Westpac warned today that the Australian Taxation Office (ATO) appears to have changed its policy on tax withheld on payments of non-dividend and non-interest income to non-Australian residents.
Discussions between Australian custodians and the ATO have revealed that the ATO expects custodians to deduct withholding tax on “sundry other income” (as opposed to dividend and income payments) payments made to non-residents.
“As this issue has never been previously clarified by the Australian Taxation Office, the Australian custodial industry had broadly adopted a stance whereby trustees, such as global custodians or foreign pension funds, were treated as exempt from this tax,” says a spokesman for Westpac in Sydney. “On the basis of recent discussions with the ATO, however, it has now been determined that that stance can no longer be relied upon. We believe that this reflects a clear change in practice by the ATO.”
Westpac Custodian Nominees (WCN) says it has been heavily involved in industry consultation on this issue, and has also taken advice from its internal tax specialists and consultants Allens Arthur Robinson, who have advised that WCN should be collecting withholding tax at a rate of 30% from all non-resident clients receiving “sundry other income.”
“On the basis of both this advice and recent industry discussions with the ATO, we advise that immediate action is necessary to ensure that withholding tax is applied on all sundry other income received by non-resident holders,” says the Westpac spokesman.
WCN says it will be implementing this change effective for all relevant distributions payable from Monday 16 August 2004. The current Australian tax year began on 1 July 2004, and some distributions have been paid already, but WCN does not expect to subtract payments retrospectively.
“Many accounts already designated as `tax exempt’ will be liable for withholding tax deductions under the new regime,” says the Westpac spokesman. “Our advice indicates that sovereign immunity and foreign charities are the only categories for exemption from withholding tax on sundry other income. All other exemptions such as private` rulings for pension funds are relevant to dividend and interest payments only and are not applicable for this type of income. This means that withholding tax will need to be applied uniformly across all non-resident accounts, unless we have been specifically notified of a sovereign immunity or foreign charity exemption.”