Australian resident companies are entitled to a foreign tax credit as worked out in section 1. In addition, in some circumstances a company - other than a company in the capacity of trustee - may be:
- entitled to a credit for foreign underlying tax - see section 160 AFC
- entitled to a credit for tax paid by a CFC on amounts attributed to the Australian company
- able to transfer a foreign tax credit to another group company
- not assessable on foreign non-portfolio dividends where those dividends are an exempting receipt of that company - see part 1 of this chapter
- not assessable on foreign income derived through a branch in a listed country - see part 2 of this chapter.
Credits available to resident companies for underlying tax
An Australian resident company which receives a dividend from a related company is entitled to a credit for both:
- the direct foreign tax - for example, withholding tax - on the dividend received, and
- the underlying tax paid by a foreign company on the portion of the distributable profits out of which the dividend was paid.
These credits will generally be available only where the dividend is included in assessable income. The only exception is where a dividend is received from a related foreign company and is treated as paid out of income previously attributed to the resident company under the accruals tax system. A tax credit can be claimed for both the direct foreign tax and underlying tax on these exempt dividends.
Related foreign companies
Under section 160AFB, an Australian company is treated as related to any number of linked foreign companies provided that:
- each company in the chain - starting with the Australian company - has at least a 10% voting interest in the company in the tier below it and
- the Australian company has a direct or indirect interest of at least 5% in the voting shares of each foreign company that is a member of the chain.
A chain of related companies cannot include a trust or partnership - that is, the chain will be broken by the interposition of a trust or partnership.
Example 5: Related foreign companies
Australian company A has a 50% voting interest in foreign company B, which in turn has a 10% voting interest in foreign company C. Both B and C will be treated as related to A.
Step 1
Are the companies members of the same group?
Yes - each company in the chain, starting with the Australian company, has at least a 10% voting interest in the company in the tier below it.
Step 2
Does company A have a 5% or more direct or indirect voting interest?
Yes - company A has a voting interest of 50% (50% × 100%) in company B and a voting interest of 5% (50% × 10%) in company C.
Step 3
Are the companies related?
Yes - both tests are satisfied for both companies B and C. Therefore, they are both related to company A.
End of exampleWorking out underlying tax
Underlying tax is traced through a chain of related companies. In each successive distribution in the chain, the portion of underlying tax deemed paid by the recipient company is worked out by multiplying the underlying tax paid by the company making the dividend by the amount of the dividend divided by the paying company's distributable profits.
Working out underlying tax where there are only two companies in a dividend series
The following formula is used to work out underlying tax deemed paid when there are only two companies in a dividend series.
FUT = (D × EUT) ÷ DPE
FUT |
foreign underlying tax deemed paid |
D |
the amount of the dividend |
UT |
the amount of the underlying tax |
DP |
the number of whole dollars in the distributable profits out of which the dividend was paid |
Example 6: Underlying tax where there are two companies
On 1 August 2003 an Australian resident company - Ausco - received a dividend from a wholly owned subsidiary - Forco1 - in an unlisted country.
Distributable profit - that is, profits which accumulated during accounting periods commencing after 30 June 1997 |
$50,000 |
The distributable profits did not include exempting profits or attributed income. |
- |
Foreign tax paid on those profits |
$5,000 |
Dividend paid to Ausco |
$10,000 |
Ausco is deemed to have paid foreign tax on the dividend of |
- |
($10,000 × $5,000) ÷ $50,000 |
$1,000 |
Working out underlying tax where there are more than two companies in a dividend series
The following formula is used to work out underlying tax deemed paid where there are more than two companies in a dividend series:
FUT2 = D (UT + FUT1) ÷ DP
FUT2 |
underlying tax deemed paid |
D |
amount of the dividend |
UT |
amount of underlying tax paid that relates to the distributable profits out of which the dividend was paid |
FUT1 |
amount of foreign tax deemed to have been paid by the previous calculation in relation to the dividend series |
DP |
number of whole dollars in the distributable profits out of which the dividend was paid |
End of example
Example 7: Underlying tax where there are more than two companies
On 1 August 2003, an Australian resident company - Ausco - received a dividend from a wholly owned unlisted country subsidiary - Forco1. Forco1 paid the dividend out of distributable profits that included a dividend it received from Forco2. Forco2 is a wholly owned unlisted country subsidiary of Forco1. The distributable profits did not include exempting profits or attributed income.
