• The foreign tax credit system - company FIFs

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    Credits on attribution from company FIFs

    Under the foreign tax credit system, a foreign tax credit may be allowed for a share of the foreign tax paid by a first tier FIF on its income and gains where:

    • a resident company and the FIF are related companies at the end of the FIF's notional accounting period, and
    • the resident company has used the calculation method to work out the FIF income for the company's interest in the FIF.

    In addition, a credit for tax paid by the second tier FIF may be given where the resident company:

    • has used the calculation method to work out the FIF income of the second tier FIF
    • the taxpayer and the first and second tier FIFs are companies, and
    • the taxpayer is related to both the first and second tier FIFs at the end of the notional accounting period of the second tier FIF.

    In this case, a foreign tax credit may be allowed in accordance with the foreign tax credit system for a share of the foreign tax paid by the second tier FIF on its income and gains.

    A credit will be allowed only where the resident company and the FIF or FIFs are related companies.

    Credits on distribution from corporate FIFs

    The allowance of credits on distribution - that is, by way of a dividend - follows the credits allowed under the existing foreign tax credit system.

    In addition, you are allowed a credit where the dividend is treated as non-assessable non-exempt income because the profits out of which the dividend has been paid have been subject to attribution in a previous year. The credit allowed is limited to the amount by which that dividend would have been greater if no foreign tax had been paid. [section 160AFCJ]

    Further, the provisions of ITAA 1936 which allow for excess foreign tax credits to be carried forward for up to five years apply where excess foreign tax credits arise in relation to an interest in a FIF and, where appropriate, an indirect interest in a second tier FIF. As under the existing foreign tax credit system, there is no carry back of credits. [section 160AFE]

    Last modified: 01 Jul 2006QC 18507