House of Representatives
Income Tax Assessment Amendment (Foreign Investment) Bill 1992
Explanatory Memorandum
(Circulated by the authority of the Treasurer, the Hon John Dawkins, M.P.)Glossary
| Accounts | Accounts means ledgers, journals, profit and loss accounts and balance sheets. It also includes statements, reports and notes attached to, or intended to be read with, any of the above items. |
| Active business exemption | An exemption from taxation under the FIF measures for interests a taxpayer has in foreign companies that are principally engaged in eligible active business (see Chapter 4). |
| Approved exchanges / approved markets | The stock exchanges and financial markets whose quoted market values are accepted for the market value method. The list of approved stock exchanges can be found at Schedule 3 of the Bill. |
| Arm's length amount | This expression means the amount that might reasonably be expected to have been paid, or given in consideration, when parties are dealing independently with each other. |
| Attributable taxpayer | A person who has, in general, a 10 per cent or greater interest in a Controlled Foreign Company or in a non-resident trust for the purposes of Part X of the Principal Act. |
| Attribution account | An attribution account establishes a link between:
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| Attribution account entity | An attribution account entity is an entity for which a resident taxpayer is to maintain an attribution account (in order to trace distributions of attributed income). An entity includes:
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| Attribution credit | When an amount is attributed to a taxpayer from an entity, the attribution account is credited (attribution credit) with the amount of the attributable income. |
| Attribution debit | When an entity subsequently distributes income that has been attributed to a taxpayer, the amount of the distribution is debited (attribution debit) to the attribution account. The amount of the debit cannot exceed the balance of the account, which is referred to as the attribution surplus. |
| Attribution surplus | An attribution surplus exists if the total of the attribution credits for an entity exceeds its attribution debits. |
| Bill, the | The Income Tax Assessment Amendment (Foreign Investment) Bill 1992 |
| Calculated loss | The loss arising to a FIF in the FIF's notional accounting period as calculated under the FIF measures using the calculation method. It may be carried forward to reduce future calculated profits of that FIF. |
| Calculated profit | The profit arising to a FIF in the FIF's notional accounting period as calculated under the FIF measures using the calculation method. The taxpayer's share of these profits is included in assessable income. |
| Calculation method | An alternative method, available at the taxpayer's election, to determine the amount to be included in a taxpayer's assessable income under the FIF measures. The amount is calculated by determining a taxpayer's share of a FIF's profits. A FIF's profits are calculated using rules similar (but simpler than) those that apply for a resident taxpayer (see Chapter 18). |
| Cash Surrender Value Method | Method of taxation applying to taxpayers who have an interest in a FLP. In general, the amount included in assessble income is calculated by measuring the increase, if any, in the cash surrender value of an interest in a FLP between the last day of the previous notional accounting period and the last day of the current notional accounting period, with an adjustment for acquisitions, disposals and distribution (see Chapter 19). |
| Closing market value | The market value of a FIF interest at the end of the FIF's statutory accounting period - see Chapter 16. |
| Controlled foreign company or CFC | A company that is not a resident of Australia and is controlled by five or fewer residents - see Part X of the Principal Act. |
| Controlled foreign trust or CFT | A controlled foreign trust is a non-resident trust in which resident individuals, partnerships, companies or trusts hold specified interests. The term includes a non-resident trust to which a resident person has transferred property or services in certain circumstances. The meaning of the term controlled foreign trust is set out in section 342 of the Principal Act. |
| Country fund exclusion | Investments through trusts in countries which prohibit direct investment on stock exchanges in those countries will be excluded from the FIF measures (see Chapter 9). |
| Deemed rate of return method | The backup method to determine the amount to be included in the taxpayer's assessable income under the FIF measures. The amount is calculated by applying a deemed rate of return to the value of the FIF or FLP interest (see Chapter 17 for FIFs and Chapter 19 for FLPs). |
| Direct investment | An investment to which the taxpayer has both beneficial and legal entitlement. |
| Exempting receipts | Exempting receipts of an unlisted country company are amounts received by that company that have either:
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| FIF | A Foreign Investment Fund (see Chapter 1). |
| FIF interest | An interest in a Foreign Investment Fund. |
| FIF loss | The market value or cash surrender value decrease of an interest in a FIF or FLP respectively for the notional accounting period of that FIF or FLP. |
| Foreign Investment Fund Amount | The foreign investment fund amount is the change in market value or cash surrender value of an interest in a FIF or FLP respectively - after taking into account acquisitions, disposals and distributions - generally between the end of one notional accounting period and the end of the next. |
| Foreign Life Policy (FLP) | A foreign life policy is a life assurance policy issued by a non-resident (see Chapter 19). |
| Foreign employer-sponsored superannuation exemption | An exemption from taxation under the FIF measures where a resident natural person's FIF interest is in an employer-sponsored foreign superannuation fund (see Chapter 12). |
| Foreign Tax Credit System (FTCS) | The Foreign Tax Credit System is the primary mechanism for relief from double taxation under the Principal Act (see Chapter 22). |
| Interest in a FIF | The total of all instruments in a company held by the taxpayer (such as a share, option, convertible note etc.) or by a trust (such as a unit, option to acquire a unit, a note convertible into a unit) - see Chapter 1. |
| Listed country | A listed country is a country that is treated as having a tax system that is generally comparable to Australia's. A list of these countries is contained in Schedule 10 of the Income Tax Regulations. |
| Market value method | The primary method to determine the amount to be included in the taxpayer's assessable income under the FIF measures. In general, the amount is calculated by measuring the increase, if any, in the market value of a FIF interest between the last day of the previous notional accounting period and the last day of the current notional accounting period with adjustment for acquisitions, disposals and distributions (see Chapter 16). |
| Non-portfolio interest | An interest of 10 per cent or more of the voting interests in a company. |
| Notional accounting period | The period by reference to which the FIF measures will apply. In general, this will be the same as the taxpayer's year of income. The taxpayer may elect that the notional accounting period coincide with the accounting period that the FIF uses for reporting to shareholders or beneficiaries (see Chapter 2). In relation to FLPs, the taxpayer may elect that the notional accounting period of the FLP coincide with the period for which cash surrender values are available (se Chapter 19). |
| Operative provision | The operative provision provides for the foreign investment fund income to be included in the taxpayer's assessable income for the taxpayer's year of income in which the notional accounting period of the FIF ends. The operative provision is found at section 529 of the Bill. |
| Portfolio interest | An interest of less than 10 per cent of the voting interests in a company. |
| Principal Act | the Principal Act is the Income Tax Assessment Act 1936 |
| Related foreign companies | Under section 160AFB, an Australian company is treated as related to any number of linked foreign companies provided that:
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| Small investor exemption | An exemption from taxation under the FIF measures where the taxpayer is a natural person who holds direct investments in foreign companies and trusts amounting to not more than $A50,000 in total (see Chapter 10). |
| Statutory accounting period | The statutory accounting period is used as the measurement period of the CFC measures. It is a period of 12 months, ending on 30 June, unless the foreign company has elected a 12 month period ending on another day (section 319 of the Principal Act). |
| Transferor trust | A non-resident trust to which a resident taxpayer has made, or is deemed to have made, a transfer of property or services under Division 6AAA of Part III the Principal Act. |
| Unlisted country | An unlisted country means a foreign country which is not a listed country. |