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  • Section C: Interests in foreign entities

    In this section

    Question 21 Controlled foreign companies and trusts

    This question is one of a number dealing with controlled foreign companies (CFCs) and controlled foreign trusts (CFTs). These questions are for the purpose of understanding your interests in and dealings with these overseas entities and assessing compliance with the relevant tax legislation.

    In this section

    21a Did you have any interests in CFCs or CFTs?

    An interest in a CFC or CFT may be either direct or indirect, and has the same meaning as given in Division 3 of Part X of the ITAA 1936.

    To complete this question, you must identify whether you had an interest in any CFCs or CFTs at the end of 2021–22. If you had an interest in a CFC or CFT, answer Yes at A item 21a and complete items 21b, 21c, 21d, 21e, 21f and questions 22, 22a, 22b, 23a and 23b.

    21b Specify the number of CFCs and CFTs in which you had an interest at the end of your income year

    At B, C and D of 21b:

    • Identify the CFCs and CFTs in which if you had an interest at the end of your income year. Then, referring to the tables at Appendix 1 and Appendix 3, identify the category of the country of residency of each CFC or CFT.
    • At B, write the number of your CFCs and CFTs identified as residents of listed countries.
    • At C, write the number of your CFCs and CFTs identified as residents of specified countries or jurisdictions.
    • At D, write the number of your CFCs and CFTs identified as residents of other unlisted countries or jurisdictions.

    If the number of CFCs and CFTs is:

    • less than 10, write zero zero as the first two digits and then write the number, for example, write 009
    • less than 100, write zero as the first digit and then write the number, for example, write 083
    • more than 999, write 999
    • zero, leave the relevant answer blank.

    Example 20

    Jack Brothers & Co had at the end of their income year the following:

    • two German resident CFTs
    • three Japanese resident CFCs
    • one Cayman Islands resident CFT.

    As Germany and Japan are listed countries, they wrote 005 at B to record its five listed country CFTs and CFCs at the end of its income year.

    At C they wrote 001 to record its specified country or jurisdiction CFT.

    They left the remaining box blank.

    This image shows an example of how to complete Question 21. Question 21 Number of CFCs and CFTs Label B Listed countries: 005 Label C Specified countries: 001 Label D Other unlisted countriles: nil

    End of example

    21c Did you acquire any interests in CFCs or CFTs during 2021–22?

    If you acquired any associate-inclusive control interest in a CFC or CFT during 2021–22, answer Yes at A item 21c.

    The associate-inclusive control interest has the meaning given by section 349 of the ITAA 1936.

    At B, C and D of 21c:

    • Identify the CFCs and CFTs in which you acquired any associate-inclusive control interest during 2021–22. Then, referring to the tables at Appendix 1 and Appendix 3, identify the category of the country of residency of each CFC or CFT.
    • At B, write the number of CFCs and CFTs resident in listed countries in which you acquired any associate-inclusive control interest during 2021–22.
    • At C, write the number of CFCs and CFTs resident in specified countries or jurisdictions in which you acquired any associate-inclusive control interest during 2021–22.
    • At D, write the number of CFCs and CFTs resident in other unlisted countries or jurisdictions in which you acquired any associate-inclusive control interest during 2021–22.

    If the number of CFCs and CFTs in which you acquired any associate-inclusive control interest during 2021–22 is:

    • less than 10, write zero zero as the first two digits and then write the number, for example, if the number is 9 write 009
    • less than 100 but not less than 10, write zero as the first digit and then write the number, for example, if the number is 83 write 083
    • more than 999, write 999.

    If you did not acquire any interests in CFCs or CFTs of any of the three categories of the country of residency during 2021–22, write zero for that category.

    Example 21

    During the income year, an Australian resident taxpayer (attributable taxpayer) acquired associate-inclusive control interest in following CFCs and CFTs:

    CFC or CFT

    Country of residence

    Section 349 associate-inclusive control interest

    Transaction dates

    CFC

    Canada

    100% direct control interest

    2 July

    CFT

    USA

    65% indirect control interest

    1 October

    CFC

    UK

    85% direct control interest held by an associate of the attributable taxpayer

    15 January

    CFC

    Singapore

    additional 70% direct control interest (the attributable taxpayer already held 20% direct control interest)

    7 November

    CFT

    Belgium

    100% direct control interest

    3 February

    CFC

    South Africa

    35% direct control interest

    16 April

    21c Did you acquire any interests in CFCs or CFTs during the income year? Items completed, Yes with X for Specify the number of CFS or CFTs of which you acquired any interests during the income year, B Listed countries 003, C Specified countries 001 and D Other unlisted countries 002.

    End of example

    21d Did you dispose of any interests in CFCs or CFTs during 2021–22?

    If you disposed of any associate-inclusive control interest in a CFC or CFT during 2021–22, answer Yes at A item 21d.

    The associate-inclusive control interest has the meaning given by section 349 of the ITAA 1936.

    At B, C and D of item 21d:

    • Identify the CFCs and CFTs in which you disposed of any associate-inclusive control interest during 2021–22. Then, referring to the tables at Appendix 1 and Appendix 3, identify the category of the country of residency of each CFC or CFT.
    • At B, write the number of CFCs and CFTs resident in listed countries in which you disposed of any associate-inclusive control interest during 2021–22.
    • At C, write the number of CFCs and CFTs resident in specified countries or jurisdictions in which you disposed of any associate-inclusive control interest during 2021–22.
    • At D, write the number of CFCs and CFTs resident in other unlisted countries or jurisdictions in which you disposed of any associate-inclusive control interest during 2021–22.

