Question 21
This question is one of a number dealing with controlled foreign companies (CFCs) and controlled foreign trusts (CFTs). These questions are for the purpose of understanding your interests in and dealings with these overseas entities and assessing compliance with the relevant tax legislation.
An interest in a CFC or CFT may be either direct or indirect, and has the same meaning as set out in Division 3 of Part X of the ITAA 1936.
To complete this question, you must identify whether you had an interest in any CFCs and/or CFTs at the end of the income year.
If you had an interest in a CFC or CFT answer Yes at A item 21 and complete the following.
At B, C and D:
- Identify the CFCs and CFTs in which if you had an interest at the end of your income year. Then, referring to the tables at Appendix 1 and Appendix 3, identify the category of the country of residency of each CFC or CFT.
- At B, write the number of your CFCs and CFTs identified as residents of listed countries.
- At C, write the number of your CFCs and CFTs identified as residents of specified countries.
- At D, write the number of your CFCs and CFTs identified as residents of other unlisted countries.
If the number of CFCs and CFTs is:
- less than 10, write 00 (zero zero) as the first digit, for example, write 009
- less than 100, write 0 (zero) as the first digit, for example, write 083
- more than 999, write 999
- zero, leave the relevant answer blank.
Example
Jack Brothers & Co had at the end of their income year the following:
- two German resident CFTs
- three Japanese resident CFCs
- one Cayman Islands resident CFT.
As Germany and Japan are listed countries, they wrote 005 at B to record its five listed country CFTs and CFCs at the end of its income year.
At C they wrote 001 to record its specified country CFT.
They left all other boxes blank.
Jack Brothers & Co completed question 21.
Question 22
This question a ssesses the risk of assessable foreign income for CFCs and CFTs not being correctly accounted for under the relevant tax legislation.
The dollar amounts or values asked for in this question are all based on your tax records.
Section 456 of the ITAA 1936 includes attributable income of a CFC in the assessable income of an Australian resident taxpayer that is an attributable taxpayer.
Section 457 of the ITAA 1936 includes in the assessable income of a resident taxpayer, who is an attributable taxpayer in relation to a CFC, certain amounts in respect of a change of residence of the CFC from an unlisted country to a listed country or to Australia.
Section 459A of the ITAA 1936 includes amounts in a taxpayer's assessable income where the taxpayer is an attributable taxpayer for a CFC or CFT, and the amount of net income of an Australian partnership or trust includes attributable income which accrues to the benefit of the CFC or CFT, and is not otherwise taxed in Australia.
To complete this question, if you have an amount of foreign income that is assessable under sections 456, 457 or 459A of the ITAA 1936, write the total amount assessable under each of the sections at the corresponding labels.
To complete labels A, B and C, you must identify the residency of each CFC or CFT for which you included attributable income in assessable income under section 456 of the ITAA 1936 for the income year. Work out the attributable income amounts referrable to those entities in each of the following location categories:
- listed country
- specified country
- other unlisted country.
At A, write the total amount of attributable income included in your assessable income under section 456 for the income year for CFCs and CFTs of listed countries.
At B, write the total amount of attributable income included in your assessable income under section 456 for the income year for CFCs and CFTs of specified countries.
At C, write the total amount of attributable income included in your assessable income under section 456 for the income year for CFCs and CFTs of other unlisted countries. Include any attributable income included in your assessable income under section 456 of the ITAA 1936 for the income year that you have not already included at A and B.
At D, write the total of the amounts written at A, B and C.
You must complete E if your assessable income for the income year included an amount assessable under section 457 of the ITAA 1936. At E, write the total amount included in your assessable income under section 457 of the ITAA 1936 for the income year.
Label F
You must complete F if your assessable income for the income year included an amount assessable under section 459A of the ITAA 1936. At F, write the total amount included in your assessable income under section 459A of the ITAA 1936 for the income year.
For more information about working out if these provisions apply to you, including an overview of calculations, see the Foreign income return form guide.
For companies conducting banking or insurance activities (AFI or Australian financial institutions), there are special rules that apply. These rules are not discussed in the guide. See Subdivision F of Division 8 of Part X of the ITAA 1936.
To help work out the amounts to include, see:
- section 456 of the ITAA 1936
- section 457 of the ITAA 1936
- section 459A of the ITAA 1936
- other relevant provisions in Part X of the ITAA 1936.
Example
An Australian resident shareholder (attributable taxpayer) includes section 456 attributable income in its assessable income from CFCs and CFTs which are resident of countries set out in the following table.
