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Excess foreign tax credits

Last updated 31 March 2020

The consolidation regime ensures that only the head company of a consolidated group includes the foreign income of the consolidated group in its assessable income.

Therefore, only the head company needs to use foreign tax credits to reduce its Australian tax liabilities to avoid double taxation.

To enable the head company of the consolidated group to access the excess foreign tax credits carried forward by subsidiary members of the group, the subsidiary members can transfer these excess credits to the head company. Special rules ensure the head company can only use those excess credits at the end of the income year after the year the entity joined the group unless relevant transitional rules apply. These transitional rules only apply to groups that consolidate within the transitional period 1 July 2002 to 30 June 2004.

During the period that an entity is a member of a consolidated group, where it pays tax on foreign income, the head company will be assessed on the foreign income and will be taken to have paid and been personally liable for the foreign tax paid by the subsidiary member.

When an entity leaves a consolidated group it cannot take with it any excess foreign tax credits and it will only include foreign income in its assessable income for the period it is not a member of any consolidated group.

The date of effect of the provisions relating to excess foreign tax credits is 1 July 2002. These provisions are in the New Business Tax System (Consolidation, Value Shifting, Demergers and Other Measures) Act 2002.