Section 2 - What if a CFC or CFT receives a dividend from another CFC?
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Non-portfolio dividends paid by a listed country company are always non-assessable non-exempt income. Non-portfolio dividends paid by an unlisted country company to a resident company, however, are non-assessable non-exempt income only in very limited circumstances It is possible therefore that a resident company with an interest in an unlisted country company held through a listed country company may try to minimise Australian tax by arranging for the dividends from the unlisted country company to flow back to Australia through the listed country company.
This could be effective if the unlisted country company could distribute its low-taxed profits as dividends to a listed country company which taxed those dividends at very low rates, and if the listed country company in turn distributes those non-portfolio dividends to its Australian parent company free of tax. There are rules in section 458 to prevent this form of tax avoidance.
Last modified: 05 Dec 2006QC 17522