ATO Interpretative Decision
ATO ID 2002/801
Income Tax
Withholding tax on dividends paid by a Pooled Development FundFOI status: may be released
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This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a Pooled Development Fund (PDF) required to withhold tax in accordance with section 202D of the Income Tax Assessment Act 1936 (ITAA 1936) from unfranked or partially franked dividends paid to a shareholder who is a resident of Australia but who has not provided a Tax File Number (TFN)?
Decision
Yes. Section 202D of the ITAA 1936 requires a PDF to withhold tax from unfranked or partially franked dividends paid to a shareholder who is a resident of Australia but who has not provided a TFN, unless the shareholder is exempt from the requirement to quote a TFN.
Facts
The PDF is registered as a public company and is listed with the Australian Stock Exchange. The PDF regularly pays dividends to its shareholders from its profits. The dividends paid are not always fully franked dividends. Partially franked or unfranked dividends are paid in some years.
Reasons for Decision
Section 202D of the ITAA 1936 requires that shareholders of a public company must provide their TFN to the company. Failure to quote a TFN means that, under section 12-140 of Schedule 1 of the Taxation Administration Act 1953 (TAA), the company must deduct TFN withholding amounts from any payment of ordinary or statutory income made to the shareholder, unless the shareholder is exempt from the requirement to quote a TFN.
Section 11-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that unfranked dividends or the unfranked portion of partially franked dividends paid by a PDF are exempt income where they are paid in accordance with section 124ZM of the ITAA 1936. However, the fact that unfranked dividends or the unfranked portion of partially franked dividends paid by a PDF are exempt income does not affect the operation of section 12-140 of Schedule 1 of the TAA.
For section 12-140 of Schedule 1 of the TAA to apply, the entity making the payment must be an investment body. As the PDF is a company listed on the stock exchange, it is an investment body within the meaning of section 12-140 of Schedule 1 of the TAA.
In addition, for section 12-140 of Schedule 1 of the TAA to apply, it is necessary that the payment be either ordinary or statutory income. In accordance with section 44 of the ITAA 1936, dividends are statutory income.
Therefore, as the PDF is a public company it will need to deduct TFN withholding amounts from dividends paid to shareholders if a TFN has not been quoted, unless the dividends have been fully franked or the shareholder is a person is exempt from the requirement to quote a TFN.
Date of decision: 1 February 2002Year of income: Substituted Accounting Period 2004
Legislative References:
Income Tax Assessment Act 1936
section 124ZM
section 202D
section 12-140 of Schedule 1 Income Tax Assessment Act 1997
section 11-10
Keywords
TFN withholding tax
Exempt income
Pooled development funds
Unfranked dividends
TFN withholding tax investment bodies
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 1 February 2002 | Original statement |
| 23 May 2014 | Updated statement | |
| 12 May 2017 | Archived |