Distributable profit |
$50,000 |
Dividend paid to Ausco |
$10,000 |
Foreign tax paid |
$5,000 |
Distributable profit |
$20,000 |
Foreign tax paid on those profits |
$2,000 |
Dividend paid to Forco1 |
$5,000 |
Forco1 is deemed to have paid foreign tax on the dividend of $500
$5,000 × ($2,000 + 0) ÷ $20,000
Ausco is deemed to have paid foreign tax on the dividend of $1,100
$1,000 × ($5,000 + $500) ÷ $50,000
Working out underlying tax when a dividend is wholly or partly an exempting receipt
An Australian resident company is not entitled to a foreign tax credit for the exempting receipts component of a non-portfolio dividend because the component is not included in the assessable income of the resident company.
Exempting receipts of an Australian resident company
The following are exempting receipts of an Australian resident company:
- a non-portfolio dividend received from a company resident in a listed country. The extent to which the dividend is treated as an exempting receipt depends on whether an attribution debit arises for the company paying the dividend. If no attribution debit arises in relation to the payment, all of the dividend is an exempting receipt. If an attribution debit arises - refer to part 1 of this chapter - the amount of the dividend that is more than the attribution debit is an exempting receipt
- the exempting profits percentage - refer to part 1 - of a non-portfolio dividend received from a company resident in an unlisted country.
The exempting profits percentage for a dividend from the unlisted country company is worked out using the following formula.
EPP = (EP ÷ DP) × 100
EPP |
exempting profits percentage |
EP |
exempting profits |
DP |
distributable profit |
The distributable profit is the amount of profits of the company that would be available for distribution as dividends if any decision or requirement restricting their distribution as dividends was disregarded - other than any requirement providing for an eligible provision or reserve. An eligible provision or reserve is:
- a provision or reserve which is required to be maintained by law
- a provision for any liability in respect of foreign tax or Australian tax
- a reserve maintained for the purpose of qualifying for relief from foreign tax
- a provision or reserve for depreciation, bad or doubtful debts or leave payments or
- any other provision or reserve of a kind prescribed by regulations.
The exempting profits of an unlisted country company is the amount of the distributable profit that is attributable to exempting receipts of the unlisted country company.
Working out foreign underlying tax credits if a dividend is paid by a listed country company from previously attributed income
A resident company will be entitled to a foreign tax credit for a non-portfolio dividend received from a listed country company if part of the dividend is paid from previously attributed income. The credit for that part of the dividend is worked out as follows. The credit is reduced by the amount of a foreign tax credit allowed previously when the income was attributed.
FUT = D × (UT ÷ DP)
D |
amount of the dividend that is not an exempting receipt |
UT |
amount of underlying tax relating to the amount of the distributable profits attributable to the attribution surplus - that is, UT = AST + (GT x ASP) |
AST |
amount of underlying tax relating exclusively to that part of the distributable profits attributable to any attribution surplus immediately before the payment of the dividend |
GT |
amount of underlying tax relating to both attributed profits - in respect of the attribution surplus - and the remainder of the distributable profits |
ASP |
percentage of the general tax that may reasonably be related to the part of distributable profits relating to that attribution surplus |
DP |
amount of distributable profits relating to an attribution surplus existing immediately before the dividend was paid |
Working out foreign underlying tax credits if a dividend is paid by an unlisted country company from exempting profits
The foreign underlying tax credit for a dividend received from an unlisted country company which is partly an exempting receipt of an Australian resident company is worked out as follows.
