• The foreign tax credit system - trust FIFs

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    Credits on attribution from trust FIFs

    Under the foreign tax credit system, the treatment of foreign taxes paid by the trustee of a foreign trust is different from that of companies.

    The beneficiary of the trust is deemed to have paid the foreign tax paid by the trustee. In general, this distinction is maintained for taxpayers with an interest in a trust FIF. [section 6AB]

    Where the calculation method is used at first tier

    As for company FIFs, if you have used the calculation method to work out attributable income of a first tier trust FIF, a foreign tax credit is allowed for the foreign tax paid by the trustee of the trust on the income and gains of the trust FIF. The calculation is made in the same way as for a related company FIF. [section 160AFCG]

    Where the calculation method is used at second tier

    If you used the calculation method for the second tier trust FIF, a foreign tax credit is allowed for the foreign tax paid by the trustee of the trust on the income and gains of the trust FIF. The calculation is made in the same way as for a related company FIF. [section 160AFCH]

    Credits on distribution from trust FIFs

    The allowance of credits on distribution is similar to the credits under the existing foreign tax credit system.

    Broadly, this means that, if the amount of the distribution is included in assessable income, both companies and other taxpayers are allowed a credit for foreign taxes paid:

    • directly by the taxpayer - for example, a withholding tax on a dividend, and
    • by the trustee of the trust - including accruals-type taxes in respect of lower tier entities.

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

    Last modified: 01 Jul 2006QC 18507