Question

TBP Pty Ltd is a resident company and pays a dividend of $1,400 (franked to 60%) to the below non-resident shareholders:

1. an individual living in the US;

2. a US company holding 20% shares in the resident company; and

3. a US company holding all the shares in the resident company.

Required:

Advise as to the Australian income tax implications for each of the non-resident shareholders citing relevant legislation to support your answer.

Answer 1

If a company is resident of Australia and is paying the dividend to the non resident of Australia it has to withold the dividned tax at the rate df 30% to the extent which is not franked.

According to the treaty between the U..S and Australia the Dividend Witholding Tax (DWHT rates are

1) For an individual non resident the rate is 15% to the extent of not franked

2)For an US company which hold the shares more than 10% are entitle to 5% of DWHT to the extent not franked

3) For an US Company which holds the shares more than 80% are not subhect to any DWHT.

In the given case, TBP PTY Ltd is a resident company of Australia and it pays $1,400, in which franked is 60% to the non resident shraeholders. So, the amunt subject to DWHT is $1,400 * 40% = $560. But the actual DWHT will depend on how much dividend is paid to each of the non resident shareholders

Hence, the DWHT for the non residents are as follows

1) 15% of the dividend paid to the individual living in US

2) 5% of the dividend paid to the US company holding 20% shares in the resident company which is more than 10%

3) No DWHT for the US company holding 100% of shares in the resident company which is more than 80%