Withholding tax has multi-jurisdictional considerations.
a. Australia
PAYG Withholding (AUD) – sole traders without ABN, Wholesale clients without tax File Number (TFN) will be subject to 47.5% withholding on interest receipts.
b. United States
i. US Withholding tax on positive / credit Cash Balances
FinClear24 Products will at times hold U.S.-dollar cash or cash-equivalent balances (e.g., US bank deposit programs, broker sweep accounts, U.S. money market funds, short-dated Treasuries) on behalf of Australian-resident clients and intermediaries. U.S. tax law imposes withholding obligations on certain U.S.-source fixed or determinable annual or periodic ("FDAP") income paid to non-U.S. persons. Failure to document beneficial owners correctly, apply treaty or statutory exemptions, and perform required information reporting can result in default 30% U.S. withholding, potential FATCA withholding exposure, and operational / reputational risk for FinClear
ii. Core statutory framework (Chapter 3 – NRA Withholding)
Under Internal Revenue Code (IRC) §§871(a) & 881(a), a 30% withholding tax generally applies to U.S.-source FDAP income (including most forms of interest) paid to nonresident alien individuals ("NRAs") and foreign entities, unless an exemption or reduced treaty rate applies. U.S. withholding agents (including U.S. custodial banks, brokers, and certain qualified intermediaries) are responsible for collecting documentation (Form W-8 series) and withholding/remitting tax where required. Treasury Regulations §§1.1441-1 et seq. and §1.1442-1 implement these rules procedurally.
Operational note for FinClear: Our upstream U.S. cash program providers will expect valid W-8BEN (individuals) or W-8BEN-E (entities) from Australian residents/clients routed via our omnibus or look-through arrangements. Absent valid documentation, payments are subject to 30% withholding by default.
iii. Treaty overlay: U.S.–Australia Income Tax Treaty
Although many common cash interest streams are already exempt under domestic U.S. law (bank deposit & portfolio interest exemptions), the 1982 U.S.–Australia Income Tax Treaty (as amended) provides a maximum 10% withholding rate on interest that does not qualify for statutory exemption (Article 11). To access the treaty rate, beneficial owners must: (i) be Australian residents under the treaty, (ii) satisfy limitation-on-benefits / beneficial ownership conditions, and (iii) provide treaty claims on the appropriate W-8 form (currently Part II of Form W-8BEN / W-8BEN-E). Where domestic law already yields 0%, the treaty does not increase the rate; instead it functions as a fallback cap if an item falls outside domestic exemptions.
iv. Chapter 4 (FATCA) interaction
IRC §§1471-1474 (FATCA) impose a separate 30% withholding on certain U.S.-source payments to nonparticipating Foreign Financial Institutions (FFIs) and certain non-financial foreign entities (NFFEs) that fail to provide substantial U.S. owner information. FATCA withholding applies in addition to, and is operationally layered over, Chapter 3 NRA withholding. Most Australian prudentially regulated financial institutions (and many brokers/custodians) participate in FATCA either directly or via the Australia–U.S. Intergovernmental Agreement (IGA Model 1). FinClear must ensure correct FATCA GIIN status capture and reporting so that cash interest flows are not subject to FATCA withholding.
v. Reporting
Where U.S. tax is withheld (or where reportable payments are made subject to exemption), U.S. withholding agents issue Form 1042-S to document amounts paid and tax withheld to each foreign beneficial owner (or pooled reporting class under a QI). Annual Form 1042 summarizes aggregate withholding agent liability. FinClear should confirm downstream data feeds from the U.S. program bank or broker so Australian clients receive appropriate 1042-S data for foreign tax credit (FTC) purposes.
vi. Australian tax consequences (brief cross-border note)
Australian residents are taxable in Australia on worldwide income, including foreign interest earned on U.S. cash balances. Where U.S. withholding tax has been applied (e.g., because an exemption was not available or documentation failure), Australian taxpayers may generally claim a Foreign Income Tax Offset (FITO) subject to ATO rules and caps.