Withholding for AMITs
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):
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Under the attribution method for AMITs, the amount attributed to you may not be the same as the amount you are paid. 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 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. This may be a greater 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.
Deemed payments are effectively subject to the same withholding requirements as actual payments. The trustee will need to pay the ATO an amount for the deemed payment equal to what it would have been required to withhold from the deemed payment if it were an actual payment.
Pre-AMMA actual payments
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.
Post-AMMA actual payments
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.
Foreign entities that are trustees
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.
TFN withholding for withholding MITs
If an AMIT is required to withhold an amount for a payment or deemed payment to a non-resident, the non-resident is taken to have quoted a TFN in relation to the investment.
If a MIT makes a payment to an Australian resident who has not quoted a TFN, it 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) made to an Australian resident who has not quoted a TFN.
If an AMIT withholds from a deemed payment made to a resident who has not quoted a TFN, the AMIT will not be required to withhold from any subsequent actual payment related to that deemed payment.