Private ruling: Non-resident withholding tax
Published: May 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Should the unfranked dividends from Australian equities held by company A (Y branch) have withholding tax withheld at a rate of 15%? | Yes.


Relevant legislative provisions: International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Section 5 | International Tax Agreements Act 1953 Sch2-Art10(1) and | International Tax Agreements Act 1953 Sch2-Art10(2).

Reasons for decision: Detailed Reasoning - Unfranked dividends: Withholding tax on unfranked dividends is generally imposed at a flat rate of 30 per cent. However, in determining liability to Australian tax for foreign residents, it is necessary to consider not only the income tax laws, but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and the ITAA 1997 where there are inconsistent provisions (except for some limited provisions). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The country A Agreement (Convention) is listed in section 5 of the Agreements Act. The country A Convention operates to avoid the double taxation of income received by Australian and Canadian residents. An Article of the country A Convention states that the rate of withholding tax payable on dividends is 15% of the gross amount. In your case the prime broker for Company A (Y branch) has been withholding tax at a rate of 30% on unfranked dividends from Australian equities. In accordance with the double tax agreement between Australia and Country A, the correct rate of withholding tax is %.

Relevant facts: Company A is a country A company and is a country A resident company for tax purposes. | Company A has a branch in Y which trades Australian equities with a prime broker. The Company A is the dividend recipient. | The prime broker for Company A currently withholds tax at 30% on unfranked dividends.