Explanatory Memorandum
(Circulated by authority of the Treasurer, the Rt. Hon. Harold Holt.)RESOLUTION TO DECLARE THE RATE OF DIVIDEND (WITHHOLDING) TAX.
Introductory Note
The purpose of this Resolution is to declare the rate of dividend withholding tax payable on dividends derived by non-residents of Australia from companies resident in this country.
The rate that it is proposed to declare is 6/- in the Pd.
It is, however, important to observe that Australia has concluded double taxation agreements with the United Kingdom, the United States of America and Canada. Each agreement includes provisions relating to the rate of tax payable on dividends paid by Australian companies to residents of the other country.
Except in isolated cases, the maximum rate of tax on dividends paid to residents of Canada and the United States is 3/-in the Pd, while the majority of United Kingdom shareholders pay one-half of the amount that, apart from the agreement, would be the Australian tax on the dividends. With a withholding tax rate of 6/-in the Pd having general application, the rate payable by United Kingdom shareholders will be brought into line with the rate of 3/-in the Pd payable by shareholders resident in the United States or Canada. Dividends paid to United Kingdom companies by wholly-owned Australian subsidiary companies are exempt from tax under Article VI(2) of the Australia-United Kingdom Agreement.
It is unnecessary in the Resolution to provide for the adoption of the limitations that the agreements place upon the tax payable on dividends. Those agreements are given the force of law by the Income Tax (International Agreements) Act 1953-58 and the provisions of that Act and the agreements have effect even though the Act imposing the rates of tax do not make reference to the agreements.
Dividend withholding tax will accordingly be imposed at a rate of 3/-in the Pd where this accords with a double taxation agreement.
NOTES ON PARAGRAPHS
This is a drafting measure that defines "the Assessment Act" as the Income Tax and Social Services Contribution Assessment Act 1936-1959.
It is proposed by this paragraph to incorporate the Act imposing dividend withholding tax with the Assessment Act. This drafting expedient will enable the two Acts to be read as one and will avoid the repetition of a number of provisions included in the Assessment Act.
Paragraph 3: Imposition of Income Tax and Social Services Contribution.
This paragraph formally proposes the imposition of income tax and social services contribution that is payable pursuant to section 128B of the Assessment Act. As mentioned on page 4 of this memorandum, "dividend (withholding) tax" is defined in section 6 of that Act to mean the tax payable pursuant to section 128B.
Section 128B will not apply in respect of dividends derived before 1st July, 1960. The imposition of dividend withholding tax will accordingly have practical effect from that date.
Paragraph 4 sets out that the rate of tax to be imposed by the preceding paragraph shall be 30 per cent, that is, 6/-in the Pd.
As already mentioned, the application of this rate will be subject to the operation of double taxation agreements entered into by Australia.
Paragraph 5: Section 221YB of Assessment Act.
This paragraph is a drafting measure relating to liability for provisional tax.
Section 221YB of the Assessment Act provides that provisional tax is not payable for an income year unless the Act imposing the rates of tax for that year provides that provisional tax is payable. This provision, of course, is intended to refer only to the general rates of tax which the provisional amounts are designed to meet.
The present Resolution proposes to declare the rate of dividend withholding tax to apply from 1st July, 1960, and does not affect the general rates of tax, which are declared from year to year. Paragraph 6 is accordingly a formal provision to ensure that the Act imposing the dividend withholding tax is not regarded for the purposes of section 221YB as the Act imposing the rates of tax for 1960-61 or any subsequent financial year.