Withholding Tax
22.139. In Chapter 17 the Committee has considered the taxing of income flowing overseas, including interest and dividends subject to withholding tax. Here, brief consideration is given to the question of paying withholding tax on small amounts of interest and dividends. It has been put to the Committee that the costs of collecting withholding tax on trifling amounts of interest are out of all proportion to the tax collected. A survey carried out by the member banks of the Australian Bankers’ Association in 1971 showed that withholding tax of one dollar or less on bank interest accounted for 2.6 per cent of total collections of interest withholding tax by the banks and 0.1 per cent of total Commonwealth receipts from interest withholding tax. Some countries require withholding tax to be deducted only when the annual interest exceeds $10.
22.140. Freeing of small amounts from withholding tax raises the possibility of tax avoidance by the splitting of investments and by the splitting of payment of dividends and interest. The advantage to be gained from splitting of investments—several investments in distinct companies or borrowers—may not be significant. But splitting of payment—several payments of dividends or interest in the course of a year by the same company or borrower—could involve significant tax advantage, unless it was provided that payments would be free of tax only when they did not exceed in aggregate an annual total amount. This total amount, in the Committee's view, would need to be set at a modest figure, say no more than $20.
22.141. The Committee sees no objection to freeing small amounts from withholding tax if a limit of this kind on total annual payments is imposed.