Have you provided your TFN or ABN to your financial institution? If not, then it's probably costing you money!
Did you know that Withholding Tax is applied to interest payments on accounts owned by non-residents of Australia? From the ATO's perspective, if the institution you bank with does not have your Tax File Number (TFN) or ABN assigned to your interest earning accounts, you are treated as a non-resident for the purpose of this tax. If this is you, then you will not be receiving what you are entitled to.
How Withholding Tax Works
Withholding tax is paid on your behalf to the Australian Tax Office (ATO), when you start earning interest on your bank accounts over a certain amount each month, if you haven't provided a TFN or ABN.
- Anyone over 16 who earns more than $10 per month interest on their bank accounts will have 49% of this interest withheld, at time of payment
- Anyone under 16 who earns $35 per month interest on their bank accounts will have 49% of this interest withheld, at time of payment
If you only have cobwebs in your account this won't matter too much, but as soon as you start saving, it will! For example, you and your partner are saving hard for your first home deposit; you have $20,000 in your joint savings account in July and manage to deposit $2,000 per month throughout the year; the interest rate on your account is 2.8%. If your financial institution does not have both you and your partner's TFN or ABN applied to the account then you will have effectively paid $453 in withholding tax that could have been avoided.
The more savings you have, the greater the amount you could be losing to Withholding Tax.
What to do
You can find out if you have been paying Withholding Tax by looking at a recent account statement. This will typically be shown as a line item above or below the corresponding interest payment; with the total amount paid for the year shown in your account summary. If in doubt contact your financial institution and ask the question, "Do you have my TFN or ABN recorded against each of my accounts?"
If you have supplied this information in the past, your financial institution should in theory apply this to each of your future accounts; but there is no guarantee. Also remember, if you have recently opened a joint account, then each account holders TFN or ABN must be registered to avoid Withholding Tax.
If you have been paying Withholding Tax because of not providing a TFN or ABN, then your financial institution can refund this into your account when you provide it. However, they will only do this for tax paid in the current financial year. To recover Withholding Tax paid in previous years, you will need to contact the ATO for details.
If you think this could be you, what are you waiting for? Get checking now!