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Tax Tip 37: Withhold tax on interest you pay to overseas entities

Discussion in 'Accounting & Tax' started by Terry_w, 10th Sep, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What happens if you borrow a large sum of money from your rich uncle overseas and use the money to buy an investment property - whether in full or part. Can you claim the interest?

    If the loan was properly documented then there would be no reason why the usual principles governing deductibility of interest would not apply so the interest would generally be deductible.


    But when paying interest overseas the payer of the interest is required to withhold tax from that interest before it is sent off. This is to make sure the government gets its tax out of the transaction as otherwise it would have no jurisdiction to collect the tax if the non resident would not pay.


    Failure with withhold tax will mean the interest will not be deductible to you.
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    At top marginal rate I assume?
     
  3. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Withholding tax is a set rate of 10% for interest. https://www.ato.gov.au/Business/PAY...ividends-and-royalties-paid-to-non-residents/

    Importantly if the person is resident of a country with which Australia has a tax treaty the withholding "MAY" be exempt provided the payer reports it in the correct fashion to the ATO each year. (The theory being that the ATO shares the data with for example the IRS in the US)

    The interest submenu in the above link provides more details.