FUT = D × (UT ÷ DP)
D |
amount of the dividend that is not an exempting receipt |
UT |
amount of underlying tax relating to the distributable profits, worked out as follows: |
UT = N-ET + (GT × N-EP)
N-ET |
amount of the underlying tax relating exclusively to non-exempting profits - that is, profits other than exempting profits |
GT |
amount of underlying tax that relates to both exempting and non-exempting profits |
N-EP |
percentage of GT that may reasonably be related to non-exempting profits of the Australian company and that form part of the distributable profits |
DP |
number of whole dollars in the non-exempting portion of the distributable profit out of which the dividend was paid |
End of example
Example 8: Dividend paid by an unlisted country company
Ausco is an Australian resident company which has a wholly owned subsidiary - Forco - that is a resident of an unlisted country.
Forco has distributable profits of $30,000. Of this amount, $20,000 represents profits from operations in the unlisted country and $10,000 represents profits from a branch located in a listed country. None of these profits have been attributed to Ausco.
Dividend paid to Ausco |
$27,000 |
Tax paid in the unlisted country |
$2,500 |
Tax paid by the branch in the listed country - no tax credit was allowed for this tax in the unlisted country |
$4,000 |
Distributable profits that are exempting profits |
$10,000 |
Distributable profits that are other profits |
$20,000 |
The dividend is treated as paid proportionately from exempting profits and other profits.
Dividend paid out of exempting profits |
$9,000 |
D dividend that is not an |
$18,000 |
UT uses the following components:
N-ET |
underlying tax that relates exclusively to the non-exempt portion of distributable profits |
nil |
GT |
amount of underlying tax which relates to both exempting and non-exempting profits |
$2,500 |
N-EP |
percentage of GT that may reasonably be related to non-exempting profits, in relation to the Australian company, forming part of the distributable profits - $20,000 divided by $30,000 = 2/ 3. This example assumes that the accounting profits were also the taxable income of the company. |
- |
UT = |
N − ET + (GT × N − EP) |
$1,666.67 |
- |
(nil + (2,500 x 2/ 3)) |
- |
DP |
number of whole dollars in the non-exempting portion of the distributable profit out of which the dividend was paid |
$20,000 |
Underlying tax is therefore $1,500
($18,000 ÷ $20,000) × $1,666.67
End of exampleCredits available to resident companies for attributed income
Working out the foreign tax credit when income is attributed
Where a company is related to a CFC at the end of the CFC's statutory accounting period and the assessable income of the company includes a share of the attributable income of the CFC - refer to chapter 1 - the company is allowed a credit for an amount of tax equal to its attribution percentage of the CFC's notional allowable deductions for taxes paid.
A CFC can claim a notional deduction for foreign or Australian tax paid by the CFC on amounts included in the CFC's notional assessable income.
If the notional assessable income of the CFC includes a non-portfolio dividend from a related company, a notional deduction is also allowable for underlying tax the CFC is taken to have paid on the dividend.
Example 9: Foreign tax credit for attributed income
An Australian resident company - Ausco - has a 60% interest in a CFC resident in an unlisted country - Forco.
Profits from a foreign branch in a listed country - not attributable income |
$2,000 |
Tax paid in the listed country on foreign branch income |
$600 |
Income derived in an unlisted country - it is all attributable income |
$10,000 |
Tax paid in the unlisted country on all income - this includes the foreign branch income |
$1,200 |
Ausco is deemed to have paid the following amount of tax on the attributed income:
Attribution percentage: 60%
Tax paid on attributed income |
$1,000 |
(10,000 ÷ 1200) × 12,000 |
- |
Tax deemed paid by Ausco |
$600 |
(1,000 ÷ 60) × 100 |
- |
Ausco must gross up its assessable foreign income by this amount. It can claim a foreign tax credit for $600.
