Accounting for Withholding tax
Withholding tax may be deducted from income in certain circumstances ― usually when you Fund has not supplied a Tax File Number to a payer. The deducted amount can be claimed as a credit when you lodge your fund’s annual tax return. If a payer has deducted Withholding Tax from a payment, you should enter the GROSS amount due to be received when entering the income. Ignore the Withholding tax at this stage.
EXAMPLE: Assume your Fund receives a dividend from AMP of $111.58 comprising $94.84 franked and $16.74 unfranked, and with franking credits of $40.65. The statement shows income of $111.58, but only $102.58 was received because $7 withholding tax was deducted.
The solution is dependant on how you enter the dividend income. If you are adding the dividend via one of our bank feed allocation processes then follow the step identified below and then go onto adding the dividend income via the “Income menu.”
Bank feed data allocation
If you are allocating bank feed data, then we would recommend that you “Delete” the relevant transaction in the bank feed data under “Suspense Allocation Legacy” or “Manual Import – Allocation” and then add the dividend transaction via the process below.
Add Dividend manually
- Enter your Dividend as if the full $111.58 was received. (Refer to Income – dividends.)
- Your bank account now will not reconcile because it shows a deposit of $7 more than was received. To correct this, go to JOURNAL ENTRIES under the SETTINGS MENU
- Create a new Journal Entry titled ”Withholding tax deducted”.
The tax amount should be DEBITED to account 2-1103 Income Tax TFN Credits. This will ensure that Mclowd includes this amount as a credit when you are compiling your annual tax return. The tax amount should be CREDITED to the bank account to which your dividend was paid (or the account to which you banked the dividend cheque). This will correct the bank balance.
NOTE: An upgrade to Mclowd is planned to automate the process of accounting for withholding tax when entering dividends and remove the need for the additional journal entry.