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  • Attributed foreign income

    If you have interests in a foreign entity as an Australian resident or are involved with a foreign trust, your share of the entity's income may be attributed to you for income tax purposes, even if the income has not been distributed.

    Broadly, income may be attributed to you, and you need to declare it, if either of the following applies:

    • you have either a direct or indirect interest in a foreign company controlled by Australians – known as a controlled foreign company (CFC) – or a foreign trust controlled by Australians – known as a controlled foreign trust (CFT) – or you effectively controlled the CFC or CFT
    • you have directly or indirectly caused the transfer of property (including money) or services at any time to a non-resident trust.

    To prevent double taxation, dividend income you receive as an Australian resident, which you source from profits that have previously been attributed under these rules is generally exempt from Australian tax.

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    Controlled foreign companies

    The controlled foreign company (CFC) measures affect you if you are an Australian resident with substantial investments or involvement in foreign companies or foreign trusts controlled by Australians.

    Your share of the specified income and gains of a CFC is included in your assessable income, even if you did not receive a distribution from the CFC. The income and gains of CFCs are worked out using similar rules that apply to resident entities, with some specific modifications.

    Transferor trust measures

    The transferor trust measures apply to you if you are an Australian resident entity that has either directly or indirectly caused the transfer of property (including money) or services at any time to a non-resident trust. You must include the trust's profits in your assessable income even though you have not received a distribution from the trust.

    A trust is considered a resident trust if either of the following applies at any time during the income year:

    • the trustee is an Australian resident
    • the trust is managed or controlled in Australia.

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    Foreign investment fund and foreign life assurance policies

    On 14 July 2010, the foreign investment fund (FIF) and foreign life assurance policy (FLP) measures were repealed and do not apply from the 2010–11 income year onwards.

    If you are an early balancer (that is, you operate a company or trust with a substituted 2010–11 income year that starts before 1 July 2010), the repeal of the FIF provisions will apply from the start of your 2010–11 income year.

    The FIF measures applied to income and gains accumulating in both of the following:

    • foreign companies that were not controlled by Australians
    • foreign trusts that fell outside the scope of the foreign source income measures.

    You are no longer subject to accruals taxation on income and gains accumulate in FIFs. As FIF income is no longer attributable, you cannot use any unapplied previous FIF losses.

    If you have an interest in a FIF, you will be subject to the general tax rules applicable to your circumstances - for example, the general tax rules relating to trust income.

    Certain aspects of the FIF measures have been retained to ensure you are not subject to double taxation when you receive a distribution from or dispose of an interest in a FIF.

    You can avoid double taxation by maintaining FIF attribution accounts. These record the income attributed or distributed to you from each of your interests in a FIF. They allow you to claim exemptions for FIF income previously attributed to you when you receive a distribution from a FIF or dispose of an interest in a FIF. This only applies to you if you have a post FIF attribution surplus due to your FIF interest.

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    FIP and FLP measures – 2009–10 and previous income years

    For the 2009–10 income year and all prior income years, the foreign investment fund (FIF) measures apply to you as an Australian resident if you hold an interest in certain income and gains accumulating in either of the following:

    • foreign companies that are not controlled by Australians
    • foreign trusts that are not already subject to attribution under the CFC, CFT and transferor trust rules.

    The FIF measures apply to your interest in a FIF or foreign life assurance policy (FLP) if both of the following apply:

    • you were a resident of Australia at any time in an income year
    • you had an interest in a FIF or FLP at the end of the income year.

    The FIF measures also apply when working out the income of CFCs, CFTs or transferor trusts that hold an interest in a FIF.

    The FIF measures extend to certain FLPs that have an investment component, such as life bonds.

    Your income includes any FIF and FLP income, and any capital gains earned by the FIF during the income year, which you are deemed to have received.

    If you were not an Australian resident for the entire income year, you are assessed on the FIF and FLP income that accrued while you were a resident.

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    Proposed measures

    The government is continually reviewing international tax arrangements. For more information about how potential international legislative changes may affect you, refer to New legislation.

    If you need help in applying this information to your own situation, contact us by phone.

      Last modified: 28 Aug 2017QC 18311