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Not all deemed dividends paid by a CFC directly or through other entities to a CFC or CFT are non-portfolio dividends. These dividends may be attributed to a resident taxpayer under section 459. An example of how a portfolio dividend can arise under section 47A is where a dividend is deemed to have been paid to a lower tier company or a sister subsidiary. The following diagram illustrates two such dividends.
When are portfolio dividends taxable under section 459?
The following five conditions must be satisfied for a portfolio dividend to be included in the assessable income of a resident taxpayer under section 459:
- the dividend must be deemed, under section 47A, to have been paid by an unlisted country CFC
- the dividend must be paid to:
- a listed country CFC, or
- a CFT, or
- an amount of that dividend must flow to a listed country CFC or to a CFT through interposed partnerships or Australian trusts
- a resident taxpayer must be an attributable taxpayer for the CFC that pays the dividend and for the recipient CFC or CFT
- section 458 must not apply to the dividend
- the dividend must not be subject to tax in a listed country at its normal company tax rate.
Amount included in assessable income
The amount of a dividend paid to a CFC or CFT that is included in the assessable income of an attributable taxpayer depends on the taxpayer's attribution percentage in the CFC or CFT.
Do not adjust the dividend for any exempting profits part or any part paid from previously attributed income. No part of the dividend will be an exempting receipt, and no foreign tax credit is allowed.
Dividends included in assessable income
Ausco has an attribution percentage of 80% in unlisted country CFC1 and 80% in listed country CFC2. CFC1 is deemed, under section 47A, to have paid a dividend of $1,000 to CFC2 on 1 August 2003. Under section 459, Ausco has to include $800 in its assessable income.
Last modified: 05 Dec 2006QC 17522