Reconciliation of withholding tax for non-residents

We perform a reconciliation of non-resident withholding tax (WHT) on distributions from unlisted managed funds and income from equity holdings, for all Australian non-residents with an open account at the time of reconciliation.

The reconciliation details provided are a guide to the correct tax position for non-resident investors in relation to their unlisted managed fund and equity holdings within our platform. Due to differing individual circumstances and the necessity of applying overriding assumptions and principles in the reconciliation process, we strongly recommend that investors seek independent taxation advice on this matter.

 

How do we reconcile WHT?

Product issuers provide us with the component breakdowns of distributions after each financial year end through product issuer tax statements (generally received between July and October). 

As such, prior to the receipt of these tax statements it is not possible for us to apply the specific withholding rates against the component breakdown of distributions received during the year. Accordingly, where there have been interim distributions throughout the year, we calculate WHT at 15% of the gross distribution at the time the distribution is paid.

Once product issuers have provided us with the actual components that make up each distribution, we calculate the difference between the amount that was withheld throughout the year and the amount that should have been withheld. As a result of this reconciliation, where necessary, an adjustment (deposit or withdrawal) is made to the investor’s cash hub.

The Reconciliation of Withholding Tax for Non-Resident Income section of the Tax Report – Detailed discloses the non-resident WHT adjustment for listed equities, unlisted managed funds and listed trusts. The amount also appears on your Tax Report – Summary.

Equities and listed trusts

We will perform a notional reconciliation of WHT for equities and listed trusts held within the platform.

For equities and listed trusts, the relevant share registry deducts any WHT based upon the investor’s country of residence (as provided by the investor) and considers whether or not Australia has negotiated a DTA and/or EOI agreement with the non-resident’s country of residence.

Once we have received notification from the share registries, the difference between the amount that was withheld throughout the year and the amount that should have been withheld is calculated. We then credit/debit the investors cash hubs as required such that non-resident investors are in the correct WHT position, based on the assumptions and principles applied.

These are the principles that we rely upon while performing the reconciliation of WHT.

  • The reconciliation has been performed in respect of unlisted managed fund distributions received from unlisted managed funds and income received from equity holdings held within our platform.
  • The reconciliation for equity holdings will disclose the amount of WHT that was withheld by the share registries and the amount that should have been withheld by the share registries in respect of listed equity income.
  • The reconciliation has been performed on distributions of unlisted managed funds and listed equity income and not on any capital gains that may have resulted from the disposal of a managed fund or equity holding. We assume that non-residents do not hold a taxable australian real property (TARP) interest in any asset they hold in their account. Please refer to the capital gains tax (CGT) section of this website for more information about TARP assets.
  • The reconciliation only details those components where WHT is required to be deducted on distributions received.
  • A reconciliation has only been performed where non-resident investors have their account open at the time of the adjustment. If the account has been closed before making the adjustment, we are unable to perform a reconciliation as there is no account into which we can make an adjusting entry.
  • In relation to unfranked dividends and interest:
    • we have determined the appropriate WHT rate to be applied based on the country of residence provided by investors
    • where investors are resident of a country with which Australia has negotiated a double taxation agreement (DTA), the rate specified in that DTA has been applied
    • where the DTA advises more than one rate, the most conservative of those rates has been chosen
    • where investors are resident of a country with which Australia has not negotiated a DTA, the non-treaty WHT rates have been applied (30% for unfranked dividends and 10% for interest amounts).
  • In relation to Australian ‘other’ income and TARP capital gains (discounted, indexed and fully taxable), a withholding rate of 15% (for the current income year) has been applied where the non-resident is a resident of a country with which Australia has an effective exchange of information (EOI) agreement. Where the non-resident is resident of a country with which Australia does not have an EOI, the applicable withholding rate is 30%.
  • The reconciliation has not taken into account distributions of non-TARP capital gains as this distribution component is not required to have non-resident WHT deducted.
  • No consideration has been given to the potential impact of the local tax regime of the various countries in which the non-resident investors reside.

Where a non-resident has changed residency during the year, we have deducted WHT at the correct rates taking into account any residency change. A residency change may include any of the following examples:

  • a resident becoming a non-resident
  • a non-resident moving from one overseas country to another overseas country
  • a non-resident becoming a resident.

Where a non-resident has changed residency, we will continue to withhold tax in accordance with their original country of residence until we have received all completed and correct paperwork. Once this paperwork has been received, we will update our systems to apply the correct WHT rates (as per the relevant DTA or EOI rates) for unlisted managed funds.

In relation to listed securities, we will notify the relevant share registry of any residency change when all completed and correct paperwork is received. The registry will then update their systems accordingly.

We strongly recommend that investors seek independent taxation advice in relation to the accuracy of this reconciliation based on their own individual circumstances.

The following assumptions have been relied upon in performing the reconciliation of WHT:

  • non-resident investors are individuals
  • all managed investments and listed trusts and listed and unlisted securities are held within our platform and so we are able to report all-managed investments and listed trusts, and listed and unlisted securities income
  • distribution statements issued by product issuers are correct
  • non-resident investors have a portfolio (less than 10%) interest in their unlisted managed funds and equity holdings.