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  • Section 2: Are you an attributable taxpayer?

    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

    If you have an interest in a CFC you must determine if you are an attributable taxpayer. You are only required to include an amount of attributable income from a CFC in your assessable income if you are an attributable taxpayer in relation to the CFC.

    You will be an attributable taxpayer if:

    • you have an associate-inclusive control interest of 10% or more in a CFC, or
    • all of the following rules apply:
      • the CFC is a CFC because of the application of the de facto control test
      • you are an Australian 1% entity
      • you are part of a group of five or fewer Australian entities who, alone or with associates - regardless of whether the associates are Australian entities - controls the CFC.
    What share of the attributable income of a CFC must you include in your assessable income?

    If you are an attributable taxpayer, you may be attributed a share of a CFC's attributable income. Your share is called an attribution percentage and is based on your rights to profits from the CFC.

    Working out your attribution percentage

    Your attribution percentage in a CFC is the sum of your:

    • direct attribution interest in the CFC, and
    • indirect attribution interests in the CFC.

    The interests of your associates are not included.

    Direct attribution interest in a CFC

    Your direct attribution interest in a CFC is the greatest of the percentages that you hold, or are entitled to acquire, of the following:

    • total paid-up share capital in the CFC
    • total rights to vote, or to participate in any decision making, in relation to
      • the distributions of capital or profits
      • changing of constituent documents
      • varying of share capital of the CFC
    • total rights to distributions of capital or profits of the CFC on winding up
    • total rights to distributions of capital or profits of the CFC other than on winding up.
    Test time

    Your direct attribution interest in a CFC is measured at a point in time called a test time. The test time may occur during the accounting period of a CFC.

    In some cases, it may not be possible to measure the percentage you hold of the total rights to the profits of a company or to a distribution of capital on winding up of the company before the end of the company's accounting period.

    In these cases, your rights to capital or profits are measured at the end of the accounting period of the company. It is assumed for this purpose that the rights you held at the test time are held at the end of the company's accounting period.

    Exclusion of eligible finance shares

    In working out your direct attribution interest in a CFC, eligible finance shares in the CFC are not taken into account.

    Indirect attribution interest in a CFC

    You may hold an attribution tracing interest in an entity - entity A - which holds an attribution tracing interest in another entity - entity B.

    Your indirect attribution interest in entity B is obtained by multiplying your attribution tracing interest in entity A by that entity's attribution tracing interest in entity B.

    This process of multiplication is continued where there are further CFEs in the chain of entities.

    Attribution tracing interests in a CFC

    Your attribution tracing interest in a CFC is equal to your direct attribution interest in the CFC - the deemed 100% rule for tracing control does not apply when tracing your attribution percentage.

    Attribution tracing interest in a CFP

    The attribution tracing interest of a partner in a partnership is the percentage the partner holds, or is entitled to acquire, of the profits of the partnership or of the partnership property. Where the two percentages differ, the attribution tracing interest will be the greater of those percentages.

    Attribution tracing interest in a CFT

    The attribution tracing interest that a beneficiary of a trust holds in the trust is the percentage of the income or property of the trust to which the beneficiary is presently entitled. The beneficiary's attribution tracing interest also includes a percentage of the income or property of the trust which the beneficiary is entitled to acquire. If the percentage of the income and the percentage of the property differ, the higher percentage is treated as the attribution tracing interest.

    An eligible transferor has an attribution tracing interest in the CFT equal to 100%. See part 1 of chapter 2 to determine whether you are an eligible transferor.

    Reduction of the attribution percentage where the total percentage is more than 100%

    In some cases, the total of the attribution percentage of all attributable taxpayers may be more than 100%. In these cases, the aggregate is reduced to 100% by reducing proportionately the interest of each attributable taxpayer.

    Example 8: Reduction where attribution percentage is more than 100%

    A foreign company has two classes of shares on issue. Class A carries the right to vote but no income rights. Class B carries the right to income and is non-voting. An Australian resident - Res1 - owns 25% of the Class A shares and 75% of the Class B shares. Another resident - Res2 - owns the remaining shares in each class. The foreign company is a CFC and both residents are attributable taxpayers.

    Res1's attribution percentage
    (greater of 25% and 75% )

    75%

    Res2's attribution percentage
    (greater of 75% and 25% )

    75%

    Total interest of residents

    150%

    Each attributable taxpayer's attribution percentage is reduced in proportion, so that the aggregate interests of all attributable taxpayers is 100%.

    Res1's reduced attribution percentage = attribution percentage ÷ total interest of attributable taxpayers

    75 ÷ 150 = 50%

    Res2's reduced attribution percentage = attribution percentage ÷ total interest of attributable taxpayers

    75 ÷ 150 = 50%

    End of example
    Last modified: 18 May 2020QC 19443