• Portfolio dividends

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

    End of attention

    Some deemed dividends paid by a CFC directly or through other entities to another CFC are portfolio dividends. These dividends may be included in the attributable income of a CFC and be attributed to a resident taxpayer under section 456. An example of how a portfolio dividend can arise under section 47A is where a dividend is deemed to have been paid from one sister subsidiary to another. The following diagram illustrates such dividends.

    Ausco owns 100% of two foreign companies, CFC 1 and CFC 2. CFC 1 owns 100% of another foreign company, CFC 3. CFC 1 pays a dividend to its sister company CFC 2. It also pays a downstream dividend to CFC 3.

    Amount included in assessable income

    Where a portfolio dividend is deemed to have been paid to a CFC, and it is included in the CFC's attributable income, the amount to be included in the assessable income of the attributable taxpayer depends on the taxpayer's attribution percentage in the CFC.

    You do not adjust the dividend for any part paid from previously attributed income and no foreign tax credit is allowed.

    Example 8 - Dividends included in assessable income

    AustCo 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 portfolio dividend of $1,000 to CFC2 on 1 August 2004. Under section 456, AustCo includes 80% of the dividend, $800, in its assessable income.

    Last modified: 05 Dec 2006QC 18000