Withholding MITs (whether a MIT or an AMIT) and custodians may be required to withhold an amount from a fund payment, or an amount reasonably attributable to such payment, where they make payment to a place outside Australia or the recipient has an address outside Australia.
Under the MIT withholding regime, fund payments to foreign members are subject to a final withholding tax of:
- 15% where the payment is made to a resident of a country that has an exchange of information agreement with Australia
- 30% where the payment is made to a resident of a country that does not have an exchange of information agreement with Australia.
The Taxation Administration Regulations 2017External Link has been amended and 54 countries have been added to the ‘information exchange countries’, with the date of effect 1 January 2019.
A fund payment made on or after 1 January 2019 to a recipient with an address or place of payment in one of these 54 countries will be subject to a withholding tax of 15% instead of 30%.
For MITs, a fund payment broadly consists of the net income of the MIT from Australian sources.
Fund payment excluded amounts are:
- dividends, interest and royalties on the basis that they are subject to withholding tax under separate provisions
- capital gains or capital losses from CGT events that happen in relation to CGT assets that are not taxable Australian property
In calculating a fund payment for a MIT, capital losses from CGT events that happen in relation to CGT assets that are not taxable Australian property are added back to the extent they are applied against capital gains from taxable Australian property.
For AMITs, fund payments are defined under section 12A-110 of the Taxation Administration Act 1953 (TAA). The object of the definition is to ensure the total of fund payments made by the AMIT for an income year equals, as closely as possible, the total of both:
- its determined member components of an assessable income character, disregarding any excluded components
- each capital loss from a CGT asset that is not taxable Australian property to the extent that each capital loss has been applied against capital gains from taxable Australian property.
Excluded components include determined member components of the following characters:
- discount capital gains and non-discount capital gains from a CGT asset that is not taxable Australian property
- dividends, interest and royalties that are subject to, or exempted from, a requirement to withhold
- foreign source income.
A fund payment for an AMIT may be an actual payment or a deemed payment. The amount of the fund payment is worked out using the method statement in subsection 12A-110(5) of the TAA.
As part of the method statement, the trustee must work out the reasonable expectation of what the total determined member components will be for each assessable income character, based on the trustee’s knowledge at the time the actual payment is made.
The fund payment withholding requirements apply only to AMITs that are withholding MITs. Any withholding MITs that are not AMITs will continue to apply the withholding requirements under Subdivision 840-M of the Income Tax Assessment Act 1997 (ITAA 1997) and Subdivision 12-H of the TAA.
The trustee of an AMIT that is not a withholding MIT will be taxed on attributed amounts on behalf of foreign residents, rather than coming under the MIT withholding regime. Dividend, interest and royalty withholding may still apply.
The withholding rules apply to both actual fund payments and deemed fund payments. The trustee must pay an amount to the ATO for deemed fund payments, equal to what it would be required to withhold from deemed fund payments if they were actual fund payments.