Understanding tax residency and withholding tax (WHT)

Why does Macquarie confirm tax residency?

Every year we do a review of all the clients on our platforms to determine if they have indicated that they are tax residents of a foreign jurisdiction. They could have indicated this through information provided during the account opening process or personal contact information they’ve updated throughout the year.

We’re required to confirm your client's tax residency under the:

Foreign Account Tax Compliance Act (FATCA), US legislation requiring us to confirm your client’s status as a US or non-US citizen or tax resident, and
Common Reporting Standard (CRS), a single global standard for the collection, reporting and exchange of financial account information on foreign tax residents.

As part of our ongoing CRS and FATCA reporting obligations, we contact clients because:

We have found foreign indicia (evidence of foreign tax residency) on file and require confirmation of tax residency from them. Foreign indicia could be a foreign address, contact details or foreign ID on file. We may also know that your clients have a foreign taxpayer identification number (TIN) but we don’t have this TIN recorded or;
they’re an entity that need to self-certify for the first time, regardless of whether evidence of foreign tax residency has been found on file.

How do I confirm a client's tax residency?

To help you and your clients provide the right documents, we’ve outlined the requirements below.

You can find the ID forms here or by searching for “ID forms” on Adviser Tools.

Individuals

Foreign Information	What we need
No foreign or US TIN recorded	Foreign tax status declaration form - Individuals.

Entities

Foreign Information	What we need
Evidence of foreign tax residency	Foreign tax Status Declaration form - Entities, and A copy of Australian certificate of incorporation or screenshot of ACN verification on the ASIC database.
Over $250,000 balance held on 31 December 2019	Foreign tax Status Declaration form - Entities.
No foreign or US TIN recorded	Foreign tax Status Declaration form - Entities, making sure they provide their TIN.

It’s important to note that we may contact your clients for additional information, like a copy of their Australian identification, if required.

What information do I need to provide for a US tax resident?

US Specified Persons must provide a United States of America (US) Taxpayer Identification Number (TIN) when opening a new account with Macquarie.

Existing account holders without a US TIN will continue to be contacted as part of our annual FATCA and CRS due diligence procedures.

A US Specified Person includes, but is not limited to:

US citizen and US residents for tax purposes
Holder of a US TIN or US Reportable Account
Entities that are US Specified Persons
Non-US entities with US controlling persons.

What are the Tax File Number (TFN) requirements?

Collection of Tax File Numbers (TFNs) is authorised, and its use and disclosure is regulated by the tax laws and Privacy Act.

Investors are not required to provide their TFN and declining to do so is not an offence. However, TFN withholding tax (WHT) will be deducted where the investor does not provide any one of the following:

a TFN (including both TFNs for joint accounts)
an Australian Business Number (ABN)
an exemption reason (eg they are a charity).

How are Tax File Number (TFN) Withholding Tax (WHT) deductions applied?

TFN WHT will be deducted (at the highest marginal tax rate plus the Medicare Levy) from any income earned on their account (e.g. interest, dividends and distributions) at the time payment is made.

The amount of TFN WHT will be disclosed on the Tax Reports.

For further information, please contact the Australian Taxation Office.

How does Tax File Number (TFN) Withholding Tax (WHT) apply for joint accounts?

If your client has a joint account, it is not sufficient for only one TFN to be quoted to avoid the deduction of WHT.

For example, if a husband and wife hold an investment jointly, neither will be regarded as having quoted a TFN in relation to the investment unless both have quoted a TFN, ABN or an exemption reason.

As a result, where only one account holder has quoted their TFN, TFN WHT will be required to be deducted on the whole income amount.

TFN WHT for joint accounts - resident and non-resident

If a non-resident holds a joint account with an Australian resident, the resident must quote their TFN, ABN or claim an exemption reason in order to avoid TFN WHT being deducted. Other non-resident WHTs will be deducted as appropriate. In these circumstances, the resident may be entitled to a credit for these amounts.

Taxpayers who are subject to non-resident WHT should advise of their non-resident status and provide their overseas address. Where no overseas address is provided for the non-resident account holder, a higher rate of tax may be withheld from the whole income amount.

How does withholding tax (WHT) apply for non-residents?

Non-residents and intermediaries who act on behalf of non-residents are subject to WHT at a rate of 15% where an effective Exchange of Information Agreement (EOI) is in place. The rate applies to the following components of income: 

Australian 'other' income
Taxable Australian Real Property (TARP) capital gains

Where no EOI is in place, the appropriate WHT rate on the above-mentioned income components is 30%.

Non-residents and intermediaries are also subject to a final WHT on any unfranked dividends (at a rate of 30%) or Australian interest income (at a rate of 10%) that they may receive. These rates may be reduced, depending on whether the investor is a resident of a country with which Australia has negotiated a Double Tax Agreement (DTA).

Direct vs intermdediary obligations

Where a non-resident invests directly in shares or units in a listed trust, the share registry will withhold tax based upon the information that we provide to them.

However, where an intermediary invests in shares, or units in unlisted managed funds or listed trusts on behalf of the non-resident, it will be the responsibility of the intermediary to deduct and withhold any tax for which the non-resident is liable.

Examples of intermediaries include:

custodians
other wrap platforms
trustees of family trusts
trustees of discretionary trusts.

For intermediaries to undertake their withholding obligations, the tax law requires that the payers of distributions to non-residents make available the components of income distributed such that the correct rates of withholding can be applied.

What is the 12H distribution schedule?

The 12H distribution schedule which is included in the Product Issuer Schedule provides investors with the distribution components for managed investments available on investment menus.

The information provided can assist investors with undertaking their own withholding obligations on behalf of their direct non-resident beneficiaries/investors.

This is usually made available to advisers in mid-late August.

How does Macquarie reconcile withholding tax (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’s 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 Account/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.

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.

For more information please refer to the relevant section below.

WHT reconciliations when there’s been a change of residency

Where a non-resident has changed residency during the year, we’ve deducted WHT at the correct rates considering 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’ll 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’ll 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’ll 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.

You can find the form here at change of status/change of residency.

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

WHT reconciliations for unfranked dividends and interest

We’ve 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 residents 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).

WHT reconciliations for equities and listed trusts

We’ll 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 Australia has negotiated a DTA and/or EOI agreement with the non-resident’s country of residence.

Once we’ve 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 and reported.

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