Foreign trust FIF interests
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Where an attributable taxpayer with a foreign trust FIF interest includes an amount in their assessable income under section 529, they can treat foreign income tax as having been paid by them on their attributed income if the following conditions are met:
- the section 529 amount is worked out under the calculation method, and
- foreign income tax, income tax or withholding tax has been paid by the foreign trust FIF on part or all of their notional income for the relevant notional accounting period.
If the relevant conditions are met, the foreign income tax they are deemed to have paid is worked out using the same formula as for a foreign company FIF interest.
Ab co has a 30% interest in Cd unit trust, a foreign trust FIF. Ab co works out its attributed income under section 529 using the calculation method. Cd's calculated profit or notional income for the relevant notional accounting period is $2m, after a notional deduction of $200,000 is allowed for foreign income tax actually paid by Cd unit trust on its notional income. Ab co includes an amount of $600,000 in its assessable income under section 529, being the notional income of Cd co, multiplied by Ab co's attribution percentage of 30%.
Ab co meets the conditions for the tax-paid deeming rules to apply in relation to its interest in Cd unit trust, a foreign trust FF, in that:
- it includes an amount in its assessable income under section 529 under the calculation method, and
- foreign income tax has been paid by Cd unit trust on its notional income for the relevant notional accounting period.
The foreign income tax that Ab co is deemed to have paid on its attributed income is worked out by multiplying $200,000, the tax actually paid by Cd, by Ab co's share of Cd unit trust's calculated profit (as worked out under the calculation method), divided by Cd unit trust's calculated profit of $2m. As Ab co's share of the calculated profit of Cd unit trust, worked out under the calculation method, is 30%, the amount of foreign income tax that it is taken to have paid is $200,000 multiplied by 30% (that is, $60,000). Ab co must also gross-up its assessable income by the $60,000 of foreign income tax that it is deemed to have paid.
Last modified: 23 Jul 2009QC 22894