• 23 Other assessable foreign source income

    Complete a losses schedule if the trust:

    • has an interest in a controlled foreign company (CFC) that has current year losses greater than $100,000
    • has an interest in a CFC that has deducted or carried forward a loss to later income years greater than $100,000.

    If the trust received assessable dividends directly or indirectly from a New Zealand franking company, the dividends (including any supplementary dividends) must be declared as assessable foreign income even if dividend withholding tax was deducted in New Zealand.

    The individual beneficiaries of the trust may be able to claim a foreign income tax offset for any New Zealand dividend withholding tax paid on the dividend, see the Foreign income return form guide 2016 to work out whether the dividend assessable income.

    If the dividend from a New Zealand franking company is assessable income, then the amount of the Australian franking credit attached to the dividend is also assessable income. Subject to satisfying certain qualifying criteria, the beneficiaries or trustee may be entitled to a share of the benefit of Australian franking credit attached to the franked dividend, for more information, see Appendix 1.

    The dividend may include an amount of New Zealand imputation credits. Australian residents cannot claim any amounts of New Zealand imputation credits.

    Gross foreign source income

    Show at B the gross amount of assessable income derived from foreign sources, including amounts distributed from partnerships and other trusts as well as New Zealand franking company dividends and supplementary dividends. Include any foreign tax paid on that income.

    Do not include at B:

    • any income which is exempt from tax in Australia or treated as non-assessable non-exempt income under sections 23AI and 23AK of the ITAA 1936
    • any amount of New Zealand imputation credits
    • any amount of Australian franking credits attached to dividends from a New Zealand franking company; show these at D
    • income already shown at item 22 Attributed foreign income
    • any foreign source capital gains or capital losses.

    Include foreign source capital gains or capital losses when calculating the amount at item 21 Capital gains.

    In referring to foreign source capital gains, an Australian resident trust makes a capital gain if a CGT event happens to any of their overseas CGT assets.

    Broadly, a trust that is not an Australian resident makes a capital gain only if the CGT asset is taxable Australian property just before the CGT event happens.

    If the TOFA rules apply to the trust, include 'gross foreign source income' from financial arrangements subject to the TOFA rules at B.

    Net foreign source income

    Show at V the net income derived from foreign sources.

    The amount at V is the gross amount shown at B, less any deductions allowable to the trust against that income. Debt deductions (such as interest and borrowing costs) that relate to assessable foreign source income and that are not attributable to an overseas permanent establishment of the taxpayer are not applied against assessable foreign source income for the purpose of calculating net foreign income or identifying a foreign loss. Do not claim these amounts here, include them at item 18 Other deductions.

    If the amount at V is negative, print L in the box at the right of the amount.

    The trust combines both foreign and domestic deductions. Where the combined deductions exceed net exempt income and assessable income, the excess is a tax loss. This tax loss can be carried forward and applied in a future income year, against, firstly, net exempt income; and, secondly, the excess of assessable income over deductions (except tax losses).

    Under the trust loss provisions of Schedule 2F to the ITAA 1936, certain rules have to be satisfied by a trust before it can use prior-year unrecouped foreign losses. For more information, see Losses.

    If the amount you show at V includes foreign source business income, see Small business income tax offset.

    If the TOFA rules apply to the trust, include 'gross foreign source income' from financial arrangements subject to the TOFA rules at B.

    Foreign income tax offsets

    Show at Z the amount of any foreign income tax paid by the trust on foreign source income it derives.

    If foreign income tax has actually been paid by the trust, then the beneficiaries may be able to claim a foreign income tax offset in their individual tax returns.

    Example 9

    The S trust estate derives rental income from commercial property investments in a foreign country, on which the trustee pays foreign income tax. Samantha, an Australian resident, is the sole beneficiary of the S trust estate and is presently entitled to all of its income. As such, she is assessed on the whole of the trust’s net income. Although Samantha hasn’t directly paid the foreign income tax, she is deemed to have paid it.

    End of example

    Australian franking credits from a New Zealand franking company

    Show at D the amount of Australian franking credits that are included in the net income of the trust because of franked dividends received from a New Zealand franking company directly or indirectly through a partnership or other trust.

    The amount shown at D is not necessarily the total amount that the trustee or beneficiaries can claim, see Appendix 1.

    Small business income tax offset

    If any part of the amount at V is net business income from a small business entity, any individual beneficiaries may be entitled to the small business income tax offset.

    See the instructions for item 5 Business income and expenses and complete Worksheet 1A Net small business income.

    The individual beneficiaries will need to know their share of net small business income from the trust to work out their entitlement to the small business income tax offset.

    Last modified: 31 Aug 2016QC 48243