Interest and withholding tax on Australian bank accounts

[Flashback]

I have a reasonably good idea (I think!) of how it is meant to work, but in practise it doesn't seem to be the case. My understanding is that being UK tax resident, my Australian bank accounts should be taking 10% withholding tax on any interest that is paid each month/year. For my Australian bank accounts, I have my tax residency on them set to UK. They have on file both my UK NIN and my AU TFN. I also believe that interest (for tax resident Aussies) is no longer considered income anymore by the ATO.

I also understand that I should be adding the AU interest onto my UK Self Assessment that I do annually with HMRC - with a credit for the 10% WHT?

Citibank never did it, NAB never did it and I'm finding now that I've moved to Bankwest they're also not doing it.

Here is the conversation I had with their online team (only way to engage, short of calling)

You said: Yes, and my account states that I am UK Tax resident, not AU tax resident. That's all set in my profile. Therefore I don't understand why the 10% WHT isn't being applied?

Bot WC said: You may not be in the best place to get detailed information about how the Australian tax system works. You might find it more helpful to contact the ATO for accurate guidance.

You said: Item 5.4 of the Investment & Transaction Accounts Terms and Conditions states..... 5.4 If you do not lodge your Tax File Number, your ABN (if you have one), or an appropriate exemption with us, by law we must deduct withholding tax at the highest marginal tax rate plus the Medicare Levy from the interest payable to you. If you are not an Australian resident for tax purposes, we are required by law to deduct non-resident withholding tax from the interest payable to you.

You said: In your own T&C it states very clearly: If you are not an Australian resident for tax purposes, we are required by law to deduct non-resident withholding tax from the interest payable to you. So, why is this not happening?

Bot WC said: Everything on your account is being managed correctly and in accordance with our requirements.

You said: Well, it's not actually, as not a single cent has been deducted from the interest earned on the account. Your T&C even says you should be doing it! If you are not an Australian resident for tax purposes, we are required by law to deduct non-resident withholding tax from the interest payable to you.

You said: No deductions have been made from any of my interest payments, even though you're legally required to.

Bot WC said: I can see the last team member you have spoken with also provided this information, I have worked for this bank for 11 years and I have also had specialist review this in line with your questions. There is nothing further I can add at this stage, as the correct actions are being taken.

You said: No problem - if that's the final position, I'll need to raise it with the AFCA.

Are they correct? Everyone I've spoken to (including a CPA) says they're not. I'm not really sure how I can go about correcting it? Or, do I just take the gross amount (rather than -10% nett which is what they should be paying) and it then means I need to start lodging an ATO return every year again to 'pay' the 10% tax that should be paid?

I don't know if any of the complication is because my TFN is also set in my profile, even though on all accounts it has Tax Residency set to UK and it is definitely NOT set to Australia.

 

[HappyFlyerFamily]

Not a professional, but I'm going to give this a stab. I'm sure others more sure will chime in.

I think what you have done will constitute an internal complaint with BankWest, so the next step will be to go to AFCA.

I feel if you don't get the "final" 10% non-resident withholding tax applied, then you need to lodge an Australian tax return and then get taxed 30%. I suspect the interest will be linked to your Australian TFN so at some point you will need to lodge a tax return and the tax rate for non-residents is 30% (no tax-free threshold).

In either scenario, you probably will get credit against your UK tax return. In both scenarios state the overseas interest (and the applicable tax taken).

If you ended up in the situation where you needed to put in an Australian tax return and were taxed 30% and your UK tax rate is less than 30%, then technically the overpayment of Australian tax is not 'refunded' either through the UK or Australia.

 

[kyle]

I have a reasonably good idea (I think!) of how it is meant to work, but in practise it doesn't seem to be the case. My understanding is that being UK tax resident, my Australian bank accounts should be taking 10% withholding tax on any interest that is paid each month/year. For my Australian bank accounts, I have my tax residency on them set to UK. They have on file both my UK NIN and my AU TFN. I also believe that interest (for tax resident Aussies) is no longer considered income anymore by the ATO.

I also understand that I should be adding the AU interest onto my UK Self Assessment that I do annually with HMRC - with a credit for the 10% WHT?

Citibank never did it, NAB never did it and I'm finding now that I've moved to Bankwest they're also not doing it.

Here is the conversation I had with their online team (only way to engage, short of calling)


Are they correct? Everyone I've spoken to (including a CPA) says they're not. I'm not really sure how I can go about correcting it? Or, do I just take the gross amount (rather than -10% nett which is what they should be paying) and it then means I need to start lodging an ATO return every year again to 'pay' the 10% tax that should be paid?

I don't know if any of the complication is because my TFN is also set in my profile, even though on all accounts it has Tax Residency set to UK and it is definitely NOT set to Australia.

Did the give the UK address to the bank though?

Assuming you earn more than $10 a month in interest and want them to withhold 10% as final tax, you should ask them to remove the TFN.

