Section 1 - General assumptions for working out the attributable income of a CFC
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End of attention
Attributable income is included directly in your assessable income. It is not necessary to aggregate amounts of attributable income as you trace through a chain of CFCs.
Attribution directly to taxpayer
Assume you wholly own a foreign company which, in turn, wholly owns another foreign company. Also assume that the first company has $300,000 attributable income and the second company has $200,000 attributable income.
You include an amount in your assessable income as follows:
Not like this
Do include $300,000 from the first company and $200,000 from the second in your income
Do not include $200,000 from the second company in the income of the first company, and $500,000 income from the first company in your own income
Attributable income is taxable income
Attributable income is a hypothetical amount. It is the amount that would be the taxable income of a CFC, based on certain assumptions. These are explained below.
Assume the CFC is a resident taxpayer
To work out attributable income it must first be assumed that the CFC is both a resident of Australia and a taxpayer for the whole of a statutory accounting period. You can then work out the attributable income in the same way you work out the taxable income of a resident company. Amounts derived by a CFC from all sources will be taken into account because residents are taxable on their world wide income and gains.
To distinguish the calculation of attributable income from a 'real' calculation of taxable income, the amounts used to work out attributable income are called notional amounts. Thus, attributable income is the amount by which the notional assessable income is greater than notional allowable deductions. Income that is not notional assessable income is notional exempt income.
The assumption that a CFC is a resident of Australia does not change the nature of the activities of the CFC - that is, events that occur in a foreign country will not be taken to have occurred in Australia.
Modifications in working out the attributable income of a CFC
In applying the Act to work out a CFC's hypothetical taxable income, assume that certain modifications have been made to the Act and read the Act as if those modifications were incorporated.
In some cases, provisions are ignored because the application is not appropriate. In other cases, provisions have been replaced with similar provisions that are tailored to the way the attributable income is worked out.
In addition, provisions have been included that are not comparable to other provisions of the Act. These modifications are explained later in this part.
Some provisions of the Act clearly cannot apply when working out attributable income - for example, Part IV, which deals with the making of returns or assessments. Although these provisions of the Act are not specifically excluded from the calculation, for practical purposes they have no effect and can be ignored.
Last modified: 05 Dec 2006QC 18000