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Section 7 - Reduction of attributable income because of interim dividends

Last updated 4 December 2006

The attributable income of a CFC is reduced if you are taxed on a dividend paid by the CFC out of current year profits. A dividend is treated as paid out of current year profits only after profits from previous years have been distributed. The amount of the reduction is equal to the attributable income of the CFC referable to the current year profits that were distributed. Your attributable income is also reduced in the same way if you are taxed on a non-portfolio dividend paid by the CFC out of current year profits to another entity you control.

Working out the reduction

Dividend paid to an attributable taxpayer

If the dividend is paid to you, the amount of the reduction in attributable income is worked out as follows:

Amount of the dividend assessed ÷ your attribution percentage in the CFC

Start of example

Example 26: Dividend paid wholly out of attributed income

A taxpayer has a 50% attribution percentage in a CFC resident of an unlisted country. The CFC has no profits from previous years and $1 million current year profits are distributed as a dividend. The dividend was paid wholly from profits referable to the attributable income of the CFC. The $500,000 received by the taxpayer is included in the taxpayer's assessable income.

The amount by which the attributable income would be reduced is worked out as follows:

$500,000 ÷ 50% = $1 million

End of example

 

Start of example

Example 27: Dividend paid partly out of attributed income

A taxpayer has a 50% attribution percentage in a CFC resident of an unlisted country. The CFC has an accumulated profit of $2 million. The CFC pays a dividend of $2.2 million. The dividend would be taken to have been paid out of the accumulated profits first. The whole of the $200,000 component of the dividend paid from current year profits is referable to the attributable income of the CFC.

The reduction would be: $100,000 ÷ 50% = $200,000

End of example

 

Start of example

Example 28: Dividend is exempt

A resident company has a 50% interest in a CFC resident of a listed country. The CFC has no profits from previous years and distributes all of the current year profits as an exempt dividend.

There is no reduction of attributable income in this case because the dividend was not assessable.

End of example

Dividend paid to another CFC or CFT

If a CFC resident in an unlisted country pays an interim dividend directly to either another CFC or CFT, the reduction is worked out as follows:

Amount of the dividend assessed ÷ your attribution percentage in the recipient

Dividend paid to a partnership or Australian trust

If a CFC resident in an unlisted country pays an interim dividend indirectly to either another CFC or CFT through either a partnership or an Australian trust, the reduction is worked out as follows:

Amount of the dividend assessed ÷ your attribution percentage in the dividend

Your indirect interest in the dividend is worked out by multiplying your interest in the partnership or trust by your attribution percentage in the CFC of CFT receiving the dividend.

QC17522