2008-09 Budget Delivers Competitive Tax Edge for Managed Funds 

Treasurer Wayne Swan has announced in the 2008-09 Budget the Australian government’s commitment to improving the international competitiveness of the Australian managed funds industry by reducing the level of withholding tax to distributions of Australian source net income (other than dividends, interests and royalties) for foreign residents.  

Under the new announcement, withholding tax for foreign residents will be reduced from a non-final rate of 30 per cent to a final withholding tax rate of:
- 22.5 per cent of fund payments for the first income year;
- 15 per cent final withholding tax for fund payments  for the second income year; and
- 7.5 per cent final withholding tax for the third and later income years.

It will cover distributions made directly from MITs to foreign residents as well as distributions made through other intermediaries (including custodians).

As a means of protecting the Australian taxation system and minimizing international tax evasion and avoidance, the above rates will only apply to foreign investors residing in countries with which Australia has effective exchange of information (EOI) agreements on tax matters. 

The list of jurisdictions with which Australia has effective EOI will be specified in regulations.
Foreign investors in countries without such agreements will be subject to a 30 per cent final withholding tax with effect for funds payments from the first income year.

These measures will become effective from the first income year after Royal Assent of the enabling legislation, intended for the 2008-09 income year.

Distributions of dividends, interest and royalties will continue to be covered by existing final withholding tax arrangements.