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Section 5: Do you have to work out the attributable income of a CFC?

Last updated 17 May 2020

This section will tell you whether you need to work out the attributable income of the CFC. A brief description of the calculation follows.

Overview of the calculation

If you are an attributable taxpayer, your assessable income may include a share of the profit, if any, from certain types of income and gains of the CFC. The profit of the CFC is called attributable income and is worked out before taking into account your share of the profit - called your attribution percentage.

You work out attributable income based on the existing rules for working out the taxable income of a resident company. However, not all of the profits of a CFC are taken into account in working out the attributable income of the CFC.

The general rule

The general rule is that only amounts that arise from certain transactions (called tainted income) which are classified as prone to tax minimisation are taken into account. These will only be taken into account if a CFC is not mainly engaged in genuine business activities - that is, where the CFC fails the active income test.

Exception for a listed country

An exception to the general rule is made for a CFC that is resident in a listed country and derives certain untaxed income or gains (of a kind specified in the Regulations) from sources outside listed countries. These amounts are taken into account whether or not the CFC passes the active income test.

Exception for trust amounts

Another exception to the general rule is for certain trust amounts derived by a CFC. These will be taken into account whether or not the CFC passes the active income test.

Exception for foreign investment fund income

Income arising under the FIF measures will also be taken into account even if the CFC passes the active income test.

Exception for comparably taxed amounts

Amounts are generally only taken into account if they are not taxed in full in Australia or comparably taxed in a listed country. Amounts arising in a listed country are assumed to be comparably taxed if they do not qualify as eligible designated concession income as described in Schedule 9 of the Regulations and in appendix 1.

Relevant period

An amount will normally only be included in your assessable income if the CFC's statutory accounting period ends in your income year.

Start of example

Example 9: Taxpayer with a standard year of income

A taxpayer whose income year ends on 30 June has a CFC with a statutory accounting period which also ends on 30 June. For the taxpayer's income year ending 30 June 2003, the taxpayer must include a share of the attributable income of the CFC for the statutory accounting period ending 30 June 2003.

End of example

 

Start of example

Example 10: Taxpayer who balances early

A taxpayer whose income year ends on 31 March has a CFC with a statutory accounting period ending 30 June. For the taxpayer's income year ending 31 March 2003, the taxpayer must include a share of the attributable income of the CFC for the statutory accounting period ending 30 June 2002. The CFC's attributable income for the period 1 July 2002 to 30 June 2003 would not be included in the taxpayer's assessable income until the income year ending 31 March 2004.

End of example

Special rule for companies that cease to exist

If a company that was a CFC at the beginning of its statutory accounting period ceases to exist before the end of that period, the end of the company's statutory accounting period is deemed to be immediately before it ceased to exist.

Start of example

Example 11: Shortened statutory accounting period when a company ceases to exist

A CFC elects a statutory accounting period that aligns with its usual accounting period of 1 January to 31 December. The company members pass a resolution to wind up the company on 1 August 2003 and it is finally de-registered on 2 November 2003 in accordance with the corporation law in the company's country of residence. As the company ceased to exist during what was its statutory accounting period, the company's statutory accounting period is taken to be from 1 January 2003 to 2 November 2003.

End of example

Conditions to be met before you work out attributable income

You only need to work out attributable income if a foreign company is a CFC at the end of the foreign company's statutory accounting period. In addition, you will only need to work it out if you are an attributable taxpayer at the end of the period.

If you have an interest in a CFC at the end of the CFC's statutory accounting period, you must work out the attributable income of the CFC for the entire period, not just for the time you held the interest.

Start of example

Example 12: Disposal of a CFC before the end of a statutory accounting period

A resident individual with an income year ending 30 June has a CFC with a statutory accounting period that coincides with the individual's income year. On 31 December 2002 the individual disposes of the CFC to an unassociated resident company.

In this case, the resident individual will not be an attributable taxpayer for the CFC's statutory accounting period ending 30 June 2003. Consequently, the resident individual will not include in their assessable income any of the attributable income of the CFC for the period.

End of example

 

Start of example

Example 13: Acquisition of a CFC part way through a statutory accounting period

Changing the facts from the previous example so that the CFC was acquired (not disposed of) on 31 December 2002 the resident company would be an attributable taxpayer for the CFC's statutory accounting period ending 30 June 2003. The company would therefore be taxed on the attributable income of the CFC for the entire period even though the company owned the foreign company for only the second half of that period.

End of example

Note: An arrangement that is designed to avoid the CFC measures by selling an interest before the end of a CFC's statutory accounting period and acquiring the interest after the end of the period will be treated as if the interest were not sold.

Were you an attributable taxpayer at the end of the CFC's statutory accounting period?

No

You do not need to work out attributable income. You do not need to continue reading this guide.

Yes

Read on.

QC19443