    If the number of CFCs and CFTs is:

    • less than 10, write zero zero as the first two digits and then write the number, for example, if the number is 9 write 009
    • less than 100 but not less than 10, write zero as the first digit and then write the number, for example, if the number is 83 write 083
    • more than 999, write 999.

    If you did not dispose of any interests in CFCs or CFTs of any of the three categories of the country of residency during the income year, write zero).

    Example 22

    During the income year, an Australian resident taxpayer (the attributable taxpayer) disposed of associate-inclusive control interest in following CFCs and CFTs:

    CFC or CFT

    Country of residence

    Section 349 associate-inclusive control interest

    Transaction dates

    CFC

    Canada

    100% direct control interest (the CFC in Canada, in which the attributable taxpayer acquired 100% direct control interest on 2 July)

    31 May

    CFC

    New Zealand

    The CFC ceased to exist (the attributable taxpayer held the 100% direct control interest for the last 5 years)

    20 September

    CFC

    Sweden

    17% indirect control interest held by the attributable taxpayer ((the attributable taxpayer held a total of 85% indirect control interest for the last 3 years)

    30 November

    21d Did you dispose of any interests in CFCs or CFTs during the income year? Items completed, Yes with X for Specify the number of CFS or CFTs of which you disposed any interests during the income year, B Listed countries 002, C Specified countries 000 and D Other unlisted countries 001.

    End of example

    21e Have your CFCs in the following countries satisfied the active income test for their statutory accounting periods under section 432 of ITAA 1936?

    The active income test has the meaning given by section 432 of the ITAA 1936.

    The statutory accounting period has the meaning given by section 319 of the ITAA 1936.

    If your CFCs in listed countries have satisfied the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer Yes at A item 21e.

    If your CFCs in listed countries have failed the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer No at A item 21e.

    If some of your CFCs in listed countries have satisfied, and some of your CFC in listed countries have failed, the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer Yes at A item 21e and No at A item 21e.

    If your CFCs in specified countries or jurisdictions have satisfied the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer Yes at B item 21e.

    If your CFCs in specified countries or jurisdictions have failed the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer No at B item 21e.

    If some of your CFCs in specified countries or jurisdictions have satisfied, and some of your CFC in specified countries or jurisdictions have failed, the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer Yes at B item 21e and No at B item 21e.

    If your CFCs in other unlisted countries or jurisdictions have satisfied the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer Yes at C item 21e.

    If your CFCs in other unlisted countries or jurisdictions have failed the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer No at C item 21e.

    If some of your CFCs in other unlisted countries or jurisdictions have satisfied, and some of your CFC in other unlisted countries or jurisdictions have failed, the active income test for their statutory accounting periods under section 432 of ITAA 1936 answer Yes at C item 21e and No at C item 21e.

    To help work out whether your CFCs have passed or failed the relevant tests, see:

    21f Did you exclude tainted interest income from the passive income of a CFC which was an AFI subsidiary?

    If you excluded tainted interest income from the passive income of a CFC which was an AFI subsidiary under section 326 of the ITAA 1936, answer Yes at A item 21f and provide the following information.

    If all of your AFI subsidiary CFCs have banking licences in their countries, you still need to answer Yes at B item 21f if you excluded tainted interest income from their passive income, however if all of your AFI subsidiary CFCs have banking licences in their countries, you do not need to specify any amounts at D, E, F or G.

    If not all, or none, of your AFI subsidiary CFCs have banking licences in their countries, answer No at B item 21f.

    Answer Yes at C item 21f if the income of any of your AFI subsidiary CFCs which did not have banking licences in their countries was principally derived from the lending of money within the meaning of the definition of financial intermediary business under section 317 of the ITAA 1936.

    Financial intermediary business means:

    • bankingExternal Link business, or
    • a business whose income is principally derived from the lending of money.

    At D, write the total amount of tainted interest income excluded from passive income of your financial intermediary subsidiary CFCs of listed countries for 2021–22 (excluding CFCs with banking licences in their country).

    At E, write the total amount of tainted interest income excluded from passive income of your financial intermediary subsidiary CFCs of specified countries or jurisdictions for 2021–22 (excluding CFCs with banking licences in their country).

    At F, write the total amount of tainted interest income excluded from passive income of your financial intermediary subsidiary CFCs of other unlisted countries or jurisdictions for 2021–22 (excluding CFCs with banking licences in their country).

    At G, write the total amount of tainted interest income excluded from passive income of your financial intermediary subsidiary CFCs (excluding CFCs with banking licences in their country).

    At H, write the number of your financial intermediary CFCs identified as residents of listed countries which excluded tainted interest income from passive income for 2021–22 (excluding any CFCs with banking licences).

    At I, write the number of your financial intermediary CFCs identified as residents of specified countries or jurisdictions which excluded tainted interest income from passive income for 2021–22 (excluding any CFCs with banking licences).

    At J, write the number of your financial intermediary CFCs s identified as residents of other unlisted countries or jurisdictions which excluded tainted interest income from passive income for 2021–22 (excluding any CFCs with banking licences).

    If the number of CFCs and CFTs is:

    • less than 10, write zero as the first two digits and then write the number, for example, if the number is 9 write 009
    • less than 100 but not less than 10, write zero as the first digit and then write the number, for example, if the number is 83 write 083
    • more than 999, write 999
    • zero, write zero.

