Are additional taxes incurred if any income generated from a real estate investment is transferred to the shareholders or partners in the relevant vehicle and can these be reduced or offset in any way?
Australian resident investors are taxed at their tax rates on distributions (dividends) received from a company and credits (referred to as 'franking credits') may be available to Australian resident investors for the tax already paid by the company on the profits from which the distributions are paid. Due to the availability of the credits, effectively, Australian resident investors pay tax in respect of the distributions on the difference between their tax rate and the 30 percent tax already paid by the company.
Payments of fully franked dividends (that is, dividends paid out of profits which have already been subject to taxation in Australia) from a company to non-Australian resident investors are not subject to further Australian income or withholding tax. Payments of unfranked dividends (that is, dividends which have not been subject to taxation in Australia) from a company to non-Australian resident investors are generally subject to Australian withholding tax of 30 percent. This withholding tax rate may decrease (between 0 percent and 15 percent) where the non-resident investor resides in a country with which Australia has a double tax agreement.
For flow through or tax-transparent entities (such as certain trusts and partnerships), Australian resident investors are taxed at their marginal tax rates in respect of income received by the entity. Non-Australian resident investors are subject to Australian withholding taxes in respect of certain distributions (such as, dividends and interest) and are taxed at their individual tax rates (up to 45 percent) in respect of other taxable distributions. For trusts, the Australian trustee generally withholds the tax payable from distributions made to non-resident investors. As discussed above in respect of dividends, the rate of Australian withholding tax may be lowered in respect of distributions of dividends and interest where the non-Australian resident investor resides in a country with which Australia has a double tax agreement. Recent changes allow distributions from managed investment trusts to non-Australian resident investors who reside in an effective information exchange country (such as the US, UK etc) of rental income and capital gains to be taxed at 15 percent (from 1 July 2012 and onwards). Otherwise, a 30 percent tax rate applies.
The flow through entity itself is generally not subject to taxation.
