Appendix 1: Foreign income regulations
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Part 8A of the Income Tax Regulations 1936, and associated schedules, deal with the taxation of foreign source income. The provisions:
- declare those countries that are to be treated as listed, unlisted countries.
- provide that Swiss cantonal taxes are treated as if they were federal taxes
- contain rules for determining whether an amount is designated concession income
- specify when the capital gains are taken to have been subject to tax for the purpose of the controlled foreign company (CFC) measures, the transferor trust measures, and the non-assessable non-exempt treatment of foreign branches of Australian companies, and
- set out the accruals taxation laws of other countries that are recognised for the purpose of providing relief from double accruals taxation.
Schedule 10 of the Income Tax Regulations 1936 specifies the countries that are listed countries. This schedule also specified the countries that were section 404 countries. These lists are reproduced in attachment A.
Designated concession income
Normally, amounts derived in a listed country are exempt from accruals taxation. This exemption does not apply to amounts of eligible designated concession income. Broadly, an amount may be designated concession income if it is concessionally taxed in a listed country.
What kinds of income or profits are specified as designated concession income?
Income or profits are designated concession income only if:
- they are of a kind specified in the Income Tax Regulations 1936 in relation to a particular listed country, and
- they are derived by an entity that is of a type specified in the Income Tax Regulations 1936.
The full list of designated concession income has been reproduced in attachment B.
Capital gains deemed subject to tax
Capital gains are defined (except for the purposes of regulation 152D of the Income Tax Regulations 1936) as gains or profits of a capital nature that arise from the sale or disposal of all or part of a capital gains tax (CGT) asset, other than gains or profits that would not be capital gains but for a provision of Australian tax law.
Regulation 152D provides that a capital gain (defined as gains or profits or other amounts of a capital nature) will be taken to be subject to tax in a listed country where the gain would have been subject to tax except for the operation of a rollover relief provision of a kind specified in the Income Tax Regulations 1936 contained in the tax law of that country. Broadly, the types of rollover relief relate to the types of rollover relief provisions available for capital gains tax purposes under Australian tax law.