    To help work out the amounts to include, see:

    • the exclusion of tainted interest income from passive income under subsection 449(1) of the ITAA 1936
    • the meaning of AFI subsidiary given by section 326 of the ITAA 1936
    • the meaning of AFI given by section 317 of the ITAA 1936
    • the meaning of financial intermediary business given by section 317 of the ITAA 1936
    • the meaning of tainted interest income given by section 317 of the ITAA 1936
    • the meaning of passive income given by section 446 of the ITAA 1936.

    Example 23

    Bank Co is an Australian authorised deposit-taking institution. It has AFI subsidiary CFCs in the following countries or jurisdictions:

    Listed countries

    Country of residence

    Banking licence in residence country

    Principally derives income from the lending of money

    Tainted interest income excluded from passive income
    $

    UK

    Yes

    Yes

    1,329,000

    New Zealand

    Yes

    No

    714,000

    -

    -

    Total

    2,043,000

    Specified countries or jurisdictions

    Country of residence

    Banking licence in residence country

    Principally derives income from the lending of money

    Tainted interest income excluded from passive income
    $

    Netherlands

    Yes

    No

    623,000

    Hong Kong

    Yes

    No

    387,000

    British Virgin Islands

    No

    Yes

    451,000

    -

    -

    Total

    1,461,000

    Other unlisted countries or jurisdictions

    Country of residence

    Banking licence in residence country

    Principally derives income from the lending of money

    Tainted interest income excluded from passive income
    $

    Malaysia

    No

    Yes

    508,000

    Fiji

    No

    Yes

    863,000

    -

    -

    Total

    1,371,000

    With this information, the taxpayer completes item 21f as follows:

    A

    Yes

    B

    No

    C

    Yes

    D

    (blank)

    E

    451,000

    F

    1,371,000

    G

    1,822,000

    H

    0

    I

    001

    J

    002

     

    End of example

    Question 22 Sections 456, 457 and 459A

    This question assesses the risk of assessable foreign income for CFCs and CFTs not being correctly accounted for under the relevant tax legislation.

    The dollar amounts or values asked for in this question are all based on your tax records.

    Section 456 of the ITAA 1936 includes attributable income of a CFC in the assessable income of an Australian resident taxpayer that is an attributable taxpayer.

    Section 457 of the ITAA 1936 includes in the assessable income of a resident taxpayer, who is an attributable taxpayer in relation to a CFC, certain amounts in respect of a change of residence of the CFC from an unlisted country or jurisdiction to a listed country or to Australia.

    Section 459A of the ITAA 1936 includes amounts in a taxpayer's assessable income where the taxpayer is an attributable taxpayer for a CFC or CFT, and the amount of net income of an Australian partnership or trust includes attributable income which accrues to the benefit of the CFC or CFT, and is not otherwise taxed in Australia.

    To complete this question, if you have an amount of foreign income that is assessable under sections 456, 457 or 459A of the ITAA 1936, write the total amount assessable under each of the sections.

    To complete A, B and C, you must identify the residency of each CFC or CFT for which you included attributable income in assessable income under section 456 of the ITAA 1936 for 2021–22. Work out the attributable income amounts referrable to those entities in each of the following location categories:

    • listed country
    • specified country or jurisdiction
    • other unlisted country or jurisdiction.

    At A, write the total amount of attributable income included in your assessable income under section 456 for CFCs and CFTs of listed countries.

    At B, write the total amount of attributable income included in your assessable income under section 456 for CFCs and CFTs of specified countries or jurisdictions.

    At C, write the total amount of attributable income included in your assessable income under section 456 for CFCs and CFTs of other unlisted countries or jurisdictions. Include any attributable income included in your assessable income under section 456 of the ITAA 1936 for the income year that you have not already included at A and B.

    At D, write the total of the amounts written at A, B and C.

    You must complete E if your assessable income for 2021–22 included an amount assessable under section 457 of the ITAA 1936. At E, write the total amount included in your assessable income under section 457 of the ITAA 1936.

    F item 22
    You must complete F if your assessable income for 2021–22 included an amount assessable under section 459A of the ITAA 1936. At F, write the total amount included in your assessable income under section 459A of the ITAA 1936 for 2021–22.

    For more information about working out if these provisions apply to you, including an overview of calculations, see the Guide to foreign income tax offset rules 2022.

    For companies conducting banking or insurance activities (AFI or Australian financial institutions), there are special rules that apply. These rules are not discussed in the guide. See Subdivision F of Division 8 of Part X of the ITAA 1936.

    To help work out the amounts to include, see:

    Example 24

    An Australian resident shareholder (attributable taxpayer) includes section 456 attributable income in its assessable income from CFCs and CFTs which are resident in countries set out in the following table.

    CFC or CFT country of residence

    Section 456 attributable income amount
    $

    Canada

    1,010,000

    Niue

    501,000

    Panama

    629,000

    Italy

    459,000

    Total

    2,599,000

    As Canada is a listed country, the section 456 amount written at A is $1,010,000.

    As Niue and Panama are specified countries or jurisdictions, the section 456 amount written at B is:

    Specified countries or jurisdictions

    Section 456 attributable income amount
    $

    Niue

    501,000

    Panama

    629,000

    Total written at B

    130,000

    As Italy is an "other unlisted country or jurisdiction", the section 456 amount written at C is $459,000.

    The total amount of section 456 attributable income written at D is $2,599,000.