End of exampleCredits where benefits deemed to be dividends are attributed
If a benefit provided by a CFC is deemed to be a dividend under section 47A and is attributed to a taxpayer, a credit for foreign tax paid will be allowed only if:
- the amount of the deemed dividend is included in the taxpayer's assessable income in their return lodged in the year of the distribution or
- the taxpayer notifies the Tax Office, in writing, within 12 months after the end of the income year in which the benefit was provided.
Credits where income is attributed due to a change in residence of a CFC
A resident company is allowed a credit for foreign tax paid by a CFC where an amount of income is attributed to it because the CFC changed its residence from an unlisted country to a listed country or to Australia. The credit is available, however, only if the resident company is related to the CFC at the time of the change of residence - see section 160 AFCB. The company is allowed a credit for the foreign tax and the Australian tax paid by the CFC on the attributed amount.
An underlying tax credit may also be available for an attributed amount referable to a non-portfolio dividend paid to the CFC from a foreign company. A credit will be allowed only if the foreign company was related to the resident company at the time the dividend was paid. In this case, the tax deemed paid by the resident company will include an amount equal to its attribution percentage - at the residence-change time - of the underlying tax that the CFC would have been taken to have paid if the CFC were an Australian resident company.
Credits when income is attributed due to a CFC paying dividends to another CFC
Income may be attributed to a taxpayer if:
- a CFC resident in an unlisted country pays a dividend to another CFC
- both the CFCs are related to the taxpayer at the time the dividend was paid - see section 160AFCC.
The income attributed is referred to as the section 458 amount.
Where a section 458 amount is included in the assessable income of a company, the company is allowed a credit for foreign tax paid on the amount.
The credit can be claimed for:
- the part of the foreign tax paid on the dividend that relates to the amount included in the assessable income of the resident company - this is referred to as the 'adjusted foreign tax paid'
- the part of the foreign underlying tax paid on the dividend that relates to the amount included in the assessable income of the resident company - this is referred to as the 'adjusted foreign underlying tax'.
The amount of adjusted foreign tax paid by the CFC receiving the dividend does not include tax paid under the taxation law of the country in which it is resident. The amount is worked out using the formula:
AFT = section 458 amount AFT × (FT ÷ D)
AFT |
adjusted foreign tax paid by the CFC receiving the dividend on that part of the dividend which is not deemed to be paid out of exempting profits |
FT |
foreign tax paid by the CFC receiving the dividend |
D |
amount of the dividend |
The adjusted foreign underlying tax deemed paid by the CFC receiving the dividend is worked out as follows:
AFUT = FUT × section 458 amount ÷ (D − EPP)
FUT |
foreign underlying tax deemed paid by the CFC receiving the dividend |
D |
amount of the dividend |
EPP |
that part of the dividend which relates to exempting profits |
Example 10: Adjusted foreign tax
Ausco has a wholly owned subsidiary - Forco1 - which is a resident of a listed country. Forco1 has a wholly owned subsidiary - Forco2 - which is a resident of an unlisted country. Forco2 pays a dividend of $50,000 to Forco1. There has been no previous attribution of Forco2 income - that is, there are no attribution credits - and no withholding tax has been paid on the dividend.
Exempting receipts less expenses |
$10,000 |
Other net income |
$42,000 |
Tax paid |
$2,000 |
Distributable profits |
$50,000 |
The income attributed to Forco1 under section 458 would be worked out as follows:
Section 458 amount = AP × (D − GD − EPP − T)
AP |
attribution percentage: |
100% |
D |
amount of the dividend |
$50,000 |
GD |
grossed up amount of any attribution debit |
nil |
EPP |
that part of the dividend which relates to exempting profits - that is, exempting profits divided by distributable profits multiplied by the amount of the dividend |
- |
The exempting profits are the part of the distributable profits that relates to exempting receipts.
