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Edited version of private ruling
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Ruling
Subject: Withholding tax and foreign income distribution to non-resident beneficiaries
Is the trustee of the trust required to deduct withholding tax according to section 128B of the Income Tax Assessment Act 1936 (ITAA 1936) from foreign source income distributed to a non-resident beneficiary?
No.
This ruling applies for the following periods:
1 July 2009 to 30 June 2010
1 July 2010 to 30 June 2011
1 July 2011 to 30 June 2012
Relevant facts
The family trust makes a distribution to overseas beneficiaries.
Withholding tax is deducted according to 'PAYG withholding from interest, dividends and royalties paid to non-resident' for Australian sourced income and remitted to the Tax Office.
The trust also receives foreign source income from investments in shares from a non-resident company and non-resident managed funds.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 128B
Reasons for Decision
The primary rules governing the taxation of non-residents provide that non-residents are:
(1) liable to Australian tax on all items of ordinary or statutory income which have their source in Australia; and
(2) exempt from Australian tax on foreign source ordinary or statutory income.
Paragraph 15 of Taxation Ruling IT 2680 advises that broadly speaking, withholding tax is imposed on:
(a) dividends (except to the extent they are franked - paragraph 128B(3)(ga)) of the ITAA 1936 paid by an Australian resident company (subsections 128B(1) and (4)), and
(b) interest derived by a non-resident to the extent that the interest has an Australian source (subsections 128B(2) and (5) to (9) of the ITAA 1936).
The trustee of the trust will not be required to deduct withholding tax under section 128B of the ITAA 1936 on foreign source dividend or interest income.
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