Income Tax on Australian Dividends

guernseyguy

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I'm an Irish tax payer with Australian shares that pay dividends twice a year. The dividend statement shows a gross amount which includes an imputed tax amount (also called a franking credit) and a net amount which is what I actually receive into my bank account. As I understand it, the franking credit reflects the underlying tax paid by the Australian company on its profits.
(1) To calculate my Irish income tax liability, can anyone confirm which figure goes on my income tax return - is it the gross figure including the franking credit or the net figure without the franking credit? (2) Also, is the imputed tax/franking element creditable for Irish tax purposes under the double taxation treaty etc? I would appreciate any advice as the taxation of foreign dividends seems to be a very complex and confusing area. Many thanks in advance.
 

jpd

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You declare the gross amount of dividends in your Irish Tax return plus the amount of franking credit, assuming it is not in excess of 15%

If it is in excess of 15%, then you can only declare the 15% as a tax credit on your irish tax return and must reclaim the amount above 15% back from the Australian tax authority. The Double taxation treaty limits the amount of tax on dividends to 15% - unless your a company or related party

Depending on your overall tax position in Ireland you may get credit for some or all of the tax deducted by the Aussies
 

guernseyguy

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My dividends come with a 30% franking credit. If I can only claim 15% through the Irish tax system, then I must claim back the other 15% from Australia. However I just checked the Australian Tax Office website and they don't allow refunds of franking credits to non-residents:
Franked dividends

If you are a non-resident of Australia, the franked amount of dividends you are paid or credited are exempt from Australian income and withholding taxes. The unfranked amount will be subject to withholding tax. However, you are not entitled to any franking tax offset for franked dividends. You cannot use any franking credit attached to franked dividends to reduce the amount of tax payable on other Australian income and you cannot get a refund of the franking credit. You should not include the amount of any franked dividend or any franking credit on your Australian tax return.

With the Irish income tax on dividends in addition to the Ozzies refusing to refund franking credits to non-residents, this would result in a severe hit on the net benefit from the Oz dividends. Surely this couldn't be right? Would appreciate any views on this? Many thanks
 

jpd

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This would seem to contradict the double taxation treaty - see Article 11, Page 15 here https://www.revenue.ie/ga/tax-professionals/tax-agreements/double-taxation-treaties/a/australia.pdf

A quick search on google turns up this https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-in-Australia/Interest,-unfranked-dividends-and-royalties/
and this http://www.austlii.edu.au/au/other/dfat/treaties/1983/25.html

Except,in Australia they have a class of dividend called a Franked Distribution (see here https://www.investopedia.com/terms/f/frankeddividend.asp ) which avoids the DTT
 
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guernseyguy

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Thanks for the links jpd. My Australian dividends are in the class of dividend called a fully franked distribution and not subject to any withholding tax in Oz. Can I just double check if your earlier response still applies to the franked dividends? thanks again
You declare the gross amount of dividends in your Irish Tax return plus the amount of franking credit, assuming it is not in excess of 15%

If it is in excess of 15%, then you can only declare the 15% as a tax credit on your irish tax return and must reclaim the amount above 15% back from the Australian tax authority. The Double taxation treaty limits the amount of tax on dividends to 15% - unless your a company or related party

Depending on your overall tax position in Ireland you may get credit for some or all of the tax deducted by the Aussies
 

jpd

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No, it looks like Franked distributions are setup to simplify tax reporting for locals but have the disadvantage (unintended?) of not being subject to DTT rules. A bit like Exit tax here in Ireland
 
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Renner

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As far as I understand the main purpose of franking credits was in relation to double taxation. ie. if the company pays 30% corporate tax, then that passes through to the individual. They may have to pay more or get a refund depending on their marginal income tax rate. In this case, they say instead of the non-resident withholding rate, the franking credit covers it. Technically you should only be 15% under the tax treaty so it's being overtaxed for a start with no franking refund available to nonresidents. Then you don't seem to get the credit for foreign tax paid on the Irish side either because it was done through franking instead of direct withholding. Pretty much shafted on both sides as far as I can tell.
 
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