There will be no credits for foreign taxes where the FIF income is worked out under the market value or deemed rate of return methods.
In these cases, credits for foreign tax will apply only when distributions are received from the FIF. The current foreign tax credit system rules, as outlined above, apply to these distributions.
The foreign tax credit system has been altered to cater for taxpayers who use the calculation method to decide the amount of FIF income to include in their assessable income. However, the changes have been limited to situations where:
- the FIF is a company which is related to a company taxpayer [SECTIONS 160AFCE and 160AFCF]
- the taxpayer is a beneficiary of a FIF which is a trust estate. [SECTIONS 160AFCG and 160AFCH]
This is consistent with the general treatment of foreign taxes paid on underlying income under the foreign tax credit system and is also consistent with the CFC measures.