Question regarding franked dividends and withholding tax

[helpme]

For non-residents of Australian stock holders, the withholding tax on dividends is 30%. If the dividends are 100% franked, my understanding is the withholding tax drops to 0%. So, if dividends are 50% franked, does it follow that withholding tax becomes 15%?

Thank you.

 

[Sharkman]

yep that's essentially correct, but make sure the country that you are a tax resident of does not have a bilateral tax treaty with Aust first. if it does, then the withholding tax on the unfranked portion should be 15%, not 30%.

if you're a foreign resident, you don't enter fully franked divs anywhere on your return, you don't get taxed on them (but you don't get the franking credits either). divs with an unfranked component go on your supplementary tax return, not the main form, so you don't get immediate feedback on the tax they'll incur before submitting your tax return, you only find out on getting the notice of assessment.

there are a couple of things to watch out for here:

as i wrote in another thread a week or two ago, i've had past experience (in 2 separate years!) of the ATO trying to charge me 30% withholding when i'm a tax resident of a country that does have a bilateral tax treaty with Aust. would not surprise me in the slightest if they're "accidentally" charging the full withholding tax rate by default just to see who isn't aware of the rules and harvesting whatever extra tax revenue that they can.

some companies who have at least part of their profits being foreign sourced can declare their dividends as conduit foreign income, in which case the div never passes thru the Aust tax system, it goes straight to your tax jurisdiction and gets taxed according to the rules there. CSL is an example of a company that does this. pretty handy if you live in a country where dividends received by individuals aren't taxed. fortunately they haven't gotten this part wrong on any of my tax returns (so far).

 

[helpme]

as i wrote in another thread a week or two ago, i've had past experience (in 2 separate years!) of the ATO trying to charge me 30% withholding when i'm a tax resident of a country that does have a bilateral tax treaty with Aust. would not surprise me in the slightest if they're "accidentally" charging the full withholding tax rate by default just to see who isn't aware of the rules and harvesting whatever extra tax revenue that they can.

THank you very much for sharing your experience. May I ask if the extra taxes that were accidentally or dishonestly charged to you eventually refunded when the "mistake" was pointed out?

 

[Sharkman]

yes they did correct it, had to spend a couple of hours on the phone each time though. first couple of people answering had no clue what i was talking about, they had to forward my call on about 4 or 5 times before finally putting me thru to someone who knew what the rules were and had the authority to alter the tax return.