    This image shows an example of how to complete Question 22. Question 22 Section 456 - CFCs attributable income Label A Listed countries: $1,010,000 Label B Specified countries: $1,130,000 Label C Other unlisted countries: $459,000 Label D Total: $2,599,000

    End of example

    Question 22a and 22b Gross revenue of your CFCs

    Specify the gross revenue included in the gross turnover of your CFCs that have and have not satisfied the active income test

    The gross revenue included in the gross turnover of your CFCs is the same as the amount of gross revenue included under subsection 434(1)(a) of the ITAA1936, before excluding the amounts specified in subparagraphs (i) to (iv) of that paragraph or any other amounts. The gross revenue included in the gross turnover of your CFCs is the sum of amounts shown in the accounts of a CFC as gross revenue before any subtractions or deductions are taken into account. The gross revenue amount derived by your CFC must be in accordance with commercially accepted accounting principles, and give a true and fair view of the CFC's financial position.

    For the purpose of questions 22a and 22b, the gross revenue derived by your CFC is as shown in the recognised accounts of the CFC for its statutory accounting period, in accordance with section 434(1)(a) of the ITAA1936 before excluding any of the following amounts in accordance with section 434(1)(a)(i) to (v) of the ITAA 1936:

    • an amount derived through a branch in a listed country if the amount is taxed in that country
    • a franked dividend
    • an amount arising from the disposal of an asset that is taxable Australian property
    • a non-portfolio dividend paid to the CFC by a company that is a resident of a listed or unlisted country
    • trust amounts arising to the CFC that are attributed
    • an amount that is an attribution account payment to the extent that the profits from which the payment was made have been previously attributed to you
    • an amount included in the CFC’s assessable income in any year of income, unless the amount is only subject to dividend or interest withholding tax or is not fully taxed, for example, certain shipping or insurance premiums
    • amounts that are shown in those recognised accounts as revenue in respect of the disposal of assets
    • amounts that are shown in those recognised accounts as revenue from disposing of commodity futures contracts, commodity forward contracts or rights or options in respect of such contracts
    • amounts that are shown in those recognised accounts as revenue from currency exchange rate fluctuations.

    For the purpose of questions 22a and 22b only, if the recognised accounts of your CFC are prepared in a foreign currency and have not already been converted into Australian dollars as part of your general accounting reporting processes:

    • Apply the average foreign exchange rate for calendar year ended 31 December 2021 as per the published at Foreign exchange rates, if your CFC’s statutory accounting period ended on or before 31 March 2022.
    • Apply the average foreign exchange rate for financial year ended 30 June 2022 as per the published at Foreign exchange rates, if your CFC’s statutory accounting period ended after 31 March 2022.

    If you need a foreign exchange rate for a currency not listed in the schedule, you may use any reasonable externally-sourced exchange rate for that currency.

    To complete question 22a, you must separately work out the amounts of gross revenue included in the gross turnover for your CFCs referrable to those CFCs that have satisfied the active income test in each of the following location categories:

    • listed country
    • specified country or jurisdiction
    • other unlisted country or jurisdiction.

    At A, write the total amounts of gross revenue included in the gross turnover for your CFCs in listed countries for the CFC's income year that have satisfied the active income test.

    At B, write the total amounts of gross revenue included in the gross turnover for your CFC's in specified countries or jurisdictions for the CFC's income year that have satisfied the active income test.

    At C, write the total amounts of gross revenue included in the gross turnover for your CFC's in other unlisted countries or jurisdictions for the CFC's income year that have satisfied the active income test.

    At D, write the total of the amounts at A, B and C.

    To complete question 22b, you must separately work out the amounts of gross revenue included in the gross turnover for your CFCs referrable to those CFCs that have not satisfied the active income test in each of the following location categories:

    • listed country
    • specified country or jurisdiction
    • other unlisted country or jurisdiction.

    At A, write the total amounts of gross revenue included in the gross turnover for your CFCs in listed countries for the CFC's income year that have not satisfied the active income test.

    At B, write the total amounts of gross revenue included in the gross turnover for your CFC's in specified countries or jurisdictions for the CFC's income year that have not satisfied the active income test.

    At C, write the total amounts of gross revenue included in the gross turnover for your CFCs in other unlisted countries or jurisdictions for the CFC's income year that have not satisfied the active income test.

    At D, write the total of the amounts at A, B and C.

    You are not required to send the record of your workings to us, however you must keep the record with other documentation for your tax return. For further information on record keeping, see Overview of record-keeping rules for business.

    To help work out the amounts to include, see section 434(1)(a) of the ITAA 1936.

    Question 23 Notional assessable income and notional allowable deductions for your CFCs

    This question assesses the risk of notional assessable income and notional allowable deductions for CFCs not being correctly accounted for under the relevant tax legislation.

    The dollar amounts or values asked for in this question are all based on your tax records.

    In this section

    23a Specify the amounts of notional assessable income

    To complete question 23a, you must work out the notional assessable income amounts for 2021–22 for your CFCs in each of the following location categories:

    • listed country
    • specified country or jurisdiction
    • other unlisted country or jurisdiction.

    At A, write the total amount of adjusted tainted income that is eligible designated concession income under section 385 of the ITAA 1936 for your CFCs of listed countries.

    At B, write the total amount of adjusted tainted income not treated as derived from sources in listed countries under section 385 of the ITAA 1936 for your CFCs of listed countries.

    At C, write the total amount of other notional assessable income under section 385 of the ITAA 1936 for your CFCs of listed countries. Include any notional assessable income under section 385 for CFCs of listed countries that you have not already included at A and B.