Tax relating to the exempting receipts |
$384.62 |
Exempting profits ($10,000 − $384.62) |
$9,615 |
EPP = (exempting profits ÷ distributable profits) × dividend amount |
- |
($9,615 ÷ $50,000) × $50,000 |
$9,615 |
T – any foreign tax deducted from the dividend by or on behalf of the CFC receiving the dividend, multiplied by the percentage of the dividend represented by (D - GD - EPP) |
- |
(nil × ($50,000 − nil − $9,615)) ÷ $50,000 |
nil |
section 458 amount |
$40,385 |
The adjusted foreign tax paid by the CFC receiving the dividend is worked out as follows:
AFT = section 458 amount × (FT ÷ D)
AFT |
adjusted foreign tax paid by the CFC receiving the dividend |
- |
FT |
foreign tax paid by the CFC receiving the dividend |
nil |
Section 458 amount |
- |
$40,385 |
D |
amount of the dividend |
$50,000 |
AFT = |
nil × ($40,385 ÷ $52,000) |
nil |
The adjusted foreign underlying tax deemed paid by the CFC receiving the dividend is worked out as follows:
AFUT = FUT × (section 458 amount ÷ D)
AFUT |
adjusted foreign underlying tax |
- |
FUT |
foreign underlying tax deemed paid by the CFC receiving the dividend |
$1,615.39 |
- |
$2,000 × ($42,000 ÷ $50,000) |
- |
Section 458 amount |
- |
$40,385 |
D |
amount of the dividend less withholding tax |
$50,000 |
EPP |
that part of the dividend which relates to exempting profits |
$9,615 |
AFUT = |
1,615.39 × (40,385 ÷ (50,000 − 9,615)) |
$1,615.39 |
End of example
Working out a foreign tax credit when a dividend is paid from income which was previously attributed to an Australian resident company
A dividend paid out of income previously attributed to an Australian resident is non-assessable non-exempt income - refer to part 1 of this chapter. In addition, an Australian resident company is allowed a credit for foreign tax - including foreign underlying tax - paid on a dividend from attributed income. The credit is reduced to the extent a credit was claimed for taxes paid when the income was attributable.
The formula to work out the foreign tax for which a credit is due when a dividend is received from previously attributed income is:
FTP = (EP × DT) + (AEP × UT) − AT
FTP |
foreign tax paid on previously attributed income for which a credit is now allowable |
EP |
percentage of the payment which is non-assessable non-exempt because the income has been previously attributed |
DT |
amount of foreign tax which the taxpayer is taken to have paid, and to have been personally liable for, in relation to the attribution account payment |
AEP |
percentage that would be EP if the attribution account payment were reduced by the amount of any exempting receipts of the Australian resident company |
UT |
foreign underlying tax credit allowable for the attribution account payment, except CFC-type foreign tax - that is, foreign tax which generally corresponds to tax payable under Australia's accruals tax measures |
AT |
amount of the attributed tax account debit arising from the payment of the dividend that is equal to or less than AEP x UT |
Example 11: Credit for foreign taxes on a dividend paid from profits attributed to an Australian company
Ausco has a wholly owned subsidiary, Subco, in an unlisted country. Subco had distributable profits of $10,000 on which it paid foreign tax of $1,000. These profits have previously been attributed to Ausco.
On 1 August 2003, Subco paid a dividend of $10,000 to Ausco. The unlisted country levied dividend withholding tax at a rate of 10%.
The dividend received by Ausco is non-assessable non-exempt income because it was paid from previously attributed income. At the attribution stage, Ausco would have received a credit of $1,000 for foreign tax paid.
Even though the dividend was not included in Ausco's assessable income, a foreign tax credit is available for withholding tax and underlying tax relating to the dividend. This is because the profits out of which the dividend was paid were attributed to Ausco and taxed in Australia.
The method by which this credit is granted is as follows:
Step 1
Work out the foreign tax credit for dividend withholding tax and for underlying tax on the dividend as though the dividend was paid from income that had not been attributed to Ausco.
Step 2
Reduce the credit by the amount of a credit given at the attribution stage.
