Double Taxation Relief Manual: Guidance by country: Australia: Dividends
The Agreement provides for a reduced rate of withholding tax of 5% if the recipient owns at least 10% of the voting power of the payer. Otherwise the reduced rate is 15%.
But no withholding tax will be charged on dividends paid by an Australian company where:
(a) the UK company has owned shares representing more than 80% of the voting power of the company paying the dividends for more than 12 months before the dividend was declared;
(b) its principal class of shares is listed on a recognised stock exchange as specified in Article 3, para 1 and regularly traded on such an exchange; or
(c) it is owned directly or indirectly by one or companies who come within (b); or
(d) although it does not come within (a) or (b), the competent authorities have agreed that the establishment, acquisition or maintenance of the company did not have a principal purpose of obtaining the benefits of the zero rate.
Australian dividends are either ‘`franked’, ‘`partly franked’ or `unfranked’. The dividend voucher should identify the appropriate category.
(i) Franked Dividends. A voucher for a franked dividend paid by an Australian company shows a gross amount, an imputed tax credit (or rebate) and a net amount which is what the shareholder actually receives. If the dividend is received through a bank or other paying agent, United Kingdom basic rate tax will also be deducted from the net dividend. The Australian tax credit reflects the underlying tax paid by the company on its profits (see INTM164010) and a portfolio shareholder (seeINTM164010) is not entitled to credit for this tax. The correct measure of the dividend for United Kingdom tax purposes is the net amount of the dividend (before deduction of UK basic rate tax, if any).
Claims by a direct investor for relief in respect of the imputed tax credit should be referred to the Underlying Tax Group, Fitz Roy House, Nottingham, in the same way as other claims in respect of underlying tax (see INTM164440).
(ii) Unfranked Dividends. Australian tax deducted from unfranked dividends at the agreement rate of 15 per cent (Article 8) NEW Rate … qualifies for credit as a direct tax. The reduction to the agreement rate is not given if the dividend is effectively connected with a business carried on by the United Kingdom resident recipient through a permanent establishment in Australia. Credit for underlying tax is only to be taken into account where the recipient is a company resident in the United Kingdom which controls, directly or indirectly, at least 10 per cent of the voting power in the paying company. For this purpose, however, the paying company must (notwithstanding the rule in DT2656(a) be not only a resident of Australia but also not resident in the United Kingdom (Article 19(l)(b).
(iii) Partly Franked Dividends. To the extent the dividend is franked see (i) above and to the extent it is unfranked follow the rules in (ii).
An unfranked dividend of 100 passes through the hands of a UK paying or collecting agent, Australian tax will be deducted at the agreement rate of 15 per cent so the agent will receive 85. United Kingdom tax of 17 (20 per cent of the amount received) is deducted by the agent. The taxpayer receives 68. The measure of the taxpayer’s taxed income is 100 and, as indicated above, the Australian tax, deducted at the agreement rate of 15 per cent qualifies for credit against the UK tax on that income. The United Kingdom tax deducted at source should be taken into account in the usual way.