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Working out the tainted income ratio

Last updated 4 December 2006

The tainted income ratio is worked out by dividing the gross tainted turnover of a CFC by the gross turnover of the CFC.

The following is a simple example of how to work out the tainted income ratio.

Example 14: Working out the active income test ratio

Calculation element

$HK
shown in accounts

Interest - passive

2 million

Royalty - passive

1 million

Business income - from goods manufactured in Hong Kong

60 million

Manufacturing expenses

40 million

Tainted income ratio = gross tainted turnover ÷ gross turnover

= 3 million ÷ 63 million

= 4.8% of gross turnover

Therefore, the CFC passes the test.

End of example

Is the tainted income ratio is less than 5%?

Yes

The CFC has passed the active income test. Read on.

No

The CFC has failed the active income test. Go to part 3.

QC18000