    At D, write the total of the amounts at A, B and C.

    At E, write the total amount of adjusted tainted income under section 384 for your CFCs of specified countries or jurisdictions.

    At F, write the total amount of other notional assessable income under section 384 for your CFCs of specified countries or jurisdictions. Include any notional assessable income under section 384 of the ITAA 1936 for CFCs of specified countries or jurisdictions that you have not already included at E.

    At G, write the total of the amounts at E and F.

    At H, write the total amount of adjusted tainted income under section 384 for CFCs of other unlisted countries or jurisdictions.

    At I, write the total amount of other notional assessable income under section 384 for CFCs of other unlisted countries or jurisdictions. Include any notional assessable income under section 384 of the ITAA 1936 for CFCs of other unlisted countries or jurisdictions that you have not already included at H.

    At J, write the total of the amounts at H and I.

    At K, write the total of the amounts at D, G and J.

    To help work out the amounts to include, see:

    • section 384 of the ITAA 1936
    • section 385 of the ITAA 1936
    • adjusted tainted income under section 386 of the ITAA 1936
    • adjusted tainted income that is eligible designated concession income under section 385 of the ITAA 1936, which types of eligible designated concession income are set out in Part 8, regulation 17 of the Income Tax Assessment (1936 Act) Regulation 2015
    • notional assessable income under subsection 382(2) of the ITAA 1936
    • other relevant provisions in Part X of the ITAA 1936.

    Example 25

    Listed countries CFC

    Listed countries

    Adjusted tainted income that is eligible designated concession income
    $

    Adjusted tainted income not treated as derived from sources in listed countries
    $

    Other notional assessable income
    $

    UK

    2,000,000

    0

    0

    Japan

    0

    0

    300,000

    New Zealand

    2,600,000

    1,800,000

    0

    France

    0

    0

    1,800,000

    Total

    4,600,000

    1,800,000

    2,100,000

    A total notional assessable income amount of $8,500,000 is referrable to the CFCs in listed countries.

    Specified countries or jurisdictions CFC

    Specified countries or jurisdictions

    Adjusted tainted income
    $

    Other notional assessable income
    $

    Hong Kong

    3,500,000

    1,600,000

    Switzerland

    2,000,000

    0

    Singapore

    1,600,000

    0

    Total

    7,100,000

    1,600,000

    A total notional assessable income amount of $8,700,000 is referrable to the CFCs in specified countries or jurisdictions.

    Other unlisted countries or jurisdictions CFC

    Other unlisted countries or jurisdictions

    Adjusted tainted income
    $

    Other notional assessable income
    $

    Denmark

    1,700,000

    0

    Portugal

    1,200,000

    0

    Total

    2,900,000

    0

    Total notional assessable income amount of $2,900,000 is referrable to the CFCs in other unlisted countries or jurisdictions.

    The attributable taxpayer's total notional assessable income amount for all their CFCs is $20,100,000.

    The Australian resident taxpayer (the attributable taxpayer) completes question 23a.

    23a Specify the amounts of notional assessable income under the following sections of the ITAA 1936. Listed countries CFC (Section 385) completed items: A $4,600,000, B $1,800,000, C $2,100,000 Subtotal (Add A, B and C) D $8,500,000. Specified countries CFC (Section 284): E $7,100,000, F $1,600,000, Subtotal (Add E and F) G $8,700,000. Other unlisted countres CFC (Section 384): H $2,9000,000, Subtotal (Add H and J) J $2,900,000. Total notional assessable income: Add subtotals D, G and J, K $20,100,000.

    End of example

    23b Specify the amounts of notional allowable deductions

    To complete question 23b, you must work out the 2021–22 amounts of notional allowable deductions from the notional assessable income of CFCs (in accordance with general modification rules to calculation of attributable income of CFC under Subdivision B of Division 7 of Part X of the ITAA 1936) for your CFCs in each of the following location categories:

    • listed country
    • specified country or jurisdiction
    • other unlisted country or jurisdiction.

    At A, write the total amounts of notional allowable deductions from the notional assessable income of CFCs (in accordance with general modification rules to calculation of attributable income of CFC under Subdivision B of Division 7 of Part X of the ITAA 1936) for CFCs of listed countries.

    At B, write the total amounts of notional allowable deductions from the notional assessable income of CFCs (in accordance with general modification rules to calculation of attributable income of CFC under Subdivision B of Division 7 of Part X of the ITAA 1936) for CFCs of specified countries or jurisdictions.

    At C, write the total amounts of notional allowable deductions from the notional assessable income of CFCs (in accordance with general modification rules to calculation of attributable income of CFC under Subdivision B of Division 7 of Part X of the ITAA 1936) for CFCs of other unlisted countries or jurisdictions.

    At D, write the total of the amounts at A, B and C.

    To help work out the amounts to include, see for example:

    • notional allowable deductions under subsection 382(2) of the ITAA 1936; notional allowable deductions also include your share of CFC losses, if any, that have been claimed as notional allowable deductions in calculating your CFC's attributable income
    • subdivision B of division 7 of Part X of the ITAA 1936
    • section 393 of the ITAA 1936
    • section 394 of the ITAA 1936
    • section 399A of the ITAA 1936
    • other relevant provisions in Part X of the ITAA 1936.

    Example 26

    An Australian resident taxpayer (attributable taxpayer) includes notional allowable deductions from the notional assessable income of CFCs in its calculation of attributable income of CFCs which are resident of countries set out in the following table.

