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Ruling
Subject: PAYG withholding tax
Question:
Is the trustee of the trust required to deduct pay as you go (PAYG) withholding tax from an Australian-sourced capital gain distributed to a non-resident beneficiary (a trust) who in turn will distribute to resident and non-resident beneficiaries?
Answer:
No
This ruling applies for the following period
Year ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You are the trustee of a deceased estate.
In the 2011-12 financial year, the trust entered into a contract for the sale of a property located in Australia.
The apartment was acquired after the introduction of the CGT provisions and the main residence exemption did not apply to the property.
As a result of the sale, the trust has derived a capital gain which will be distributed to a non resident trust estate as the sole beneficiary to the estate.
This non resident trust estate will in turn make distributions to the ultimate beneficiaries, some of which are residents and some non-residents.
Relevant legislative provisions
Taxation Administration Act 1953 Part 2-5 Section 10-5
Reasons for decision
The PAYG withholding system, contained in Part 2-5 in Schedule 1 to the Taxation Administration Act 1953, is generally used for paying instalments during the income year towards an expected income tax liability for any business and investment income.
The payments and other transactions covered by PAYG withholding are called withholding payments. The table in section 10-5 in Schedule 1 to the Taxation Administration Act 1953 lists payments from which amounts are to be withheld as part of the PAYG withholding system.
Under the PAYG system, withholding tax is deducted from interest, dividend and royalty income paid to non-residents.
Certain other payments to foreign residents are also included in this list. Foreign resident withholding (FRW) requires a payer to withhold amounts from certain payments made to foreign residents for particular types of activities which are listed in the regulations to the Taxation Administration Act 1953. These include:
· payments for promoting or organising casino gaming junket arrangements
· payments for entertainment and sports activities, and
· payments under contracts for the construction, installation and upgrading of buildings, plant and fixtures and for associated activities.
As the deceased estate's payments are not listed withholding payments as prescribed in the table, there is no obligation for you to deduct withholding amounts from the payments to a non-resident beneficiary (a trust) who in turn will distribute to resident and non-resident beneficiaries (individuals).