provisions apply to the total amount of interest or dividends payable to the joint account if the resident does not quote a TFN or ABN or claim an exemption
- non-resident withholding applies to the total amount of interest or dividends paid if the resident satisfies their TFN/ABN obligations.
TFN/ABN withholding is not required if the distribution consists only of tax deferred amounts, even if the investor did not quote their TFN or ABN or claim an exemption.
However, withholding is required if the payment consists not only of tax deferred amounts but also of ordinary or statutory income (and the investor has not quoted their TFN or ABN or claimed an exemption).
In some circumstances an investor is not required to quote, or may choose not to quote, a tax file number (TFN) or Australian business number (ABN).
Details of investors who have claimed an exemption from quoting a TFN or ABN for an investment must be included in the Annual investment income report (AIIR), together with the relevant income information.
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Investors may claim one of the following exemptions from quoting a TFN or ABN:
- Children under 16
- Interest bearing accounts and interest bearing deposits
- Entities not required to lodge an income tax return
- Non-resident investors
- Pension and benefit recipients
Investment bodies are not required to withhold tax where a TFN or ABN has not been provided for investments (other than shares in a public company) held by children under 16 years of age, provided that the:
- investment body has records indicating that the investor was under 16 years of age on 1 January before the date on which the payment is made
- payment is less than $420 for the financial year (if the payment is not for the whole financial year, the $420 threshold is pro-rated).
Investment bodies are not required to withhold from interest bearing deposits and accounts with a financial institution where a TFN or ABN has not been quoted, provided that the payment is less than $120 for the financial year (if the payment is not for the whole financial year, the $120 threshold is pro-rated).
An entity that doesn't have a TFN because it's not required to lodge an income tax return will not have tax withheld providing an eligible representative supplies the investment body with the name and address of the entity and the reason why the entity doesn't have to lodge an income tax return.
In these circumstances the entity is treated as if it had quoted a TFN to the investment body.
An entity may be:
- a body corporate
- an unincorporated association
- a charitable, social and other non-profit organisations
- a non-profit companies earning small amounts of income.
Non-resident investors will generally have non-resident withholding tax withheld from their investment income. This is a final tax, and if this is the non-resident investor's only assessable income, they won't need to lodge an income tax return and won't need a TFN.
In these instances, the non-resident investor is treated as if they quoted a TFN for the investment. This will ensure only the non-resident withholding tax rate will be applied to their income, not the top rate of tax.
Non-residents who become residents of Australia must advise the investment body within a month of becoming a resident and the non-resident exemption ceases to apply.
Investment bodies are not required to withhold amounts held by recipients of certain payments, provided the applicable exemption code is quoted. These payments are:
- age pension
- disability support pension
- wife pension
- carer payment
- widow B pension
- parenting payment single
- special benefit
- special needs pension
- age, invalidity or partner service pension from Veterans' Affairs
- Defence Force income support allowance from Veterans' Affairs.
New start allowance and sickness allowance are not eligible benefits for exemption purposes.
An investor who receives a superannuation pension isn't exempt unless they also receive one of the above payments.
Complete your AIIR using one of the following codes in place of the TFN:
Code to report
Investor under 16
The date of birth must also be reported.
Investor is a pensioner receiving a Centrelink (age or disability support) or Service (veteran's) pension
Investor is a recipient of another eligible Centrelink pension or benefit, such as parenting payment or widow allowance
Entity not required to lodge an income tax return
Investors in the business of providing consumer or business finance
Quoted TFN contains alphabetic characters or has more than nine characters (and is not an ABN)
If the investor has not quoted a TFN nor claimed an exemption from quoting, or has quoted an ABN at the Investor Australian business number field, then this field must be zero filled.
See also:Amounts must be withheld from investment income payments where a tax file number (TFN) or Australian business number (ABN) has not been quoted.