AI tells a newcomer to Australia they must get a Tax File Number (TFN) before a bank will open an account, or that skipping it only costs a little extra tax on interest
ID: banking/foreign-resident-interest-withholding
Version Compatibility
| Version | Status | Introduced | Deprecated | Notes |
|---|---|---|---|---|
| any | active | — | — | — |
Root Cause
A Tax File Number is not required to open an Australian bank account - banks open accounts without one. Its only role is interest withholding: if a resident account holder doesn't give the bank a TFN, the bank must withhold tax from interest at the top marginal rate of 47%. Foreign tax residents who earn only Australian-sourced interest, dividends or royalties do not need a TFN at all - if they give the bank their overseas address, non-resident withholding tax of 10% applies instead; without an overseas address on file, the bank defaults to the 47% resident rate.
genericWorkarounds
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90% success Australian tax residents: open the account without waiting for a TFN, then supply it to the bank within 28 days of opening to avoid 47% withholding on interest going forward. Foreign tax residents earning only interest/dividends/royalties: skip the TFN application entirely and instead give the bank a permanent overseas address so the correct 10% non-resident withholding rate applies
If a bank has already withheld at the wrong (47%) rate because no TFN or overseas address was on file, a resident can claim the excess back by lodging a tax return; a foreign resident should apply for a TFN and lodge a return to reclaim the difference if this happens.
Sources: https://www.ato.gov.au/individuals-and-families/investments-and-assets/investing-in-bank-accounts-and-income-bonds https://www.ato.gov.au/individuals-and-families/investments-and-assets/foreign-resident-investments/interest-unfranked-dividends-and-royalties
Dead Ends
Common approaches that don't work:
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Tell a newly arrived migrant or international student that a bank will not open or activate an account until they have an Australian TFN
60% fail
The ATO's own guidance on bank accounts and income bonds confirms a TFN is not a precondition for opening an account - it only affects how much tax is withheld from interest. Withholding without a TFN applies at the top marginal rate (47%, being the 45% top rate plus the 2% Medicare levy), which is a tax consequence, not a barrier to opening the account itself.
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Tell a foreign tax resident (someone not living in Australia, or a temporary visitor) that they need to apply for an Australian TFN the same way a resident does, to avoid losing money on bank interest
55% fail
The ATO states foreign residents who only receive Australian-sourced interest, dividends or royalty payments do not need a TFN. Instead, if they give the financial institution their permanent overseas address, non-resident withholding tax of 10% applies to interest. Without that overseas address on file, the bank instead applies TFN withholding at 47%, which is far higher than the correct non-resident rate - so the fix for a foreign resident is providing an address, not obtaining a TFN.