Attributable income is included directly in your assessable income. It is not necessary to aggregate amounts of attributable income as you trace through a chain of CFCs.
Example 15: Attribution directly to taxpayer
Assume you wholly own a foreign company which, in turn, wholly owns another foreign company. Also assume that the first company has $300,000 attributable income and the second company has $200,000 attributable income.
You include an amount in your assessable income as follows:
Not like this
End of example
Attributable income is taxable income
Attributable income is a hypothetical amount. It is the amount that would be the taxable income of a CFC, based on certain assumptions. These are explained below.
Assume the CFC is a resident taxpayer
To work out attributable income it must first be assumed that the CFC is both a resident of Australia and a taxpayer for the whole of a statutory accounting period. You can then work out the attributable income in the same way as you work out the taxable income of a resident company. Amounts derived by a CFC from all sources will be taken into account because residents are taxable on their world wide income and gains.
To distinguish the calculation of attributable income from a 'real' calculation of taxable income, the amounts used to work out attributable income are called notional amounts. Thus, attributable income is the amount by which the notional assessable income is greater than notional allowable deductions. Income that is not notional assessable income is notional exempt income.
The assumption that a CFC is a resident of Australia does not change the nature of the activities of the CFC - that is, events that occur in a foreign country will not be taken to have occurred in Australia.
Modifications in working out the attributable income of a CFC
In applying the Act to work out a CFC's hypothetical taxable income, assume that certain modifications have been made to the Act and read the Act as if those modifications were incorporated.
In some cases, provisions are ignored because the application is not appropriate. In other cases, provisions have been replaced with similar provisions that are tailored to the way the attributable income is worked out.
In addition, provisions have been included that are not comparable to other provisions of the Act. These modifications are explained later in this part.
Some provisions of the Act clearly cannot apply when working out attributable income - for example, Part IV, which deals with the making of returns or assessments. Although these provisions of the Act are not specifically excluded from the calculation, for practical purposes they have no effect and can be ignored.
Accounting period is the year of income
Taxable income is worked out for a period called an income year. To apply the Act, the statutory accounting period of a CFC is assumed to be an income year. The particular income year referred to in working out attributable income will be the income year of the attributable taxpayer in which the statutory accounting period ends.
Assume you are working out the amount to be included in assessable income for the year ending 30 June 2003 and the statutory accounting period of the CFC ended on 30 September 2002. The attributable income of the CFC for that statutory accounting period is to be worked out in accordance with the provisions of the Act that applied for the year ended 30 June 2003.End of example
Work out attributable income separately
You must work out your attributable income for a CFC separately to other attributable taxpayers. Different taxpayers may work out different amounts of attributable income for a CFC - that is, the amount included in assessable income may be different for each attributable taxpayer even if they have the same attribution percentage in the CFC.
There are differences in working out attributable income depending on whether a CFC is a resident of a broad-exemption or non-broad-exemption listed country.