| Summary: | This article considers the tax treatment of dividends paid by Australian companies to non resident shareholders, which benefit from a withholding tax exemption to the extent that
the dividend is “franked” under Australia’s imputation system. The article considers the
appropriateness of maintaining the withholding tax exemption now that more than 35 years
have passed since the imputation system was introduced in Australia in 1987. It examines
the original rationale for introducing the exemption and questions whether that rationale
remains valid in 2023, given changes to corporate and individual tax rates in the intervening
periods. The article also notes that to a potentially significant extent, the ongoing availability
of this concession benefits foreign revenue authorities where non-resident shareholders live
in countries which maintain a “classical” approach to taxation of dividends and allow credits
for foreign withholding tax to be offset against tax liabilities in the country of residence. The
article concludes that a comprehensive policy-based review of the concession is long
overdue, that removal or modification of the exemption should be considered, and that the
potential additional Australian tax revenue resulting from changes to the concession could
be significant.
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