CFC or CFT country of residence |
Value ($) |
|---|---|
Canada |
1,010,000 |
Niue |
501,000 |
Panama |
629,000 |
Italy |
459,000 |
Total |
2,599,000 |
As Canada is a listed country, the section 456 amount written at A is $1,010,000.
As Niue and Panama are specified countries, the section 456 amount written at B is:
- Niue: $501,000
- Panama: $629,000
- Total written at B: $1,130,000
As Italy is an "other unlisted country", the section 456 amount written at C is $459,000.
The total amount of section 456 attributable income written at D is $2,599,000.
The Australian resident shareholder completes question 22:
Question 23
This question will help us to identify if there is a risk that a transaction has occurred to which section 47A of the ITAA 1936 would apply.
When a CFC resident in an unlisted country provides, either directly or indirectly, an eligible benefit to an associated entity, section 47A may apply to deem that benefit a dividend.
Unless otherwise specified, the terms in this question have the same meaning as set out in section 47A of the ITAA 1936.
Broadly, a benefit is defined in section 47A to include the following:
- a waiver or release of an obligation to pay or repay an amount (waiver of debts)
- the granting of a non-arm's length loan
- transfers of property or services for no or inadequate consideration
- the payment of a call on an allotment of shares
- share or unit acquisitions for non-arm's length consideration.
If you have a CFC that was resident in an unlisted country and provided a benefit within the meaning of section 47A of the ITAA 1936 either directly or indirectly to you or any of your associated entities at any time during the income year, answer Yes at A item 23.
See also:
- section 47A of the ITAA 1936
- TR 2002/2 Income tax: meaning of 'Arm's Length' for the purpose of subsection 47A(7) of the Income Tax Assessment Act 1936 (ITAA 1936) dividend deeming provisions.
Question 24
This question provides us with the amount of non-assessable non-exempt income being derived in different tax jurisdictions and helps identify the nature of that income.
The dollar amounts or values asked for in this question are all based on your tax records.
To complete this question, work out:
- the amount of the foreign income you derived that is non-assessable non-exempt under sections 23AH or 23AI of the ITAA 1936 or subdivision 768-A of the ITAA 1997, and
- the amount of this income derived from entities resident in each of the following location categories:
- listed country
- specified country
- other unlisted country.
If you had foreign branch operations or any direct or indirect interests in foreign companies or foreign trusts, answer Yes at A item 24 and complete the following. If you answer Yes, include the amounts of foreign non-assessable non-exempt income you derived under any of the following:
- section 23AH – foreign branch income of Australian companies. The amount of income reported under section 23AH should include the total of both income and capital gains that are non-assessable non-exempt under that section.
- section 23AI – amounts paid out of attributed CFC income.
- Subdivision 768-A – foreign equity distributions on minimum 10% participation interests in foreign companies.
If you have no non-assessable non-exempt income under one or more of the above sections, leave the corresponding labels blank.
At B item 24a, write the amount of your non-assessable non-exempt income under section 23AH from your listed country foreign branch operations.
At C item 24a, write the amount of your non-assessable non-exempt income under section 23AH from your specified country foreign branch operations.
At D item 24a, write the amount of your non-assessable non-exempt income under section 23AH from your other unlisted country foreign branch operations.
At E item 24b, write the amount of your non-deductible expenses incurred in earning or deriving your non-assessable non-exempt income under section 23AH.
At B item 24c, write the amount of your non-assessable non-exempt income under section 23AI in respect of your attributed income from your CFCs in listed countries.
At C item 24c, write the amount of your non-assessable non-exempt income under section 23AI in respect of your attributed income from your CFCs in specified countries.
At D item 24c, write the amount of your non-assessable non-exempt income under section 23AI in respect of your attributed income from your CFCs in other unlisted countries.
At B item 24e, write the amount of your non-assessable non-exempt income under subdivision 768-A for foreign equity distributions on participation interests from companies in listed countries.
At C item 24e, write the amount of your non-assessable non-exempt income under subdivision 768-A for foreign equity distributions on participation interests from companies in specified countries.
At D item 24e, write the amount of your non-assessable non-exempt income under subdivision 768-A for foreign equity distributions on participation interests from companies in other unlisted countries.
For help with working out if these provisions apply to you, see sections 23AH or 23AI of the ITAA 1936 or subdivision 768-A of the ITAA 1997
For the table of:
- specified countries and codes, refer to Appendix 1
- listed countries and codes, refer to Appendix 3.
