Taxation Ruling TR 93/10

What this ruling is about: [Note: This is a consolidated version of this document. Refer to the Tax Office Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.]


Ruling: 3. A resident beneficiary in the situation described in paragraph 1 can claim and be allowed a credit for an amount of Australian withholding tax under section 18-30 in Schedule 1 to the TAA if the tax: 4. The credit is allocated or applied as set out in Division 3 of Part IIB of the TAA. So much of the credit that is not allocated or applied is refunded to the beneficiary under Division 3A of Part IIB of the TAA. 5. For the purposes of this Ruling, the amount of Australian withholding tax borne by the resident beneficiary is equal to the difference between the amount of the trust distribution received and the amount of the trust distribution that would otherwise have been received if the withholding tax had not been deducted. 6. A resident beneficiary seeking a credit for the Australian withholding tax should attach a written request to the return of income that includes the trust distribution received. The written request should include a statement from the non-resident trustee showing the following details: The credit is to be claimed by way of that written request and should not be shown anywhere on the return form itself.

Examples: Example 1: 13. Facts: 14. If the Australian companies had not deducted withholding tax from the interest paid to AIT, Ben Fischer would have received a cash distribution of $6500 instead of the $6200. Thus, the amount of Australian withholding tax borne by Ben Fischer on the Australian interest is $300. 15. Ben Fischer's assessable income includes the withholding tax of $300 in addition to the trust distribution of $6200 received (i.e. a total of $6500). He is then allowed a credit for the withholding tax of $300. 16. If the credit exceeds the amount that is allocated and applied under Division 3 of Part IIB of the TAA, any excess amount will be refunded to Ben Fischer. | Example 2: 17. Facts: 18. Resi Dent's assessable income includes the amount of the distribution received from NR Property Trust ($540) plus the amount of withholding tax borne by her ($60), that is, a total of $600. She is then allowed a credit of $60 in respect of the withholding tax. Commissioner of Taxation 22 April 1993 Previously released in draft form as TR 93/D5 BO BRI 0034



What this Ruling is about | Liability to Australian withholding tax | Deduction of withholding tax | Credit for withholding tax deducted | What this Ruling is about: 1. This Ruling considers whether a resident beneficiary of a non-resident trust estate is allowed a credit for Australian withholding tax under section 18-30 in Schedule 1 to the Tax Administration Act 1953 (TAA) where: | The Ruling also sets out the procedures a resident beneficiary should follow to claim a credit for the Australian withholding tax. | 2. The Ruling does not apply to: | Date of effect: 7. This Ruling applies to years commencing both before and after its date of issue. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of a settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 21 and 22 of Taxation Ruling TR 92/20). | Liability to Australian withholding tax: 8. Generally, an unfranked dividend, interest or royalty paid from Australia is subject to Australian withholding tax under Division 11A of the ITAA 1936 if it is derived by a non-resident (section 128B of the ITAA 1936). A resident is not liable to Australian withholding tax except where subsections 128B(2A) or (2C) of the ITAA 1936apply (interest or royalty income derived by a resident in carrying on a business through a permanent establishment outside Australia). Subsections 128B(2A) and (2C) of the ITAA 1936, however, do not apply to trust income derived by a beneficiary of a non-resident trust estate. | 9. Thus, a dividend, interest or royalty paid to a non-resident trustee (that is, the trustee of a non-resident trust estate) is not subject to Australian withholding tax if the beneficiary presently entitled to that dividend, interest or royalty is a resident. This is because, for the purposes of Division 11A of the ITAA 1936, subsection 128A(3) of the ITAA 1936 deems the beneficiary to have derived that dividend, interest or royalty at the time of present entitlement and ensures that this income retains the character of a dividend, interest or royalty when the trust income is distributed to the beneficiary. | Deduction of withholding tax: 10. Australian withholding tax need not be withheld from a payment of a dividend, interest or royalty if the tax is not payable on that dividend, interest or royalty (section 12-300 in Schedule 1 to the TAA). However, in practice, an entity paying an unfranked dividend, interest or royalty to a non-resident trustee is generally not aware of the present entitlement of a resident beneficiary, or beneficiaries, of the trust to that income of the trust estate and that such a payment is not subject to withholding tax. That entity remains obliged to withhold an amount from that dividend, interest or royalty (sections 12-210, 12-245 and 12-280 in Schedule 1 to the TAA). | Credit for withholding tax deducted: 11. A resident beneficiary who receives, or is entitled to receive, a trust distribution from a non-resident trust estate that includes a dividend, interest or royalty from an Australian source is assessed on that income under the general trust provisions in Division 6. If Australian withholding tax had been deducted in the circumstances mentioned in paragraph 10 (i.e. where no liability to that withholding tax in fact exists), the resident beneficiary's assessable income should include the amount of withholding tax borne by the beneficiary. | 12. In these circumstances, the beneficiary is accepted as entitled to a credit for that amount of Australian withholding tax under section 18-30 in Schedule 1 to the TAA. The credit is to be allocated and applied as set out in Division 3 of Part IIB of the TAA.


Related rulings: CITCM 858
Legislative references: ITAA 1936 Pt III Div 11A ITAA 1936 128B ITAA 1936 128B(2A) ITAA 1936 128B(2C) ITAA 1936 128B(3) TAA 1953 Pt IIB Div 3 TAA 1953 Pt IIB Div 3A TAA 1953 Sch 1 12-300 TAA 1953 Sch 1 12-210 TAA 1953 Sch 1 12-245 TAA 1953 Sch 1 12-280 TAA 1953 Sch 1 18-30
Subject references: non-resident trust estates trust distributions withholding tax withholding tax credit