Tuesday, May 4, 2021

Trust distributions to non-resident (leaders)** or beneficiaries (as the case may be)

Generally, withholding tax is payable on all dividends, interest or royalties included in the income paid by a resident trust to a non-resident beneficiary to the extent that the non-resident beneficiary is presently entitled to the relevant amount. 

For example, if a resident trust validly distributes income to beneficiaries in the United States (who are non-resident beneficiaries), then: 
  1. under the withholding tax system, a flat rate of tax is deducted from the source of the income before the income is sent overseas;
  2. each part of the income (depending on whether it is interest, dividends or royalty distribution) will be taxed on the relevant withholding tax rate generally, ranging between 10% and 15%; and
  3. often the beneficiary will not be subject to any other tax.
Importantly, however, any trust distributions to non-residents where the withholding tax rules do not apply, the trustee will be taxed at the top marginal rate. 

** for the trainspotters, the title today is riffed from the Green Day song ‘St Jimmy’. View hear (sic):