• Credits available to resident companies for attributed income

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    Working out the foreign tax credit when income is attributed

    If a company is related to a CFC at the end of the CFC's statutory accounting period and the assessable income of the company includes a share of the attributable income of the CFC - see chapter 1 - the company is allowed a credit for an amount of tax equal to its attribution percentage of the CFC's notional allowable deductions for taxes paid.

    A CFC can claim a notional deduction for foreign or Australian tax paid by the CFC on amounts included in the CFC's notional assessable income.

    Example 17 - Foreign tax credit for attributed income

    An Australian resident company AustCo has a 60% interest in a CFC, ForCo, a resident of an unlisted country

    ForCo

    Profits from a foreign branch (not attributable income)

    $2,000

    Tax paid in the foreign country on the foreign branch income

    $600

    Income derived in an unlisted country (attributable income)

    $10,000

    Tax paid in the unlisted country on all income (including foreign branch income)

    $1,200

    AustCo is deemed to have paid the following amount of tax on the attributed income:

    Attribution percentage 60%

     

    Tax paid on attributed income
    (10,000 / 12,000) x 1,200

    $1,000

    Tax deemed paid by AustCo
    (1,000 / 60) x 100

    $600

    AustCo must gross up its assessable foreign income by this amount. AustCo can claim a foreign tax credit for $600.

    Credits where dividends are deemed to have been paid to an Australian resident taxpayer

    If a benefit provided by a CFC to a resident taxpayer is deemed to be a dividend paid to that taxpayer under section 47A, credit for foreign tax paid will be allowed only if:

    • the amount of the deemed dividend is included in the taxpayer's assessable income in their return lodged in the year of the distribution, or would be so included apart from section 23AI, or
    • the taxpayer notifies the Tax Office, in writing, within 12 months after the end of the income year in which the benefit was provided.

    Credits where income is attributed due to a change in residence of a CFC

    A resident company is allowed a credit for foreign tax paid by a CFC if an amount of income is attributed to it because the CFC changed its residence from an unlisted country to a listed country or to Australia. The credit is available, however, only if the resident company is related to the CFC at the time of the change of residence - see section 160AFCB. The company is allowed a credit for the foreign tax and the Australian tax paid by the CFC on the attributed amount.

    Last modified: 05 Dec 2006QC 18000