Various aspects of the attribution regime for MITs (enacted in May 2016) affect the withholding requirements for MITs that elect into the attribution regime (AMITs):
Under the attribution method for AMITs, the amount attributed to you may not be the same as the amount you receive in cash. An AMIT that is a withholding MIT will make a deemed payment of dividends, interest and royalties (DIR) payment or deemed AMIT fund payment to you when the AMIT issues you with an AMIT member annual statement (AMMA statement). The amount of the deemed payment may be zero.
The amounts attributed to you of a character relating to assessable income, as shown in the AMMA statement, are effectively your share of the AMIT's income and the total amount may be subject to withholding to the extent that those amounts have not already been distributed and subject to withholding before the issue of the AMMA statement. This may be a greater or lesser amount than you receive in actual cash payments.
The amount of the deemed payment is broadly the difference between the amounts attributed to you of a character relating to assessable income as shown in the AMMA statement and any actual payments (pre-AMMA actual payments) made to you as cash payments or present entitlements.
- first works out the total deemed payments at the fund level (that is, the total of all the amounts of a character relating to assessable income attributed to all the members, less the total of all pre-AMMA actual payments that are AMIT DIR payments and fund payments)
- determines the amount of the deemed payment referable to each member on a fair and reasonable basis.
Deemed payments are effectively subject to the same withholding requirements as actual payments. The trustee may need to pay an amount or amounts to us in respect of the deemed payment. Where an amount is payable, the amount is equal to what it would have been required to withhold from the deemed payment if it were an actual payment.
A trustee is likely to make actual cash payments to you during the income year. Cash payments made to you during the income year, before you're provided with an AMMA statement are called 'pre-AMMA actual payments'.
If you're a foreign member, when a trustee makes an actual DIR or fund payment to you, the trustee must withhold from the payment and remit the amount withheld to the ATO.
If there are no actual payments before the AMMA statement is issued, the amount of the deemed DIR or fund payment is determined by reference to your 'determined member components' of the relevant characters, as disclosed in the AMMA statement.
Any payment attributed to you at the same time or after the AMMA statement is issued is not treated as an AMIT DIR or fund payment if it relates to a 'determined member component' already included in your AMMA statement (and therefore relates to a deemed payment).
There is no withholding obligation for a post-AMMA actual payment, as an amount will already have been paid to the ATO for the earlier 'deemed payment'.
There are special modifications to the rules for custodians that have received payments from an AMIT.
You are a custodian if you are carrying on a business that consists predominantly of providing custodial or depository interests under an Australian financial services licence, or you are acting on behalf of an entity carrying on such a business. A foreign resident may invest in an AMIT through an intermediary such as a custodian.
If you are a custodian and you receive a deemed DIR payment or deemed fund payment from an AMIT, you must withhold an amount from any subsequent deemed payment you make to an entity whose address, or place for payment, is outside Australia. If you make a deemed DIR payment or deemed fund payment to an entity whose address, or place for payment, is outside Australia, you must pay the ATO an amount equal to what you would have had to withhold if the deemed payment was an actual payment.
If you make a subsequent deemed DIR payment or deemed fund payment to another entity that has a place of payment or address in Australia, you must notify or make information available to the recipient outlining certain details in relation to that payment.
If an AMIT makes a deemed payment to you that is not accompanied by a cash payment, or the cash payment is not sufficient to cover your obligation to pay an amount to the ATO for the deemed payment, you can recover the amount of any excess from the non-resident recipient against payments due to the recipient.
‘Other entity’ refers to any entity – for example, a trust, partnership or individual that is not an AMIT or a custodian.
If an 'other entity' receives an amount of AMIT DIR payment of a fund payment that is not a deemed payment from an AMIT, they must withhold an amount from any related later payment to a recipient whose address, or place for payment, is outside Australia.
If an 'other entity' receives an AMIT DIR payment or a fund payment, and an Australian resident becomes entitled to the payment, the 'other entity' must meet notification requirements regarding the payment.
Under the 2016 changes to withholding rules for MITs, a fund payment made to a foreign resident by an AMIT, custodian or interposed trust is subject to MIT withholding tax. This is regardless of whether the foreign entity is receiving the payment in the capacity of a trustee. This change removes the need for the AMIT to determine the residency status of the ultimate beneficiary.
Should the income then flow back onshore to an Australian resident, the Australian resident will be taxed on that payment at appropriate marginal rates, with a relevant credit for the withholding tax applied.
Payments to non-residents
If you are a non-resident and an AMIT is required to withhold an amount for a payment or deemed payment to you, you are taken to have quoted a TFN in relation to your investment.
Payments to residents who haven't quoted their TFN
If you are an Australian resident who hasn't quoted your TFN and an AMIT makes a payment to you, the AMIT is required to withhold an amount under the TFN withholding provisions. The TFN withholding provisions will continue to apply to the total amount of any actual payments (except for a return of capital) it makes to you.
TFN withholding also applies to the following payments an AMIT makes to you:
- pre-AMMA actual payments (except for returns of capital)
- deemed payments except to the extent that the payment relates to a pre-AMMA actual payment that was already subject to the TFN withholding.
Example: working out the TFN withholding amount that an AMIT makes to you
An AMIT makes a pre-AMMA actual payment of $100 to its members and issues AMIT DIR payment notices indicating that the payment includes an AMIT interest payment of $80 in total. The AMIT then issues AMMA statements attributing interest of $80 and foreign source income of $20. A $20 deemed payment arises, as only AMIT DIR payments and fund payments are excluded from the deemed payment calculation.
Don, a resident member, holds a 10% interest in the fund, and has received a pre-AMMA actual payment of $10 and a deemed payment of $2 is referable to the member.
As the AMIT withheld an amount from the $10 pre-AMMA actual payment, the AMIT is not required to withhold an amount from the $2 deemed payment as this amount has already been subject to TFN withholding.End of example
If TFN withholding tax has already been deducted from a pre-AMMA actual payment or deemed payment, TFN withholding does not apply to a post-AMMA actual payment to the extent it relates to the earlier pre-AMMA actual payment or deemed payment.
For both actual and deemed payments, the amount to which TFN withholding applies for AMITs takes into account the amount of the AMIT DIR payments and fund payments worked out under the method statements in subsections 12A-30(4) and 12A-110(5) of the Taxation Administration Act 1953.
Example: working out the amount to which TFN withholding applies
For an income year, an AMIT has two members: Anne, who is a non-resident and Yasmin, who is a resident, who each have a 50% interest in the AMIT. For the income year, the AMIT expects to receive interest of $200. At the end of each quarter of the income year, the AMIT makes a cash distribution of $20 to Anne and $20 to Yasmin.
For Anne, for each $20 cash distribution, the AMIT works out the amount of the AMIT interest payment to be $25 and the AMIT withholds an amount of interest withholding tax from $25.
For the purposes of applying the TFN withholding provisions to Yasmin, the $20 actual payment is also taken to be increased to $25 and therefore the TFN withholding applies to $25.
If the AMIT issues Yasmin an AMMA statement showing interest of $100, no deemed payment arises. Where the AMIT makes a post-AMMA actual payment of $20 ($100 less the $80 actual quarterly amounts paid during the year), the AMIT is not required to apply the TFN withholding to the post-AMMA actual payment as the correct amount of withholding has already occurred from the pre-AMMA actual payments.End of example
After working out the amount to which TFN withholding applies according to the method statement, to work the amount to be withheld, the amount is multiplied by the withholding rate applicable for the income year in which the amount is income of the recipient.
We may issue more comprehensive guidance on the application of the TFN withholding provisions to AMITs to reflect our approach to the interpretation and administration of these laws.