Where an Australian resident entity pays interest to a non-resident entity, the Australian resident is required to withhold an amount from the interest it pays.
If the interest paid is in a foreign currency, the amount of interest withheld is required to be translated into Australian currency at the exchange rate applicable when the amount is required to be withheld.
Start of example
Example
Australia Co, an Australian resident company, pays USA Co, a non-resident company, a US$10,000 interest payment on 1 May 2015. USA Co is liable, under subsection 128B(5) of the Income Tax Assessment Act 1936 (ITAA 1936), to withholding tax on the interest payment. The exchange rate on that date is assumed to be A$1.00 = US$0.50.
- Australia Co paid USA Co the interest on 1 May 2015.
- Assuming Australia Co is required to withhold 10% of the gross interest paid, the amount required to be withheld is therefore US$1,000.
- Australia Co is required to translate the amount withheld into Australian currency at the exchange rate applying on that date, ie. A$1.00 = US$0.50.
- The Australian dollar equivalent of the amount withheld is therefore A$2,000 (US$1,000/0.50).
See also
- Subsections 960-50(1) and 960-50(6) of the Income Tax Assessment Act 1997
- Translation (conversion) rules