    CFC country of residence

    Total amounts of notional allowable deductions from the notional assessable income of CFCs
    $

    Listed countries

    600,000

    Specified countries or jurisdictions

    200,000

    Other unlisted countries or jurisdictions

    0

    Total

    800,000

    The total amount of notional allowable deductions from the notional assessable income of the CFCs in calculating the attributable income of all the CFCs is $800,000.

    The Australian resident taxpayer (the attributable taxpayer) completes question 23b.

    23b Specify the amounts of attribution income modifications, completed items are $600,000 at A Listed countries, $200,000 at B Specified countries and $800,000 at D Total attribution income modifications.

    End of example

    Question 24 Foreign branch operations or any interests in foreign companies or foreign trusts

    This question provides us with the amount of non-assessable non-exempt income being derived in different tax jurisdictions and helps identify the nature of that income.

    The dollar amounts or values asked for in this question are all based on your tax records.

    To complete this question, work out:

    • the amount of the foreign income you derived that is non-assessable non-exempt under sections 23AH or 23AI of the ITAA 1936 or subdivision 768-A of the ITAA 1997, and
    • the amount of this income derived from entities resident in each of the following location categories  
      • listed country
      • specified country or jurisdiction
      • other unlisted country or jurisdiction.

    If you had foreign branch operations or any direct or indirect interests in foreign companies or foreign trusts, answer Yes at A item 24 and complete the following. If you answer Yes, include the amounts of foreign non-assessable non-exempt income you derived under any of the following:

    • section 23AH – foreign branch income of Australian companies; the amount of income reported under section 23AH should include the total of both income and capital gains that are non-assessable non-exempt under that section
    • section 23AI – amounts paid out of attributed CFC income
    • Subdivision 768-A – foreign equity distributions on minimum 10% participation interests in foreign companies.

    If you have no non-assessable non-exempt income under one or more of the above sections, leave the corresponding items blank.

    At B item 24a, write the amount of your non-assessable non-exempt income under section 23AH from your listed country foreign branch operations.

    At C item 24a, write the amount of your non-assessable non-exempt income under section 23AH from your specified country or jurisdiction foreign branch operations.

    At D item 24a, write the amount of your non-assessable non-exempt income under section 23AH from your other unlisted country or jurisdiction foreign branch operations.

    At E item 24b, write the amount of your non-deductible expenses incurred in earning or deriving your non-assessable non-exempt income under section 23AH.

    At B item 24c, write the amount of your non-assessable non-exempt income under section 23AI in respect of your attributed income from your CFCs in listed countries.

    At C item 24c, write the amount of your non-assessable non-exempt income under section 23AI in respect of your attributed income from your CFCs in specified countries or jurisdictions.

    At D item 24c, write the amount of your non-assessable non-exempt income under section 23AI in respect of your attributed income from your CFCs in other unlisted countries or jurisdictions.

    At B item 24e, write the amount of your non-assessable non-exempt income under subdivision 768-A for foreign equity distributions on participation interests from companies in listed countries.

    At C item 24e, write the amount of your non-assessable non-exempt income under subdivision 768-A for foreign equity distributions on participation interests from companies in specified countries or jurisdictions.

    At D item 24e, write the amount of your non-assessable non-exempt income under subdivision 768-A for foreign equity distributions on participation interests from companies in other unlisted countries or jurisdictions.

    For help with working out if these provisions apply to you, see sections 23AH or 23AI of the ITAA 1936 or subdivision 768-A of the ITAA 1997

    For the table of:

    • specified countries or jurisdictions and codes, see Appendix 1
    • listed countries and codes, see Appendix 3.

    All foreign countries not listed in the tables of listed countries and specified countries or jurisdictions are included in the other unlisted country or jurisdiction category.

    Example 27

    An Australian resident has the following non-assessable non-exempt income under the relevant sections.

    Country

    Section 23AH amount
    $

    Section 23AI amount
    $

    Subdivision 768-A amount
    $

    Branch in the United States

    12,000,000

    0

    0

    United States

    0

    0

    100,000

    Liechtenstein

    0

    2,000

    0

    Belgium

    0

    630,000

    0

    As the United States is a listed country and the income from the branch is non-assessable non-exempt under section 23AH and the other United States income is non-assessable non-exempt income under subdivision 768-A, the entity writes $12,000,000 at B item 24a and $100,000 at B item 24e.

    As Liechtenstein is a specified country or jurisdiction and the income is non-assessable non-exempt income under section 23AI, $42,000 is written at C item 24c.

    As Belgium is not a listed country or a specified country or jurisdiction it is an other unlisted country or jurisdiction. Consequently, you write the non-assessable non-exempt income under section 23AI of $630,000 at D item 24c.

    All other items are left blank.

    The Australian resident completes question 24.

    Question 24 of the form completed using the information from within this example. 24a Specify the amounts of foreign branch income of Australian companies, completed item is $12,000,000 at B Listed countries. 24c Specify the amounts of amounts paid out to attributed CFC income, completed items are $42,000 at C Specified countries, $630,000 at D Other unlisted countries. 24e Specify the amounts of foreign equity distributions on minimum 10% participation interests in foreign companies, completed item is $100,000 at B.

    End of example

    Question 25 Debt deductions in earning non-assessable non-exempt foreign income

    This question requires you to show the amount of debt deductions you claimed under section 25-90 and the amount of loss you made from financial arrangements you have claimed under subsection 230-15(3) of ITAA 1997 in 2021–22.

