• Withholding on dividend, interest and royalty payments for MITs

    A MIT or AMIT must withhold tax from unfranked dividends, interest and royalty (DIR) payments it makes to foreign resident members.

    Generally, the amounts withheld from a payment are:

    • 10% for interest, regardless of whether a tax treaty is in place
    • 15% for unfranked dividends and royalties where there is a tax treaty in place
    • 30% for unfranked dividends and royalties where there is no tax treaty in place.

    Fully franked dividends are not subject to withholding, as the underlying profits have already been taxed. Foreign residents are not entitled to claim any imputation credit attached to the dividend.

    Partially franked dividends will require withholding to be applied to the unfranked portion.

    Withholding on dividends, interest and royalties for AMITs

    The withholding requirements for DIR payments apply to all AMITs, not just those that are withholding MITs.

    The withholding rules apply to:

    • an AMIT dividend payment, defined in subsection 12A-30(4) of the Tax Administration Act 1953 (TAA)
    • an AMIT interest payment, defined in subsection 12A-35(4) of the TAA
    • an AMIT royalty payment, defined in subsection 12A-40(4) of the TAA.

    The amount of an AMIT dividend, interest or royalty payment is worked out according to the method statement in section 12A-30 of the TAA. The withholding rules apply to actual DIR payments and, for AMITs that are withholding MITs, the withholding rules will also apply to deemed DIR payments.

    See also:

    Definition of AMIT DIR payments

    AMIT DIR method statement

    AMIT DIR payment amounts need to be calculated according to the method statement in subsection 12A-30(4) of the TAA, with certain modifications required for determining interest and royalty payments.

    The method statement is used to ensure the total of the AMIT DIR payments made by the trustee for the income year equals, as closely as possible, the total 'determined member components' of those characters for the income year.

    The method statement is as follows:

    1. Work out the amount reasonably expected to be the total of the 'determined member components' for the AMIT for the income year for dividends, interest or royalties that are generally subject to ordinary dividend, interest or royalty withholding.
    2. The AMIT DIR amount for a particular payment is the amount from '1', as is reasonable having regard to the amounts of any earlier AMIT DIR payments made by the trustee for the income year, and the expected amounts of any later DIR payments the trustee expects to make for the income year.

    AMIT dividend payment

    The amount of an AMIT dividend payment is worked out by applying the method statement in subsection 12A-30(4) of the TAA. The amount of the AMIT dividend payment may be:

    • the amount of the actual payment or deemed payment, or
    • the amount of the actual payment or deemed payment, increased or reduced as a result of the method statement.

    AMIT interest payment

    An AMIT interest payment is an actual payment or a deemed payment the trustee makes in relation to an income year. The amount of the AMIT interest payment may be:

    • the amount of the actual payment or deemed payment, or
    • the amount of the actual payment or deemed payment, increased or reduced as a result of the method statement.

    To work out the amount of an AMIT interest payment, an AMIT must apply the method statement in subsection 12A-30(4), as modified by subsection 12A-35(4).

    AMIT royalty payment

    An AMIT royalty payment is an actual payment or a deemed payment the trustee makes in relation to an income year. The amount of the AMIT royalty payment may be:

    • the amount of the actual payment or deemed payment, or
    • the amount of the actual payment or deemed payment, increased or reduced as a result of the method statement.

    To work out the amount of an AMIT royalty payment, an AMIT must apply the method statement in subsection 12A-30(4), as modified by subsection 12A-40(4).

    See also:

      Last modified: 06 Oct 2016QC 47436