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A notional allowable deduction is available for foreign or Australian tax paid on amounts included in the attributable income of a CFC. An Australian tax is defined to be a withholding or income tax. It does not include additional taxes such as late payment penalties. If the tax is paid in a subsequent year, the earlier year's assessment can be amended subject to the time limits for amendments to allow a deduction for the tax.
Taxes paid directly by a CFC
Assume a CFC (CFC Co) owns 20% of the voting shares in a company (Unlist Co). Unlist Co is a company resident in an unlisted country and is not a CFC. Unlist Co pays CFC Co a dividend of $180,000. CFC Co receives $162,000 because tax of $18,000 is withheld. Unlist Co has no profits that have been taxed in a listed country or in Australia.
Because of the dividend, the notional assessable income of CFC Co will include $180,000 - the dividend before withholding tax - and a notional allowable deduction may be claimed for the $18,000 tax paid by CFC Co.
Last modified: 05 Dec 2006QC 17522