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An Australian resident company which receives a dividend from a related company is entitled to a credit for both:
- the direct foreign tax - for example, withholding tax - on the dividend received, and
- the underlying tax paid by a foreign company on the portion of the distributable profits out of which the dividend was paid.
These credits will generally be available only where the dividend is included in assessable income. The only exception is where a dividend is received from a related foreign company and is treated as paid out of income previously attributed to the resident company under the accruals tax system. A tax credit can be claimed for both the direct foreign tax and underlying tax on these exempt dividends.
Last modified: 05 Dec 2006QC 17522