Professional services firm, Deloitte, welcomed the Government’s Budget announcement to reduce withholding tax from 30% to 7.5% over the next 3 years on taxable distributions from listed property trusts and other managed investment schemes.

Joe Galea, property tax partner at Deloitte, said the Government has followed through on one of its promises made to the property industry last year.

“The cut should encourage investment into Australian property through a listed or wholesale trust by a non-resident investors who will now be taxed at a level that is very competitive against other major economies such as US and UK,” Mr Galea said.

“It will also relieve many non-resident investors from the burden of filing Australian tax returns.”

He noted the change will, however, be a mixed blessing for more sophisticated investors.

“By making the withholding a final tax (15% in 2009-2010 and 7.5% from 2001-2011 onwards) with no ability to claim a refund, some investors who have put in place leveraged holding entities,  may find their effective tax rate has increased even though the headline rate has reduced,” Mr Galea said.

“The Treasurer has softened the blow by allowing such investors time to restructure to prevent this change from impacting their net return.

Mr Galea noted that to qualify for the new reduced rates, investors would need to be resident in jurisdictions with which Australia has effective exchange of information arrangements.

“This may include countries with which Australia has double tax agreements and certain other countries, although we will need to await the regulations for confirmation,” Mr Galea concluded.