    To complete this question, ascertain the total amount of debt deductions you have claimed under section 25-90 or the total amount of the losses you made from financial arrangements you have claimed under subsection 230-15(3).

    You must complete B item 25 even if you have not claimed debt deductions or a loss from financial arrangements under section 25-90 or subsection 230-15(3).

    At B item 25, write the total amount of your debt deductions or loss from financial arrangements claimed under section 25-90 or subsection 230-15(3), respectively, of the ITAA 1997 (costs in relation to a debt interest or losses from a financial arrangement in deriving non-assessable non-exempt income under section 23AI, or 23AK of the ITAA 1936, or subdivision 768-A of ITAA 1997).

    If you did not claim any debt deductions under section 25-90 or any loss from a financial arrangement under subsection 230-15(3), write zero at B.

    Question 26 Capital gains tax events in relation to your interest in a foreign company

    This question seeks information regarding capital gains and capital losses made in relation to non-portfolio interests in foreign companies which will enable us to assess if there is a risk to revenue from foreign sourced capital gains and capital losses not being returned correctly.

    To complete this question, show the total amount of the capital gains and losses made for non-portfolio interests in foreign companies and the amount of any reductions made under Subdivision 768-G of ITAA 1997.

    Under Subdivision 768-G of the ITAA 1997, if a company held a voting interest of at least 10% in a foreign company, and held that interest for a continuous period of at least 12 months in the two years before the specified capital gains tax (CGT) event, it may be entitled to apply this measure; see Subdivision 768-G of the ITAA 1997.

    Any reduction you may make in applying Subdivision 768-G of the ITAA 1997 to a relevant capital gain or capital loss will depend on whether you choose to use either the market value method or the book value method to calculate the active foreign business asset percentage of the foreign company.

    Each method is subject to meeting eligibility conditions. If the book value method is chosen, a further choice can be made in certain circumstances to use the consolidated accounts method for a foreign company which has wholly-owned foreign subsidiaries. The choice to use any of these methods must be made by the time you lodge your income tax return.

    The default method applies if you do not choose to use the market value method or the book value method to calculate the active foreign business asset percentage of the foreign company, or you choose a method that is not available because the eligibility conditions for the method are not satisfied. Under the default method any foreign sourced capital gain you make will not be reduced and any foreign sourced capital loss you make will be reduced to nil. Any choice you make is irrevocable. Once the default method has applied because you do not make a choice or your choice is not available, you cannot make a choice to apply a different method. The way you prepare your income tax return sufficiently evidences you making a choice, or not making a choice resulting in the default method applying.

    If you had a CGT event in relation to your interest in a foreign company, answer Yes at A item 26 and complete the following:

    • At B item 26, write the total of your capital gain amounts in respect of your interests in foreign companies (before any reduction under Subdivision 768-G).
    • At C item 26, write the total amount of any capital gain reduction under Subdivision 768-G.
    • At D item 26, write the total of your capital loss amounts in respect of your interests in foreign companies (before any reduction under Subdivision 768-G).
    • At E item 26, write the total amount of any capital loss reduction under Subdivision 768-G.

    For more information, see Subdivision 768-G of the ITAA 1997.

    Example 28

    During the income year, AAA Co, an Australian resident company, sold shares in three foreign-resident companies BBB Co, CCC Co and DDD Co.

    AAA Co makes a choice to use either the market value method or the book value method for each disposal event and prepares its income tax return on the basis of these choices.

    The sale of the shares in BBB Co resulted in a capital gain under CGT event A1 of $750,000. This amount of capital gain was reduced by 42%, or $315,000, in accordance with Subdivision 768-G of the ITAA 1997 resulting in a capital gain amount of $435,000.

    The sale of shares in CCC Co resulted in a capital loss under CGT event A1 of $769,000. This amount of capital loss was reduced by 50%, or $384,500, in accordance with Subdivision 768-G of the ITAA 1997 resulting in a capital loss amount of $384,500.

    The sale of shares in DDD Co resulted in a capital loss under CGT event A1 of $50,000. This amount was not reduced by Subdivision 768-G of the ITAA 1997.

    To complete this question AAA Co writes the total capital gain amount of $750,000 at B and the total capital gain reduction amount of $315,000 at C. AAA Co adds the capital loss amounts from the sale of shares in CCC Co and DDD Co and writes the total amount of $819,000 at D. AAA Co writes the total capital loss reduction amount of $384,500 at E.

    This image shows an example of how to complete question 26. Question 26 Label B Capital gain amounts: $750,000 Label C Capital gain reductions: $315,000 Label D Capital loss amounts: $819,000 Label E Capital loss reductions: $384,500

    AAA Co completes question 26.

    End of example

    Question 27 Transfers to a non-resident trust

    This question will help us to identify if there is a risk that income of a non-resident trust estate has not been appropriately returned in the assessable income of an Australian resident transferor.

    The dollar amounts or values asked for in this question are all based on your accounting records.

    If you answer Yes, provide information about the three transfers to a non-resident trust estate with the highest dollar value.

    You should answer No to this question where the only transfers involve both of the following:

    • the transfer of property or services to a public unit trust that is a non-resident trust estate
    • the sole purpose of the underlying transfer was the acquisition of units in the trust estate where the parties to the underlying transfer were at arm's length.

    Division 6AAA of the ITAA 1936 will apply to a public unit trust that is non-resident trust estate as defined in section 102AAB of the ITAA 1936 where subparagraph 102AAT(1)(a)(ii) of the ITAA 1936 is satisfied.

