The attributable income of a CFC is reduced if you are taxed on a dividend paid by the CFC out of current year profits and you would be assessable on those profits under the CFC rules at the end of the statutory accounting period of the CFC.
An interim dividend is only regarded as having been paid out of the attributable income of the current statutory accounting period if there are no earlier profits available out of which the dividend could have been paid. To the extent that there are such earlier profits, the dividend will firstly be regarded as having been paid out of those profits. Any balance is treated as having been paid out of the attributable income of the current statutory accounting period. Taxation Determination TD 2003/27 - Income tax: how is double taxation avoided in the following situations where a Controlled Foreign Company (CFC) pays a dividend to an attributable taxpayer… provides further guidance on how the attributable income of a CFC is reduced in these circumstances.
Working out the reduction
Dividend paid to an attributable taxpayer
If the dividend is paid to you, the amount of the reduction in attributable income is worked out as follows:
Amount of the dividend assessed ÷ your attribution percentage in the CFC
Example 25: Dividend paid wholly out of attributed income
A taxpayer has a 50% attribution percentage in a CFC resident of an unlisted country. The CFC has no profits from previous years and $1 million current year profits are distributed as a dividend. The dividend was paid wholly from profits referable to the attributable income of the CFC. The $500,000 received by the taxpayer is included in the taxpayer's assessable income.
The amount by which the attributable income would be reduced is worked out as follows:
$500,000 ÷ 50% = $1 million
End of example
Example 26: Dividend paid partly out of attributed income
A taxpayer has a 50% attribution percentage in a CFC resident of an unlisted country. The CFC has an accumulated profit of $2 million. The CFC pays a dividend of $2.2 million. The dividend would be taken to have been paid out of the accumulated profits first. The whole of the $200,000 component of the dividend paid from current year profits is referable to the attributable income of the CFC.
The reduction will be:
$100,000 ÷ 50% = $200,000
End of example
Example 27: Dividend is exempt
A resident company has a 50% interest in a CFC resident of a listed country. The CFC has no profits from previous years and distributes all of the current year profits as an exempt dividend.
There is no reduction of attributable income in this case because the dividend was not assessable income.
End of example