Dividend |
$10,000 |
Dividend withholding tax |
$1,000 |
Underlying tax (UT) is worked out as though the dividend was paid from income that was not attributed:
(Dividend ÷ distributable profits) |
× |
tax paid on profits out of which the dividend was paid |
($10,000 ÷ $1,000) × $10,000
= $1,000
Under the first step, Ausco's credit is the total of the amounts of dividend withholding tax and underlying tax ($1,000 + $1,000) |
$2,000 |
This credit is reduced, under the second step, by the $1,000 credit given at the attribution stage.
The formula for working out the foreign tax credit Ausco can claim is as follows:
FTP = (EP x DT) + (AEP + UT) - AT
This formula can be broken down as follows
EP x DT |
tax paid on the dividend paid out of previously attributed income |
EP |
percentage of the dividend paid from previously attributed income - 100% in the example |
DT |
tax paid on the dividend - dividend withholding tax of $1,000 in the example |
AEP x UT |
underlying tax in relation to the dividend - $1,000 tax was paid in the unlisted country on the profits out of which the dividend was paid |
AEP |
referred to as the adjusted exempt percentage of the dividend. This is the dividend reduced by the exempting profits part of the dividend. In the example, there is no exempting profits part of the dividend, therefore, AEP = 100% |
UT |
underlying tax paid on the dividend - do not include tax paid under an accruals tax law of another country |
AT |
tax for which a credit was allowed when the income of the unlisted country company was attributed to Resco - $1,000 in the example. The amount of the tax is worked out using accounts referred to as attributable tax accounts. These accounts trace the tax for which credit was allowed at the attribution stage |
In this example, when the income of $10,000 was attributed to Resco and a credit was given for $1,000, Resco would have opened accounts as follows:
Attribution account for Subco
Attributed income |
$10,000 |
Attributed tax account for Subco
Tax credited |
$1,000 |
When the dividend is received, Resco will debit the attribution account $10,000 and treat the dividend as non-assessable non-exempt income. It will also debit $1,000 to the attributed tax account.
This debit is the amount referred to as AT. Attributed tax accounts are dealt with below.
End of exampleEvidence of underlying tax paid
Your company should retain full particulars of the material on which its underlying tax credit has been worked out. Obtain a statement from the company which paid the dividend, certifying the amount of tax paid on the distributable profits out of which the dividend was paid. When underlying tax paid is traced down a chain of related foreign companies, such details will be required for each company in the chain.
Attribution accounts relevant to foreign tax credits for companies
Attributed tax accounts
What is the purpose of attributed tax accounts?
A resident company can claim a foreign tax credit for dividend withholding tax and certain underlying taxes on a non-assessable non-exempt dividend paid from previously attributed profits.
The credit is initially worked out on the basis that no foreign tax credit was allowed at the time the profits were attributable. The foreign tax credit worked out in this way is then reduced by the credit allowed at the time the attributable income of the CFC was included in the assessable income of the resident company. The attributed tax accounts trace the foreign tax credit allowed at the attribution stage so that this reduction can be made.
Who should maintain attributed tax accounts?
Attributed tax accounts are to be maintained by a resident company to which the attributable income of a related foreign company has been attributed under the CFC measures. Other taxpayers need not maintain these accounts.
Attributed tax account credits
An attributed tax account credit can arise in relation to a CFC where an amount is attributed under any of the following sections:
- section 160AFCA where the attribution of income of the CFC arises under section 456
- section 160AFCB where the attribution of income of the CFC on a change of residence arises under section 457
- section 160AFCC where the attribution of certain dividends paid by the CFC arises under section 458.
Each time a credit is made to an attribution account - as explained in part 1 of this chapter - a corresponding credit must be made to an attributed tax account for the entity for which the attribution account is operated.
Attributed tax account debits
An attributed tax account debit must be made each time the attribution account entity pays a dividend. The attributed tax account debit is worked out using the following formula.
