• Changes to the foreign tax credit system-trust FIFs

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    Credits on attribution from trust FIFs

    Under the foreign tax credit system, the treatment of foreign taxes paid by the trustee of a foreign trust is different to that of companies. The beneficiary of the trust is deemed to have paid the foreign tax paid by the trustee. In general, this distinction is maintained for taxpayers with an interest in a trust FIF. [SECTION 6AB]

    Where the calculation method is used at first tier

    Consistent with the treatment of company FIFs, where you have used the calculation method to work out attributable income of a trust FIF, a foreign tax credit is allowed for the foreign tax paid by the trustee of the trust on the income and gains of the trust FIF. The calculation is made in the same way as for a related company FIF. [SECTION 160AFCG]

    Where the calculation method is used at second tier

    Where you used the calculation method for the second tier trust FIF, a foreign tax credit is allowed for the foreign tax paid by the trustee of the trust on the income and gains of the trust FIF. The calculation is made in the same way as for a related company FIF. [SECTION 160AFCH]

    Credits on distribution from trust FIFs

    The allowance of credits on distribution is similar to the credits under the existing foreign tax credit system. Broadly, this means that, if the amount of the distribution is included in assessable income, both companies and other taxpayers are allowed a credit for foreign taxes paid:

    • directly by the taxpayer-for example, a withholding tax on a dividend, and
    • by the trustee of the trust-including accruals-type taxes in respect of lower tier entities.

    In addition to the normal operation of the foreign tax credit system, you are allowed a credit where the trust distribution is exempt because it has been subject to attribution of FIF income in a previous year. This is limited to the amount not already allowed as a credit at the time of attribution when the calculation method was used. [SECTION 160AFCJ]

    Last modified: 08 Jun 2005QC 27386