Withholding on fund payments for MITs
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.
Definition of a fund payment
For MITs, a fund payment broadly consists of the net income of the MIT from Australian sources, other than dividends, interest and royalties, and excluding capital gains and capital losses from assets that are 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:
- its determined member components of an assessable income character, disregarding any excluded components, and
- each capital loss from a CGT asset that is not 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.
Withholding on fund payments for AMITs
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.