Taxation Determination

TD 93/146

Income tax: should a resident deduct withholding tax from interest payable under a loan from a non-resident if there is no actual payment of the interest?

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FOI status:

may be releasedFOI number: I 1215734

This Determination, to the extent that it is capable of being a 'public ruling' in terms of Part IVAAA of the Taxation Administration Act 1953 , is a public ruling for the purposes of that Part. Taxation Ruling TR 92/1 explains when a Determination is a public ruling and how it is binding on the Commissioner. Unless otherwise stated, this Determination applies to years commencing both before and after its date of issue. However, this Determination does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Determination (see paragraphs 21 and 22 of Taxation Ruling TR 92/20).

[Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database ( to check its currency and to view the details of all changes.]

1. Yes, provided the interest is income derived by the non-resident and is not an outgoing incurred by the resident in carrying on a business at or through a permanent establishment outside Australia. The requirement to withhold the tax arises at the time the interest is 'paid' or 'payable' under Subdivision 12-F, Schedule 1 of the Taxation Administration Act 1953 (TAA).

2. Sections 12-245, 12-250 and 12-255 of Subdivision 12-F of Schedule 1 to the TAA require a person to withhold amounts from payments of interest. Section 11-5 of the same Schedule deems an amount to have been paid when the paying entity applies or deals with the amount, or is required to apply or deal with the amount, in any way on the other's behalf or as the other directs.

3. Conversely, the non-resident is liable, under subsection 128B(5) of the Income Tax Assessment Act 1936 (ITAA 1936), to withholding tax on interest 'paid' to them. Subsection 128A(2) of the ITAA 1936 deems the interest to have been paid to a non-resident when it is dealt with in the same manner as described in subsection 11-5(1) of Schedule 1 to the TAA. The non-resident's liability to withholding tax in these circumstances is therefore unaffected by the absence of an actual payment of the interest.

Example: A is an Australian resident who borrows $250 000 on 1 July 2011 from non-resident, NR, at 10% simple interest calculated and payable annually over 5 years. By agreement between them, the annual interest is capitalised each year until the 5th year when the total amount standing to the credit of the loan account is payable.A has an annual interest liability of $25 000 payable on 30 June. Even though the interest is not actually paid over to NR each year the interest debt is to be satisfied each year by crediting it to NR's loan account. This arrangement is enough to invoke the requirements of the withholding tax provisions to deduct withholding tax from the interest credited each year. Therefore, A is required to deduct $2 500 at the time interest is credited to the loan account and remit it to the Australian Taxation Office.

Commissioner of Taxation
29 July 1993

Previously issued as Draft TD93/D8


ATO references:
NO UMG 0041

ISSN 1038 - 8982

Subject References:
overseas loans;
withholding tax

Business Line:  PGI

Legislative References:
ITAA 128A(2)
Sch1 Subdiv 12-F
Sch1 11-5
Sch 1 12-245
Sch 1 12-250
Sch 1 12-255

TD 93/146 history
  Date: Version: Change:
  29 July 1993 Original ruling  
  18 October 2000 Consolidated ruling Addendum
You are here 22 March 2017 Consolidated ruling Addendum