All foreign countries not listed in the tables of listed countries and specified countries are included in the other unlisted country category.
Example
An Australian resident has the following non-assessable non-exempt income under the relevant sections as set out in the table.
Country |
Section 23AH amount ($) |
Section 23AI amount ($) |
Section 23AJ amount ($) |
Subdivision 768-A amount ($) |
|---|---|---|---|---|
Branch in the United States |
12,000,000 |
0 |
0 |
0 |
United States |
0 |
0 |
0 |
100,000 |
Liechtenstein |
0 |
42,000 |
0 |
0 |
Belgium |
0 |
630,000 |
0 |
0 |
Belgium |
0 |
0 |
50,000 |
0 |
As the United States is a listed country and the income from the branch is non-assessable non-exempt under section 23AH and the other United States income is non-assessable non-exempt income under subdivision 768-A, the entity writes $12,000,000 at B item 24a and $100,000 at B item 24e.
As Liechtenstein is a specified country and the income is non-assessable non-exempt income under section 23AI, $42,000 is written at C item 24c.
As Belgium is not a listed country or a specified country it is an 'other unlisted country'. Consequently, the non-assessable non-exempt income under section 23AI of $630,000 is written at D item 24c.
All other labels are left blank.
The Australian resident completes question 24:
Question 25
This question requires you to show the amount of debt deductions you claimed under section 25-90 and the amount of loss you made from financial arrangements you have claimed under subsection 230-15(3) ITAA 1997.
To complete this question, ascertain the total amount of debt deductions you have claimed under section 25-90 or the total amount of the losses you made from financial arrangements you have claimed under subsection 230-15(3).
You must complete B item 25 even if you have not claimed debt deductions or a loss from financial arrangements under section 25-90 or subsection 230-15(3).
At B item 25, write the total amount of your debt deductions or loss from financial arrangements claimed under section 25-90 or subsection 230-15(3), respectively, of the ITAA 1997 for the income year (costs in relation to a debt interest or losses from a financial arrangement in deriving non-assessable non-exempt income under section 23AI, or 23AK of the ITAA 1936, or subdivision 768-A of ITAA 1997).
If you did not claim any debt deductions under section 25-90 or any loss from a financial arrangement under subsection 230-15(3) for the income year, write zero (0) at B.
Question 26
This question seeks information regarding capital gains and capital losses made in relation to non-portfolio interests in foreign companies which will enable us to assess if there is a risk to revenue from foreign sourced capital gains and capital losses not being returned correctly.
To complete this question, show the total amount of the capital gain/losses made in respect of non-portfolio interests in foreign companies and the amount of any reductions made under Subdivision 768-G of ITAA 1997.
Under Subdivision 768-G of the ITAA 1997, if a company held a voting interest of at least 10% in a foreign company, and held that interest for a continuous period of at least 12 months in the two years before the specified capital gains tax (CGT) event, it may be entitled to apply this measure; see Subdivision 768-G of the ITAA 1997.
If you had a CGT event in relation to your interest in a foreign company, answer Yes at A item 26 and complete the following:
- At B item 26, write the total of your capital gain amounts in respect of your interests in foreign companies (before any reduction under Subdivision 768-G).
- At C item 26, write the total amount of any capital gain reduction under Subdivision 768-G.
- At D item 26, write the total of your capital loss amounts in respect of your interests in foreign companies (before any reduction under Subdivision 768-G).
- At E item 26, write the total amount of any capital loss reduction under Subdivision 768-G.
For more information, see Subdivision 768-G of the ITAA 1997.
Example
During the income year, AAA Co, an Australian resident company, sold shares in three foreign-resident companies BBB Co, CCC Co and DDD Co.
The sale of the shares in BBB Co resulted in a capital gain under CGT event A1 of $750,000. This amount of capital gain was reduced by 42%, or $315,000, in accordance with Subdivision 768-G of the ITAA 1997 resulting in a capital gain amount of $435,000.
The sale of shares in CCC Co resulted in a capital loss under CGT event A1 of $769,000. This amount of capital loss was reduced by 50%, or $384,500, in accordance with Subdivision 768-G of the ITAA 1997 resulting in a capital loss amount of $384,500.
The sale of shares in DDD Co resulted in a capital loss under CGT event A1 of $50,000. This amount was not reduced by Subdivision 768-G of the ITAA 1997.
