Question

Question 1

Maria Fernandez moved from Spain to live in Australia on a permanent basis on 1 January 2019. During the 2018-2019 tax year she received the following income from Australian sources:

1.10.2018        Fully franked distributions from BHP        $2,000
1.2.2019            Partially franked (60%) distributions from ANZ    $4,000
15.3.2019            Unfranked distributions from Fosters        $3,200
30.6.2019            Fully franked distribution from Westpac       $7,000

Advise Maria on the tax consequences of the above for the year ended 30 June 2019. Your answer must be supported by legislation, case law and tax rulings (if any).

Answer 1

Maria Fernandez is a non resident for tax purposes in Australia as her stay is less than 183 days and failed to pass the 183 days test.

She has received three dividends during the year

For franked dividend on 1.10.2018 -

It is received by her when she is non resident, she is not eligible to claim any amount as franking credit and also not necessary to include such dividend in her income. So $2,000 will not be included in income and no franking credit is available

For partially franked credit on 1.2.2019 -

This dividend has to be divided into two parts, franked dividend and unfranked dividend. For the franking part of dividend the non resident cannot claim any franking credit and for the non franked dividend, it is subjected to withholding tax @30% for non resident. This withholding tax is non refundable.

Franked dividend portion = [(Dividend amount/1-tax rate) - Dividend amount ] x Franking proportion = [(4,000/1-30%) - 4,000] x 60%

= 1029

Unfranked proportion = 685

The unfranked portion is subjected to withholding tax @30% and it is non refundable. For franking dividend it is treated as the above franked dividend

The unfranked dividend on 15.3.2019 -

The unfranked dividend is subjected to withholding tax @30%

Unfranked dividend 3,200 for which withholding tax was deducted. After such withholding she need not show any such income in the return.

For Franked dividend on 30.6.2019 -

This amount of $7,000 will be subjected to franking but as the non resident is not eligible to claim any franking credit and she has no liability to show this franking credit or franked dividend in her tax return as income.

As she doesn't have any income other than dividend (either franked or unfranked subjected to withholding tax) she need not file any return for the year.