INCOME TAX ASSESSMENT ACT 1936

PART X - ATTRIBUTION OF INCOME IN RESPECT OF CONTROLLED FOREIGN COMPANIES  

Division 8 - Active income test  

Subdivision E - Passive income, tainted sales income and tainted services income  

SECTION 447   TAINTED SALES INCOME  

447(1)   [Amounts constituting tainted sales income]  

Subject to this Division, for the purposes of this Part, the following amounts are tainted sales income of a company of a statutory accounting period:


(a) income from the sale of goods by the company where all of the following conditions are satisfied:


(i) the goods were sold to the company by another entity;

(ii) either of the following sub-subparagraphs applies at the time of the sale of the goods to the company:

(A) the seller of the goods to the company was an associate of the company and a Part X Australian resident;

(B) the goods were sold to the company by an associate of the company who was not a Part X Australian resident, in the course of a business carried on by the associate at or through a permanent establishment of the associate in Australia;

(iii) if the goods were altered by the company - the income does not pass the substantial alteration test set out in subsection (4);


(b) income from the sale of goods by the company where all of the following conditions are satisfied:


(i) the goods were sold to the company by another entity;

(ii) either of the following sub-subparagraphs applies at the time of the purchase of the goods from the company:

(A) the purchaser of the goods from the company was an associate of the company and a Part X Australian resident;

(B) the purchaser of the goods from the company was an associate of the company who was not a Part X Australian resident and the purchase was made in the course of a business carried on by the purchaser at or through a permanent establishment of the purchaser in Australia;

(iii) if the goods were altered by the company - the income does not pass the substantial alteration test set out in subsection (4);


(c) income from the sale of goods (in this paragraph called the manufactured goods ) by the company where all of the following conditions are satisfied:


(i) the manufactured goods were manufactured by the company;

(ii) any of the raw materials or goods from which the manufactured goods were manufactured were sold to the company by another entity;

(iii) either of the following sub-subparagraphs applies at the time of the sale to the company of the raw materials or goods from which the manufactured goods were manufactured:

(A) the entity who sold to the company the raw materials or goods from which the manufactured goods were manufactured was an associate of the company and a Part X Australian resident;

(B) the raw materials or goods from which the manufactured goods were manufactured were sold to the company by an associate of the company who was not a Part X Australian resident, in the course of a business carried on by the associate at or through a permanent establishment of the associate in Australia;

(iv) the income does not pass the substantial manufacture test set out in subsection (4A);


(d) income from the sale of goods (in this paragraph called the manufactured goods ) by the company where all of the following conditions are satisfied:


(i) the manufactured goods were manufactured by the company;

(ii) any of the raw materials or goods from which the manufactured goods were manufactured were sold to the company by another entity;

(iii) either of the following sub-subparagraphs applies at the time of the purchase of the manufactured goods from the company:

(A) the purchaser of the manufactured goods from the company was an associate of the company and a Part X Australian resident;

(B) the purchaser of the manufactured goods from the company was an associate of the company who was not a Part X Australian resident and the purchase was made in the course of a business carried on by the purchaser at or through a permanent establishment of the purchaser in Australia;

(iv) the income does not pass the substantial manufacture test set out in subsection (4A);


(e) income from the sale of goods (in this paragraph called the primary production goods ) by the company where all of the following conditions are satisfied:


(i) the primary production goods were:

(A) primary products produced, raised or grown by the company; or

(B) goods manufactured by the company, in whole or in part, from primary products produced, raised or grown by the company;

(ii) any of the propagative material from which the primary products were produced, raised or grown was sold to the company by another entity;

(iii) either of the following sub-subparagraphs applies at the time of the sale to the company of the propagative material:

(A) the entity who sold the propagative material to the company was an associate of the company and a Part X Australian resident;

(B) the propagative material was sold to the company by an associate of the company who was not a Part X Australian resident, in the course of a business carried on by the associate at or through a permanent establishment of the associate in Australia;

(iv) the income does not pass the substantial production test set out in subsection (4B);


(f) income from the sale of goods (in this paragraph called the primary production goods ) by the company where all of the following conditions are satisfied:


(i) the primary production goods were:

(A) primary products produced, raised or grown by the company; or

(B) goods manufactured by the company, in whole or in part, from primary products produced, raised or grown by the company;

(ii) any of the propagative material from which the primary products were produced, raised or grown was sold to the company by another entity;

(iii) either of the following sub-subparagraphs applies at the time of the purchase of the primary production goods from the company:

(A) the purchaser of the primary production goods from the company was an associate of the company and a Part X Australian resident;

(B) the purchaser of the primary production goods from the company was an associate of the company who was not a Part X Australian resident and the purchase was made in the course of a business carried on by the purchaser at or through a permanent establishment of the purchaser in Australia;

(iv) the income does not pass the substantial production test set out in subsection (4B).

447(2)   [Excluded sales income]  

Where:


(a) a company provides any of the following services:


(i) drinks and meals;

(ii) accommodation in a hotel, motel, guest-house or similar place;

(iii) the provision of, or the use of facilities for, entertainment, recreation or instruction; and


(b) if subparagraph (a)(ii) or (iii) applies - the transaction for the provision of the services includes the sale of goods of a kind that are commonly supplied in connection with the services concerned;

the tainted sales income of the company does not include income from the sale of:


(c) if subparagraph (a)(i) applies - the drink or food concerned; or


(d) if subparagraph (a)(ii) or (iii) applies - the goods referred to in paragraph (b).

447(3)   [Passive income]  

The tainted sales income of a company of a statutory accounting period does not include passive income of the company of the statutory accounting period.

447(4)   [Substantial alteration test]  

For the purposes of this section, income from the sale of goods by a company passes the substantial alteration test if:


(a) the company substantially altered the goods; and


(b) a substantial part of that alteration was carried out by the directors or employees of the company.

447(4A)   [Substantial manufacture test]  

For the purposes of this section, income from the sale of goods by a company passes the substantial manufacture test if a substantial part of the manufacture of the goods was carried out by the directors or employees of the company.

447(4B)   [Substantial production test]  

For the purposes of this section, income from the sale of goods by a company passes the substantial production test if:


(a) if the goods are primary products - a substantial part of the production, raising or growing of the goods was carried out by the directors or employees of the company; or


(b) if the goods are manufactured by the company, in whole or in part, from primary products produced, raised or grown by the company - a substantial part of:


(i) the manufacture of the goods; and

(ii) those production, raising or growing activities;
was carried out by the directors or employees of the company.

447(4C)   [Effect on market value]  

For the purposes of subsections (4), (4A) and (4B), the effect of an activity on the market value of the goods concerned is to be ignored.

447(5)   [2 or more entities acting jointly]  

If, apart from this subsection, goods are purchased or sold by 2 or more entities acting jointly, subsection (1) is to be applied successively as if each such entity were the sole purchaser or seller, as the case may be.

447(6)   [Definitions]  

In this section:

animals
includes fish;

primary products
means:


(a) agricultural or horticultural produce; or


(b) trees or crops, whether on or attached to land or not; or


(c) timber; or


(d) animals (whether dead or alive); or


(e) the bodily produce (including natural increase) of animals.


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