Published on 19/09/2008

For Australia to be a more attractive real estate investment option - lower the withholding tax rates for foreign investors.

Lower withholding tax rates for foreign investors

From 1 July 2008, the new Management Investment Trust (MIT) withholding rules commenced operation, updating the rules that have applied from 1 July 2007. The previous 30 per cent non-final withholding tax rules have been replaced with a final withholding tax regime. The withholding rates will be reduced from 30 per cent to 7.5 per cent (to be phased in over three years) shown in the following table:

	2009	2000	2011
*EOINon-residents**	22.5%	15.0%	7.5%
Other non-residents	30.0%	30.0%	30.0%
Nature of withholding	Non-final for EOI	Final	Final

* Persons resident in a country that Australia has identified as having an effective exchange of information (EOI) treaty.

Distributions to investors resident in countries which Australia does not have an ‘effective’ EOI (i.e. other non-residents) will not qualify for the reduced withholding rates. Distributions to such investors will be subject to a 30 per cent final withholding tax.

The regime for the 2009 year involves a (prima facie) non-final withholding regime. As such, EOI non-residents can claim a refund for any excess withholding tax withheld by the MIT during the 2009 income year, by lodging an Australian income tax return.

Consistent with the 2007 rules, MITs are required to withhold tax on the Fund Payment Amount (FPA).

Under the new rules, MIT distributions are only subject to withholding if a distribution of a FPA is made to an entity with an address or place of payment outside Australia. By using the address/place of payment as a proxy for residence MIT’s will not be required to determine the residence of each investor.

The new rules are expected to enhance the global competitiveness of the Australian funds management industry as tax leakage is substantially reduced. Furthermore, foreign investors will be relieved of the compliance burden of completing Australian tax returns in respect of those distributions. This ensures foreign investment in MIT’s will be on an equal footing with investment in companies and interest bearing instruments.

Should you require any details please contact Stephen O’Flynn.

Stephen O’Flynn,
Melbourne, Australia
soflynn@moorestephens.com.au