To complete this question AAA Co writes the total capital gain amount of $750,000 at B and the total capital gain reduction amount of $315,000 at C. AAA Co adds the capital loss amounts from the sale of shares in CCC Co and DDD Co and writes the total amount of $819,000 at D. AAA Co writes the total capital loss reduction amount of $384,500 at E.
AAA Co completes question 26:
Question 27
This question will help us to identify if there is a risk that income of a non-resident trust estate has not been appropriately returned in the assessable income of an Australian resident transferor.
The dollar amounts or values asked for in this question are all based on your accounting records.
If you answer Yes, provide information about the three transfers to a non-resident trust estate with the highest dollar value.
You should answer No to this question where the only transfers involve both of the following:
- the transfer of property or services to a public unit trust that is a non-resident trust estate
- the sole purpose of the underlying transfer was the acquisition of units in the trust estate where the parties to the underlying transfer were at arm's length.
Division 6AAA of the ITAA 1936 will apply to a public unit trust that is non-resident trust estate as defined in section 102AAB of the ITAA 1936 where subparagraph 102AAT(1)(a)(ii) of the ITAA 1936 is satisfied.
Transfers performed for your clients are not included in this question.
Unless otherwise specified, the terms used in this question have the same meaning as set out in Divisions 6 and 6AAA of the ITAA 1936.
The terms 'transfer', 'property' and 'services' are defined in section 102AAB of the ITAA 1936. Sections 102AAJ and 102AAK of the ITAA 1936 provide whether there was a transfer or a deemed transfer of property or services to a non-resident trust estate for the purpose of Division 6AAA.
If, during the last three income years including the current one, you have directly or indirectly transferred property, money or services to a non-resident trust, where that non-resident trust was still in existence during the income year, answer Yes at A item 27 and complete the required fields:
- At B item 27, write the amount/value of the three transfers of the highest dollar value in descending order of total dollar value.
- At C item 27, write the relevant Appendix 8 exemption code in respect of the transfer amount written at B of the same row. For those transfers to which no exemption code applies, leave the corresponding C blank.
For the list of the transferor trust exemption codes, see Appendix 8.
Example
During the last three income years, an Australian resident taxpayer makes the following transfers to a non-resident trust that is still in existence.
Transfer item |
Value ($) |
|---|---|
Transfer of property made to the ABC discretionary trust (resident in Canada) for no consideration (not arm's length) |
12,000,000 |
Transfer made to the AAA discretionary trust for the arm's length acquisition of materials to be used in the taxpayer's business. |
60,000,000 |
Transfer of cash made to the XYZ Public Unit Trust for the sole purpose of acquiring units in that trust. |
28,000,000 |
The taxpayer will complete question 27 as follows:
Question 28
This question will help us to identify if there is a risk that income of a non-resident trust estate has not been appropriately included in the assessable income of an Australian resident beneficiary.
Unless otherwise specified, the terms used in this question have the same meaning as set out in Divisions 6 and 6AAA of the ITAA 1936.
To complete this question, work out whether one of the following applied:
- you were a beneficiary of a non-resident trust estate during the income year
- you had an interest in the income or capital of a non-resident trust estate during the income year
- you had a right to acquire an interest in the income or capital of a non-resident trust estate during the income year.
If any of the above were the case, answer Yes at A item 28.
Question 29
This question will help us to identify if there is a risk that income of a foreign hybrid limited partnership (FHLP) or a foreign hybrid company (FHC) has not been appropriately returned in Australia as an assessable distribution.
The dollar amounts or values asked for in this question are all based on your accounting records.
FHLP has the same meaning as set out in section 830-10 of the ITAA 1997.
FHC has the same meaning as set out in section 830-15 of the ITAA 1997.
If you were a partner in a FHLP or a shareholder in a FHC, answer Yes at A item 29 and complete the following:
- At B item 29, write the number of FHLPs and FHCs in which you had an interest during the income year.
- At C item 29, write the total amount of your share(s) of net income or profit.
Example
ABC Co is an Australian resident taxpayer that is a partner in two foreign hybrid limited partnerships. It also holds shares in one foreign hybrid company. During the income year ABC Co had the following in respect of its interests in these entities.
Item |
Value ($) |
|---|---|
Share of net income from the BBB partnership |
750,000 |
Share of net income from the CCC partnership |
100,000 |
Distribution of profit from the XYZ LLC |
275,000 |
Total |
1,025,000 |
To complete this question ABC Co:
- writes 3 at B item 29
- writes $1,025,000 at C item 29.