Issue
Whether the taxpayer, a trustee of a trust who is liable to be assessed for tax in respect of a non-resident beneficiary under section 98 of the Income Tax Assessment Act 1936 (ITAA 1936), should include in their assessable income an amount distributed to the non-resident beneficiary as unfranked dividends, where withholding tax is payable on the unfranked dividends.
Decision
No, the amount distributed to the non-resident beneficiary as unfranked dividends, where withholding tax is payable on the unfranked dividends, is excluded from the assessable income of the trustee under section 128D of the ITAA 1936.
Facts
The taxpayer, a trustee of a trust, distributes an amount of unfranked dividend to a non-resident beneficiary of the trust. The trustee withholds and pays the withholding tax on the unfranked dividends.
The trustee is liable for tax in respect of the non-resident beneficiary.
Reasons for Decision
Section 128D of the ITAA 1936 excludes from assessable income certain income on which withholding tax is payable. Under subsection 128B(1) of the ITAA 1936 there is a liability to withholding tax by the trustee, on income consisting of dividends paid to a non-resident, and under subsection 128C(1) of the ITAA 1936, the withholding tax is due and payable by the trustee.
The amount distributed to the non-resident beneficiary as unfranked dividends is excluded from the assessable income of the trustee under section 128D of the ITAA 1936, as withholding tax is payable on the dividend income.