Private ruling: Non-resident withholding tax
Published: July 2012
Ruling period: Year ended 30 June 2006 | Year ended 30 June 2007 | Year ended 30 June 2008 | Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2005

Ruling: Q1: Is the interest income you earn in Australian subject to non-resident withholding tax (NRWT)? | A1: Yes.

Relevant facts and circumstances: You are a non-resident for income tax purposes. While holidaying in Australia, you opened a savings account with an Australia bank. Interest is credited to your account monthly. In some financial years the bank has not deducted the NRWT, while in other financial years the bank has deducted the NRWT (at varying rates) from the interest that you have derived.

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 128B | Income Tax Assessment Act 1936 Subsection 128D

Reasons for decision: Summary: Subsection 128B of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a non-resident of Australia is liable for withholding tax on interest derived in Australia. Section 128D of the ITAA 1936 specifies that interest which is subject to withholding tax shall not be included in a taxpayer's assessable income. In determining liability to tax on Australian-sourced income received by a non-resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement (DTA). Australia has signed a DTA with country X for the avoidance of double taxation with respect to taxes on income and fridge benefits and the prevention fiscal evasion. An article within the DTA allows Australia to tax a resident of country X receiving interest income arising in Australia at a rate not exceeding 10% of the gross amount of the interest. In your case, as a non-resident you are liable for Australian withholding tax on interest credited to you. As you are a resident of country X your Australian sourced interest income is subject to withholding tax in Australia at a rate of 10%. | Detailed Reasoning - Non-resident withholding tax: Generally a foreign resident is not required to lodge an Australian income tax return if the only Australian-source income they earn is interest, unfranked dividends or royalties on which NRWT has been correctly withheld. As you are subject to NRWT, you should advise the financial institution of your non-resident status and your overseas address so they can withhold the appropriate rate of tax for future financial years. As the NRWT was not correctly withheld at the 10% rate, you will need to declare the interest you have earned to the Australian Tax Office (ATO) by lodging an Australian income tax return for the relevant financial years. | Detailed Reasoning - Completing the income tax return: As you are a non-resident you do not include the interest at question 10 (gross interest), but instead on a separate piece of paper: · Print SCHEDULE OF ADDITIONAL INFORMATION - ITEM 10 · Print your name, address and tax file number · Provide details of the amounts of interest you received while you were a non-resident from which withholding tax was not deducted or the incorrect amount of withholding tax was deducted. · Sign the schedule and attach it to page 3 of your tax return. Print X in the YES box at Taxpayer's declaration question 2a.

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