• Exemption of distributions

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    A dividend or other FIF attribution account payment you receive from a FIF attribution account entity may be exempt from tax. [section 23AK]

    The amount of the FIF attribution account payment that will be exempt when you receive it will be decided by the FIF attribution surplus in the attribution accounts of the FIF making the distribution. If the payment is more than the attribution surplus, only the part of the payment equal to the surplus will be exempt from tax under section 23AK of the ITAA 1936.

    Exemption under section 23AK for previously attributed FIF income derived through a partnership or trust

    If you receive the distribution from a FIF or FLP through an interposed partnership or trust, the exemption will operate where:

    • after the distribution of an amount from the FIF to the partnership or trust, you would be required to include an amount in respect of the trust or partnership in your assessable income, and
    • at the time of that distribution, you had a FIF attribution surplus in relation to the FIF or FLP.

    The distribution to the partnership or trust will still be included when working out the net income of the trust or partnership. However, once your share of that net income is determined, an amount equal to your attribution surplus will be exempt income.

    Reduction of disposal consideration if FIF attributed income is not distributed

    The disposal of an interest in a FIF attribution account entity is normally taken into account in working out your assessable income under the existing provisions of the ITAA 1936, either - for example - as income under section 6-5 of the ITAA 1997, or under the capital gains tax provisions in Part IIIA of the ITAA 1936 and Part 3-1 of the ITAA 1997.

    To avoid double taxation, the consideration received on the disposal of an interest in a FIF attribution account entity, which is to be taken into account for the purposes of the relevant assessment provision, will be deemed to be reduced by any amount previously attributed to you that has not been distributed to you.

    The amount by which the disposal consideration will be reduced cannot exceed the lesser of either the disposal consideration or the attribution surplus of the FIF. An attribution debit for the same amount arises at the time you dispose of the FIF. [paragraph 613(1)(c)]

    If you dispose of only part of an interest in a FIF attribution account entity, your FIF attribution surplus that can be used to reduce the consideration on disposal is reduced proportionately. [paragraphs 613(1)(c) and (e)]

    FIF attribution debit for amount of loss used to reduce assessable income

    A FIF loss that arises under the market value method or an FLP loss that arises under the cash surrender value method can be used to reduce your assessable income where you have a FIF attribution surplus for the FIF or FLP. Where the amount of a loss is used to offset assessable income, a FIF attribution debit arises for that amount in relation to the FIF or FLP. [sections 532, 533, 533A and 607]

    FIF losses are converted to Australian currency to work out the availability of a deduction under the market value or cash surrender value methods of working out FIF income. Use the rate of exchange applicable at the end of the notional accounting period in which the loss arose. [section 533A]

    Note that section 79D of the ITAA 1936, which operates to quarantine deductions where the income belongs to the passive class of foreign income, does not apply to deductions available under sections 532 and 533. [subsection 160AFD(9)]

    Example:
    Attribution accounts

    Beryl, a resident individual, has an interest in a foreign company - Forco - that is not a CFC. Forco's notional accounting period ends on 30 June, as does Beryl's income year. In the year ended 30 June 2002, she had FIF income in respect of Forco of $5,000. The $5,000 would be included in her assessable income under section 529.

    In this case, she will be exempt from tax for the next $5,000 of dividends paid by Forco. To achieve this, Beryl would credit the FIF attribution account for Forco with the $5,000 at the end of Forco's notional accounting period as follows:

    Beryl's attribution account - Forco

    DEBIT

    CREDIT

     

    30.6.02

    Attribution

    $5,000

    In the year ended 30 June 2003, Beryl's FIF income from her interest in Forco was $4,000. On 31 December 2002, Forco paid her a dividend of $3,000.

    The dividend is a FIF attribution account payment. Beryl would debit her FIF attribution account with the $3,000 at the time the dividend was paid as follows:

    Beryl's attribution account - Forco

    DEBIT

    CREDIT

    31.12.02

    Dividend

    $3,000

    30.6.02

    Attribution

    $5,000

    The $3,000 dividend that Beryl received would be exempt income under section 23AK. The $4,000 FIF income for her interest in the FIF would be included in her assessable income under section 529. She would credit her FIF attribution account with $4,000 at the end of Forco's notional accounting period as follows:

    Beryl's attribution account - Forco

    DEBIT

    CREDIT

    31.12.02

    Dividend

    $3,000

    30.6.02

    Attribution

    $5,000

         

    30.6.03

    Attribution

    $4,000

    On 30 June 2004, Forco paid Beryl a dividend of $7,000. There was no FIF income in that year. Beryl would debit the FIF attribution account with $6,000 - the lesser of the dividend and the surplus in the account - at the time the dividend was paid.

    Beryl's attribution account - Forco

    DEBIT

    CREDIT

    31.12.02

    Dividend

    $3,000

    30.6.02

    Attribution

    $5,000

     

    Balance

    $3,000

    30.6.03

    Attribution

    $4,000

    30.06.04

    Dividend

    $6,000

    31.12.03

    Surplus

    $6,000

    Beryl would include in her assessable income the amount of the dividend that is more than the amount debited to the FIF attribution account - that is, $1,000. The remainder of the attribution account payment - that is, $6,000 - would be exempt from tax under section 23AK of the ITAA 1936.

    Last modified: 27 May 2005QC 17512