Attributed tax account debit |
= |
(attribution debit ÷ attribution surplus) |
× |
attributed tax account surplus |
---|
In order to claim a credit for foreign tax paid on income that was previously attributed, the amount of attributed tax account debit must be verifiable. The attributed tax accounts for each of the relevant entities in respect of the taxpayer claiming the credit must be available or a credit will not be allowed.
Example 12: Credit for foreign tax reduced by credits previously allowed
Forco1 is a resident of an unlisted country and is a wholly owned subsidiary of Ausco. Forco1 derived income of $16,500 from sources in its country of residence, all of which is attributed to Ausco, and pays foreign tax of $1,500.
Forco1 has distributable profits of $15,000
($16,500 − $1,500).
It pays a dividend of $10,000 to Ausco in the following year, from which withholding tax of $1,500 was deducted - the net dividend is therefore $8,500.
The dividend Ausco received is non-assessable non-exempt income Ausco is also entitled to a credit for foreign tax paid on the income which was previously attributed. The credit is reduced, however, to the extent a credit for foreign tax was allowed when the income was attributed to Ausco. The non-assessable non-exempt income is not included in working out the Australian tax payable on the foreign income and thus does not increase Ausco's foreign tax credit limit.
The credit is worked out as follows:
FTP = EP × DT) + (AEP × UT) − AT
FTP |
foreign tax paid on previously attributed income for which a credit is now allowable |
EP |
percentage of the payment which is non-assessable non-exempt income because the income has been previously attributed - that is, profits which have been previously attributed or distributable profits. In this example EP is 100% as the dividend is paid from previously attributed income |
DT |
amount of foreign tax which the taxpayer is taken to have paid and to have been personally liable for, in relation to the attribution account payment - that is, $1,500 withholding tax |
AEP |
percentage that would be EP if the attribution account payment were reduced by any amount of that payment which is an exempting receipt of the Australian resident company. In this case, AEP is 100% because there is no exempting receipt |
UT |
foreign underlying tax credit allowable for the attribution account payment, other than CFC-type foreign tax - that is, foreign tax arising from laws that generally correspond with Australia's accruals measures |
- |
(D ÷ DP) × tax on distributable profits |
- |
(10,000 ÷ 15,000) × 1,500 = 1,000 |
AT |
amount of the attributed tax account debit for the tax credit previously allowed on the attributed income that is equal to or less than AEP × UT. The attributed tax account debit is equal to |
- |
(attribution debit ÷ attribution surplus) × attributed tax account surplus |
- |
(10,000 ÷ 15,000) × 1,500 = 1,000 |
Note: When $15,000 income was attributed to Ausco, Ausco would have credited an attribution account for Forco1 with $15,000. It would also have credited $1,500 tax to the attributed tax account for Forco1 - that is, tax for which a credit was allowed at the attributed stage. When the dividend was paid by Forco, this would have remained as an attribution surplus. The dividend of $10,000 is an attribution account payment.
FTP = $1,500 + $1,000 − $1,000 = $1,500
End of exampleTransfer of excess foreign tax credits
A resident company that is a member of a company group may transfer an excess credit to another member of the group if:
- there is 100% common ownership within the group
- there is a shortfall of foreign tax credits in a class of income for the company receiving the transfer
- the shortfall is for income of the same class as that for which there is an excess foreign tax credit in the company transferring the credit
- both companies retain a record of the transfer showing the credit transferred.
The transfer of an excess credit may include credit carried forward from five prior years as well as the current year. The transfer operates only for the following two classes of income:
- passive income
- other income - excluding offshore banking income.
A company can transfer only an amount equal to the credit shortfall for that class of income - that is, the transferee cannot carry forward the transferred amount.
Carry forward of foreign losses by companies
An overall foreign loss for a class of assessable foreign income may be carried forward indefinitely and used to reduce a future year's assessable foreign income for that class.
Losses incurred by a company before the 1990-91 income year can be carried forward only for seven years and are therefore no longer available.
Claiming foreign tax credits on your foreign income
To work out if you can claim a foreign tax credit on your foreign income, refer to How to claim a foreign tax credit.