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Edited version of private ruling
Authorisation Number: 1011639929299
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Ruling
Is an Australian resident for tax purposes required to pay income tax withholding on interest paid to an overseas bank?
Yes.
This ruling applies for the following period
1 July 2007 to 30 June 2010
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You moved to Australia.
You are an Australian resident for taxation purposes.
You and your spouse purchased a property overseas.
The property was leased out for rental.
You registered for withholding tax and pay 10%.
When your divorce was finalised you transferred your 50% ownership of the property and mortgage to your spouse.
You are making a payment to a non-resident entity and you deduct and remit the 10% non-resident withholding tax on the payment of interest.
You believe you are entitled to a refund of quarterly withholding amounts you have paid.
Relevant legislative provisions
Taxation Administration Act 1953 section 12-245
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 26-25(3)
Taxation Administration Regulations 1976 Regulation 41
Reason for decision
Section 12-245 of Schedule 1 of the Taxation Administration Act 1953 (TAA) provides that an entity must withhold an amount from interest that it pays to another entity if the recipient has an address outside Australia. The rate of tax on interest income, as specified in Regulation 41 of the Taxation Administration Regulations 1976, is 10%.
According to section 960-100 of the ITAA 1997, entity means any of the following:
· an individual
· a body corporate
· a body politic
· a partnership
· any other unincorporated association or body of persons
· a trust
· a superannuation fund
As you are making a payment to a non-resident entity you are required to deduct and remit the 10% non-resident withholding tax on the payment of interest.
Note
The 10% non-resident withholding tax is not a tax on your income; rather it is a tax payable on the interest income earned by a non-resident from sources in Australia. However, you are required to deduct the 10% non-resident withholding tax from the interest payment you make to the non-resident and remit the amount deducted to the Tax Office. For example, if you incur an interest expense of $1,000 in relation to your overseas rental property, you would be required to deduct and remit $100 to the Tax Office, leaving $900 to be paid to the overseas bank. You may wish to contact your overseas bank to discuss this matter with them.