    Transfers performed for your clients are not included in this question.

    Unless otherwise specified, the terms used in this question have the same meaning as set out in Divisions 6 and 6AAA of the ITAA 1936.

    Transfer, property and services are defined in section 102AAB of the ITAA 1936. Sections 102AAJ and 102AAK of the ITAA 1936 provide whether there was a transfer or a deemed transfer of property or services to a non-resident trust estate for the purpose of Division 6AAA.

    If, during the last three income years including the current one, you have directly or indirectly transferred property, money or services to a non-resident trust, where that non-resident trust was still in existence during the income year, answer Yes at A item 27 and complete the required fields:

    • At B item 27, write the amount or value of the three transfers of the highest dollar value in descending order of total dollar value.
    • At C item 27, write the relevant Appendix 8 exemption code in respect of the transfer amount written at B of the same row. For those transfers to which no exemption code applies, write code 7 at the corresponding C item 27.

    For the list of the transferor trust exemption codes, see Appendix 8.

    Example 29

    During the last three income years, an Australian resident taxpayer makes the following transfers to a non-resident trust that is still in existence.

    Transfer

    Amount
    $

    Transfer of property made to the ABC discretionary trust (resident in Canada) for no consideration (not arm's length)

    12,000,000

    Transfer made to the AAA discretionary trust for the arm's length acquisition of materials to be used in the taxpayer's business.

    60,000,000

    Transfer of cash made to the XYZ Public Unit Trust for the sole purpose of acquiring units in that trust.

    28,000,000

    The taxpayer will complete question 27 as follows:

    This image is an example of how to complete Question 27. Transfer 1 Label B Transfer amount: $60,000,000 Label C Appendix 8 exemption code: 1 Transfer 2 Label B Transfer amount: $28,000,000 Label C Appendix 8 exemption code: 5 Transfer 3 Label B Transfer amount: $12,000,000 Label C Appendix 8 exemption code: 7

    End of example

    Question 28 Non-resident trusts and foreign hubs

    In this section

    28a Were you a beneficiary of a non-resident trust or did you have an interest in, or an entitlement to acquire an interest in, either the income or capital of a non-resident trust during 2021–22?

    This question will help us to identify if there is a risk that income of a non-resident trust estate has not been appropriately included in the assessable income of an Australian resident beneficiary.

    Unless otherwise specified, the terms used in this question have the same meaning as set out in Divisions 6 and 6AAA of the ITAA 1936.

    To complete this question, work out whether one of the following applied during 2021–22:

    • you were a beneficiary of a non-resident trust estate
    • you had an interest in the income or capital of a non-resident trust estate
    • you had a right to acquire an interest in the income or capital of a non-resident trust estate.

    If any of the above were the case, answer Yes at A item 28a.

    28b Do any of the schedules within PCG 2017/1 apply to your offshore dealings?

    The values asked for in this question are all based on your accounting records.

    To complete this question:

    • identify all of your offshore dealings that are subject to any of the schedules within PCG 2017/1
    • add up the value of expenses and imports plus revenue and exports in connection with each Appendix 14 type of hub
    • determine the three Appendix 14 hub types that have the highest dollar value of property or services imported to or exported from Australia (the total value of expenses and imports plus revenue and exports)
    • in respect of the three Appendix 14 hub types that have the highest dollar value of property or services imported to or exported from Australia, add up the value of expenses and imports in connection with each type of hub according to the Appendix 14 type of hub
    • add up the value of revenue and exports in connection with each type of hub according to the Appendix 14 type of hub.

    At B, E and H, write the Appendix 14 codes for the three hub types that have the highest dollar value of property or services imported to or exported from Australia (the total value of expenses and imports plus revenue and exports). Write these codes in descending order of total value.

    At C, F and I, write the total amount of expenses and imports in connection with each Appendix 14 hub type you have identified.

    At D, G and J, write the total amount of revenue and exports in connection with each Appendix 14 hub type you have identified.

    Question 29 Cross-border hybrid entities and hybrid instruments

    29a Were you a partner in a foreign hybrid limited partnership (FHLP) or a shareholder in a foreign hybrid company (FHC)?

    This question will help us to identify if there is a risk that income of a foreign hybrid limited partnership (FHLP) or a foreign hybrid company (FHC) has not been appropriately returned in Australia as an assessable distribution.

    The dollar amounts or values asked for in this question are all based on your accounting records.

    FHLP has the same meaning as set out in section 830-10 of the ITAA 1997.

    FHC has the same meaning as set out in section 830-15 of the ITAA 1997.

    If you were a partner in a FHLP or a shareholder in a FHC, answer Yes at A item 29a and complete the following:

    • At B item 29a, write the number of FHLPs and FHCs in which you had an interest during 2021–22.
    • At C item 29a, write the total amount of your shares of net income or profit.

    Example 30

    ABC Co is an Australian resident taxpayer that is a partner in two foreign hybrid limited partnerships. It also holds shares in one foreign hybrid company.

    During the income year ABC Co had the following in respect of its interests in these entities.

    Entity

    Amount
    $

    Share of net income from the BBB partnership

    750,000

    Share of net income from the CCC partnership

    100,000

    Distribution of profit from the XYZ LLC

    275,000

    Total

    1,025,000

    To complete this question ABC Co:

    • writes 3 at B item 29a
    • writes $1,025,000 at C item 29a.
    End of example
    Last modified: 05 Sep 2022QC 68003