Withholding tax on dividends paid by a Pooled Development Fund

Is a Pooled Development Fund (PDF) required to withhold tax in accordance with section 202D of the Income Tax Assessment Act 1936 (ITAA 1936) from unfranked or partially franked dividends paid to a shareholder who is a resident of Australia but who has not provided a Tax File Number (TFN)?

Yes. Section 202D of the ITAA 1936 requires a PDF to withhold tax from unfranked or partially franked dividends paid to a shareholder who is a resident of Australia but who has not provided a TFN, unless the shareholder is exempt from the requirement to quote a TFN.

The PDF is registered as a public company and is listed with the Australian Stock Exchange. The PDF regularly pays dividends to its shareholders from its profits. The dividends paid are not always fully franked dividends. Partially franked or unfranked dividends are paid in some years.

Section 202D of the ITAA 1936 requires that shareholders of a public company must provide their TFN to the company. Failure to quote a TFN means that, under section 12-140 of Schedule 1 of the Taxation Administration Act 1953 (TAA), the company must deduct TFN withholding amounts from any payment of ordinary or statutory income made to the shareholder, unless the shareholder is exempt from the requirement to quote a TFN.

Section 124ZM of the ITAA 1936 provides that unfranked dividends or the unfranked portion of partially franked dividends paid by a PDF are exempt income. However, the fact that unfranked dividends or the unfranked portion of partially franked dividends paid by a PDF are exempt income does not affect the operation of section 12-140 of Schedule 1 of the TAA.

For section 12-140 of Schedule 1 of the TAA to apply, the entity making the payment must be an investment body. As the PDF is a company listed on the stock exchange, it is an investment body within the meaning of section 12-140 of Schedule 1 of the TAA.

In addition, for section 12-140 of Schedule 1 of the TAA to apply, it is necessary that the payment be either ordinary or statutory income. In accordance with section 44 of the ITAA 1936, dividends are statutory income.

Therefore, as the PDF is a public company it will need to deduct TFN withholding amounts from dividends paid to shareholders if a TFN has not been quoted, unless the dividends have been fully franked or the shareholder is exempt from the requirement to quote a TFN.

Date of amendment Part Comment 23 May 2014 Reasons for Decision Remove reference to the repealed section 11-10 of the ITAA 1997 Delete phrase "is a person" Legislative References Remove reference to section 11-10 of the ITAA 1997

Date of amendment | Part | Comment

23 May 2014 | Reasons for Decision | Remove reference to the repealed section 11-10 of the ITAA 1997 Delete phrase "is a person"

Legislative References | Remove reference to section 11-10 of the ITAA 1997