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  • Foreign income

    Attention

    Warning:

    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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    22 Attributed foreign income

    For information on calculating the amounts shown at M and X, see the Foreign income return form guide 2017.

    Where the trust is a member of a consolidated group or MEC group for the whole income year and derived foreign income, the responsibility for preparing the schedule will rest on the head company of the group.

    Where a return is required because the trust had a period in the income year when it was not a member of a consolidated group or MEC group (a non-membership period) the trust should complete an International dealings schedule 2017 where it has derived foreign income attributable to the non-membership period.

    See also:

    • Consolidation reference manual, C9-5-110

    Did you have overseas branch operations or a direct or indirect interest in a foreign trust, foreign company, controlled foreign entity or transferor trust?

    With the repeal of the foreign investment fund rules, foreign trust in this context refers to a controlled foreign trust.

    Overseas branch operations include:

    • business operations carried on by an Australian resident entity at or through a fixed place of business in another country
    • business operations carried on by a foreign resident entity at or through a fixed place of business in Australia.

    Direct or indirect interests in a controlled foreign company or a controlled foreign trust are taken to have the same meaning as set out in Division 3 of Part X of the ITAA 1936. For the purposes of the controlled foreign company rules, do not trace interests through another Australian entity. For example, if your trust has an interest in an Australian trust, which owns a controlled foreign company, your trust is not regarded as having a direct or indirect interest in the controlled foreign company although your trust must still include any attributable income to which it was presently entitled at item 22 Attributable foreign income.

    A trust has an interest in a transferor trust if the trust has ever made, or caused to be made, a transfer of property or services to a non-resident trust. Transfer of property and services is defined in section 102AAB of the ITAA 1936.

    Sections 102AAJ and 102AAK of the ITAA 1936 provide guidance on whether there was a transfer, or a deemed transfer, of property or services to a non-resident trust.

    If the answer to this question is yes, print X in the Yes box at S and complete and attach an International dealings schedule 2017.

    Attach the completed International dealings schedule 2017 to the tax return. Print X in the Yes box at Have you attached any 'other attachment'? at the top of page 1 of the tax return.

    If the answer to this question is no, print X in the No box at S.

    For more information, see the International dealings schedule instructions 2017.

    If you answered Yes and the trust had foreign source business income and is a small business entity see Small business income tax offset.

    Listed country

    Show at M the amount of gross attributed foreign income from controlled foreign entities and transferor trusts of listed countries. Listed countries are set out in Regulation 19 of the Income Tax Assessment (1936 Act) Regulation 2015 (ITA(1936)R).

    Attributed foreign income is the income attributed to the taxpayer from controlled foreign entities, calculated in accordance with Division 7 of Part X of the ITAA 1936, and includes an amount grossed-up under section 392 of the ITAA 1936, as appropriate, to the extent of any foreign taxes paid.

    Show at M the amount of income attributed from a transferor trust that is a listed country trust estate, calculated in accordance with Subdivision D of Division 6AAA of the ITAA 1936.

    A listed country trust estate is defined in section 102AAE of the ITAA 1936.

    Unlisted country

    Show at X the amount of attributed foreign income from controlled foreign entities in unlisted countries. Unlisted countries are countries that are not listed in Regulation 19 of the ITA(1936)R.

    Show at X the amount of income attributed from a transferor trust if the amount has not been shown at M.

    Small business income tax offset

    If the trust is a small business entity and has attributed net business income, 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.

    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 2017 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.

    24 Total of items 20 to 23

    Show at item 24 the total of the amounts shown at items 20 to 23.

    If this amount is a net loss, print L in the box at the right of the amount. Do not include prior year losses here.

    If the amount shown at item 24 for a trust is a net income amount and the trust is able to deduct the whole or part of prior year losses in 2016–17 under section 36-15 of the ITAA 1997, show the amount of prior year losses to be deducted at item 25 Tax losses deducted.

    25 Tax losses deducted

    Show at C tax losses from earlier income years, which are deductible in 2016–17 under section 36-15 of the ITAA 1997.

    Exclude the film component of any tax loss (film loss). A film loss is shown, to the extent permissible, at item 18 Other deductions.

    Do not show current year foreign losses here. They are included at item 23 Other assessable foreign source income.

    Complete a losses schedule if the trust:

    • is a listed widely held trust (as defined in Schedule 2F to the ITAA 1936), and
    • is required to pass the business continuity test in order to claim a deduction for losses in 2016–17, or will be required to pass that test in respect of losses being carried forward to later income years.

