In a speech by Wayne Swan (the then Opposition
Treasurer) on 3 April 2007 and in Kevin Rudd's Address
in Reply to the Budget in May 2007, it was apparent that Labor
has committed itself to halve the current 30%1
withholding tax on distributions from Australian managed
investment trusts to foreign investors to 15%.
By halving the withholding tax rate, it is Labor's
intention to "secure Australia's place as a
financial hub in the Asia-Pacific". Accordingly, by making
the withholding tax a final tax, Labor proposed to abolish the
requirement for foreign investors in these managed trusts to
lodge a tax return where their income is subject to such
withholding. This will remove a burdensome compliance
requirement for foreign investors and greatly enhance
Australia's global competitiveness.
However, as it currently stands, instead of the proposed 15%
flat final withholding tax rate, it is still a 30% non-final
withholding tax imposed on distributions. As a result, foreign
investors receiving such distributions will need to lodge an
Australian income tax return in order for them to claim a
foreign tax credit for the amount of tax withheld.
On 1 February 2008, the Assistant Treasurer and Minister for
Foreign Affairs in their joint press release announced that
Australia and Japan have signed a new tax treaty on 31 January
2008 to replace the existing treaty which was signed in
All is not lost as a review of the new treaty reveals that
half of Labor's promise is kept. The upside is, as
promised by Labor, the withholding tax on distributions from
Australian managed investment trusts to Japanese investors is
limited to 15%.
However, the downside is, this only applies if the Japanese
investors hold less than 10% of the capital in the managed
investment trust in the 12 month period prior to the date the
distributions are made.
Accordingly, where the interest in the managed investment
trust is greater than 10% the withholding tax is not limited to
15% but will remain at 30%.
If Australia is to prosper, we must remove this
uncompetitive tax burden on Australia's managed
investment trusts. For now, we recommend that for future
treaties, consideration could be given to negotiating a
reciprocal withholding tax limit of 15% on distributions to
foreign investors regardless of their interest in the
Australian managed investment trust.
1 Prior to the Federal Election, Tax Laws Amendment
(2007 Measures No. 3) Act 2007 received Royal Assent on 21 June
2007 which now requires Australian managed investment trusts
and its intermediaries to collect a non-final withholding tax
at a single rate (the company tax rate) on certain
distributions to foreign residents.
The content of this article is intended to provide a
general guide to the subject matter. Specialist advice should
be sought about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).