I don't understand what you mean by interest is no longer considered income for Aust tax residents.

 

[HappyFlyerFamily]

I don't know if any of the complication is because my TFN is also set in my profile, even though on all accounts it has Tax Residency set to UK and it is definitely NOT set to Australia.

Its quite possible that this might end up being the practical solution, but unless BankWest tell you it needs to be removed for their system to operate as intended, I wouldn't suggest removing it at this stage. But by all means note it to AFCA.

 

[Flashback]

Not a professional, but I'm going to give this a stab. I'm sure others more sure will chime in.

I think what you have done will constitute an internal complaint with BankWest, so the next step will be to go to AFCA.

I feel if you don't get the "final" 10% non-resident withholding tax applied, then you need to lodge an Australian tax return and then get taxed 30%. I suspect the interest will be linked to your Australian TFN so at some point you will need to lodge a tax return and the tax rate for non-residents is 30% (no tax-free threshold).

In either scenario, you probably will get credit against your UK tax return. In both scenarios state the overseas interest (and the applicable tax taken).

If you ended up in the situation where you needed to put in an Australian tax return and were taxed 30% and your UK tax rate is less than 30%, then technically the overpayment of Australian tax is not 'refunded' either through the UK or Australia.

Interesting, as the ATO says it should just be the 10% for tax resident anywhere outside of AU and also confirms "You don't include this interest as income on your Australian tax return."

https://www.ato.gov.au/individuals-and-families/investments-and-assets/investing-in-bank-accounts-and-income-bonds

The problem with having to lodge an AU tax return is that's going to cost a few hundred $$ I suspect. I can't do it myself as I don't have enough points of ID to get myGov up and running (bain of my existence!), unfortunately I left AU well before that was even a thing. So it means having to rely on a tax agent to submit it.

Did the give the UK address to the bank though?

Assuming you earn more than $10 a month in interest and want them to withhold 10%, you should ask them to remove the TFN.

I don't understand what you mean by interest is no longer considered income for Aust tax residents.

While Bankwest has an AU address set, Citibank and NAB both had the UK address set and never once took out the WHT.

 

[kyle]

Interesting, as the ATO says it should just be the 10% for tax resident anywhere outside of AU and also confirms "You don't include this interest as income on your Australian tax return."

https://www.ato.gov.au/individuals-and-families/investments-and-assets/investing-in-bank-accounts-and-income-bonds

The problem with having to lodge an AU tax return is that's going to cost a few hundred $$ I suspect. I can't do it myself as I don't have enough points of ID to get myGov up and running (bain of my existence!), unfortunately I left AU well before that was even a thing. So it means having to rely on a tax agent to submit it.

While Bankwest has an AU address set, Citibank and NAB both had the UK address set and never once took out the WHT.

I reckon their system is not set to take out 10% if the TFN is present.

 

[HappyFlyerFamily]

Interesting, as the ATO says it should just be the 10% for tax resident anywhere outside of AU and also confirms "You don't include this interest as income on your Australian tax return."

https://www.ato.gov.au/individuals-and-families/investments-and-assets/investing-in-bank-accounts-and-income-bonds

If you got hit with the 'final' 10% withholding tax, you don't need to lodge an Australian tax return in respect of the interest. I put 'final' in quote because the ATO does not need to do anything further if it got taxed at 10% via the bank..

If you didn't get hit with the 'final' withholding tax, you probably need to lodge an Australian tax return to only get hit with 30% tax as a non-resident.

The problem with having to lodge an AU tax return is that's going to cost a few hundred $$ I suspect. I can't do it myself as I don't have enough points of ID to get myGov up and running (bain of my existence!), unfortunately I left AU well before that was even a thing. So it means having to rely on a tax agent to submit it.

You have a few months to lodge a tax return (July to October), perhaps a relative can get a paper form sent to you (if ATO is unable to send it overseas) and you can fill it in yourself and return it by post from overseas - paper tax returns are still an option for now.

 

[Flashback]

I reckon their system is not set to take out 10% if the TFN is present.

I was also wondering whether that may be what's confusing it, given it's happened with 3 different banks now.

I've just updated my address with BW to my UK one, so let's see what happens with the next interest payment.

If you got hit with the 'final' 10% withholding tax, you don't need to lodge an Australian tax return in respect of the interest. I put 'final' in quote because the ATO does not need to do anything further if it got taxed at 10% via the bank..

If you didn't get hit with the 'final' withholding tax, you probably need to lodge an Australian tax return to only get hit with 30% tax as a non-resident.



You have a few months to lodge a tax return (July to October), perhaps a relative can get a paper form sent to you (if ATO is unable to send it overseas) and you can fill it in yourself and return it by post from overseas - paper tax returns are still an option for now.

I've never received it, with any of the banks. What a PITA, just because the banks can't do things right. I still feel like an AFCA complaint is worth raising in that case.......