    See also:

    The following information will help you to complete C:

    • The total of any tax losses shown at C cannot exceed the amount of net income shown at item 24 Total of items 20 to 23.
    • Complete item 27 Losses information if the income injection test under the trust loss provisions prevents the trust, including a family trust, from fully claiming a deduction for tax losses of an earlier income year in 2016–17: see Division 270 of Schedule 2F to the ITAA 1936.

    See also:

    Beneficiaries with no interest in trust capital

    A life tenant is a beneficiary with an interest in the income of the trust estate for the duration of their life, but with no interest in the capital of the trust.

    If the trust includes a beneficiary who is a life tenant or a beneficiary with no interest in the capital of the trust, you cannot claim a deduction for tax losses of earlier income years in calculating the share of those particular beneficiaries in the net income of the trust if the tax losses of previous years are required to be met out of corpus.

    Example 10

    The XYZ trust has tax losses of earlier income years of $2,000. Its net income is $20,000, excluding losses of earlier income years. There are two presently entitled beneficiaries of the trust, each with a 50% interest in the income of the trust. The trust deed requires tax losses to be met out of corpus.

    One beneficiary is a life tenant. The other has an interest in the income and the capital of the trust.

    In calculating the net income of the trust for the life tenant’s share, no account is taken of earlier year losses. The life tenant’s share of the net income of the trust for tax purposes is 50% of $20,000 which is $10,000.

    Conversely, in calculating the other beneficiary’s share of the net income of the trust, earlier year losses are taken into account. That beneficiary’s share of the net income of the trust for tax purposes is 50% of ($20,000 − $2,000) which is $9,000.

    End of example

    26 Total net income or loss

    The amount shown at item 26 must be equal to the amount shown at item 24 Total of items 20 to 23, less any amount shown at item 25 Tax losses deducted.

    If at item 24 you show a net loss amount, the total shown at item 26 is the same. If at item 24 you show a net income amount, the amount at item 26 cannot be a loss since the total amount you can claim as a deduction at item 25 must not exceed the net income at item 24.

    Print L in the box at the right of the amount, if the amount at item 26 is a loss.

    27 Losses information

    Do not include carried-forward film losses at this item.

    If the total of the trust’s tax losses and net capital losses carried forward to later income years is greater than $100,000, complete a Losses schedule 2017 (NAT 3425) and attach it to the trust tax return.

    Tax losses carried forward to later income years

    Show at U the undeducted amount of tax losses incurred by the trust that can be carried forward to a later income year under section 36-15 of the ITAA 1997. Do not show any net capital losses to be carried forward to later income years at U. Show them separately at V Net capital losses carried forward to later income years and in the CGT schedule, if a schedule is required.

    Net exempt income reduces a current year tax loss. If there is any excess exempt income, then the prior year tax losses will be reduced.

    If the trust is a designated infrastructure project (DIP) entity, ensure the amount of tax losses carried forward to later income years includes any uplift amount.

    Tax losses carried forward may be affected by the commercial debt forgiveness provisions, see Appendix 4.

    If the income injection test in Division 270 of Schedule 2F to the ITAA 1936 prevents the trust from fully claiming a deduction in 2016–17, include the amount that the trust cannot claim in the amount shown at U. Include the full amount of the scheme assessable income within the meaning of Division 270 in the amount of total net income of the trust shown at item 26 Total net income or loss.

    If the trust is required to complete a losses schedule, the amount of the tax losses shown at U in part A of that schedule must be the same as the amount shown at U on the trust tax return.

    Net capital losses carried forward to later income years

    Show at V the total of any unapplied net capital losses from collectables and all other CGT assets and CGT events. This information is calculated or transferred from:

    • 3B in Table 5 and 3A in Table 9 of the CGT summary worksheet in the Guide to capital gains tax 2017, or
    • A and B in part 3 of the CGT schedule, if a schedule is required.

    See also:

    If the trust is required to complete a losses schedule, the amount shown at V Net capital losses carried forward to later income years in part A of that schedule must be the same as the amount shown at V on the trust tax return.

    28 Landcare and water facility tax offset

    You cannot claim the landcare and water facility tax offsets for expenditure incurred after 2000–01.

    Landcare and water facility tax offset brought forward from prior years

    Show at G the total of any landcare and water facility tax offsets carried forward and available to be applied in this income year.

    Last modified: 05 Aug 2019QC 51275