Introduction
Part 8 of the Income Tax Assessment (1936 Act) Regulation 2015, and associated schedules, deal with the taxation of foreign source income. The provisions:
- declare those countries that are to be treated as listed, unlisted countries
- contain rules for determining whether an amount is designated concession income
- specify when the capital gains are taken to have been subject to tax for the purpose of the controlled foreign company (CFC) measures, the transferor trust measures, and the non-assessable non-exempt treatment of foreign branches of Australian companies
- set out the accruals taxation laws of other countries that are recognised for the purpose of providing relief from double accruals taxation, and
- provide that Swiss cantonal taxes are treated as if they were federal taxes.
Listed countries
Regulation 19 of the Income Tax Assessment (1936 Act) Regulation 2015 specifies the countries that are listed countries. This list is reproduced in attachment A.
Designated concession income
Normally, amounts derived in a listed country are exempt from accruals taxation. This exemption does not apply to amounts of eligible designated concession income. Broadly, an amount may be designated concession income if it is concessionally taxed in a listed country.
What kinds of income or profits are specified as designated concession income?
Income or profits are designated concession income only if:
- they are of a kind specified in the Income Tax Assessment (1936 Act) Regulation 2015 in relation to a particular listed country, and
- they are derived by an entity that is of a type specified in the Income Tax Assessment (1936 Act) Regulation 2015.
The full list of designated concession income has been reproduced in attachment B.
Capital gains deemed subject to tax
Capital gains are defined (except for the purposes of regulation 20 of the Income Tax Assessment (1936 Act) Regulation 2015 as gains or profits of a capital nature that arise from the sale or disposal of all or part of a capital gains tax (CGT) asset, other than gains or profits that would not be capital gains but for a provision of Australian tax law.
Regulation 20 provides that a capital gain (defined as gains or profits or other amounts of a capital nature) will be taken to be subject to tax in a listed country where the gain would have been subject to tax except for the operation of a rollover relief provision of a kind specified in the Income Tax Assessment (1936 Act) Regulation 2015 contained in the tax law of that country. Broadly, the types of rollover relief reflect the types of rollover relief provisions available for capital gains tax purposes under Australian tax law.
Attachment A
Listed countries
- Canada
- France
- Germany
- Japan
- New Zealand
- United Kingdom
- United States of America
Attachment B
Country |
Entity |
Kind of income or profit |
Feature of income or profit under tax law of the country |
|---|---|---|---|
Canada |
An entity that operates in Canada as an international banking centre under Canadian law |
All passive income and tainted services income |
Not subject to tax in Canada in a tax accounting period |
Canada |
A company that operates in Canada as an investment corporation, or as a mutual fund corporation, under Canadian tax law |
All passive income |
Not taxed in Canada at the normal company tax rate |
France |
A company that operates in France as a société d'investissement à capital variable (SICAV) under French law |
All passive income |
Not subject to tax in France in a tax accounting period |
France |
A company that is treated as a resident of France for the purposes of the tax law of France, and that has elected to be taxed on a tonnage basis rather than on income or profits |
All income or profits |
Not used as the basis for establishing the amount of taxable income, taxable profits, tax base or tax liability of the entity under the tax law of France |
Germany |
A company that is treated as a resident of Germany for the purposes of the tax law of Germany |
All passive income in carrying on business outside Germany at or through a permanent establishment |
Not subject to tax in Germany in a tax accounting period |
Germany |
Either: (a) a company that is treated as a resident of Germany for the purposes of the tax law of Germany, or (b) any company in carrying on business in Germany at or through a permanent establishment of the company in Germany |
Capital gains in respect of shares in companies |
Not taxed in Germany at the normal company tax rate |
Germany |
A company that is treated as a resident of Germany for the purposes of the tax law of Germany, and that has elected to be taxed on a tonnage basis rather than on income or profits |
All income or profits |
Not used as the basis for establishing the amount of taxable income, taxable profits, tax base or tax liability of the entity under the tax law of Germany |
Japan |
An entity in carrying on business in Japan at or through a permanent establishment of the entity in that country |
All income or profits derived from Japanese governmental bonds |
Not subject to tax in Japan in a tax accounting period |
New Zealand |
Either: (a) a company that is treated as a resident of New Zealand for the purposes of the tax law of New Zealand, or (b) any entity in carrying on business in New Zealand at or through a permanent establishment of the entity in New Zealand |
Capital gains in respect of tainted assets |
Not subject to tax in New Zealand in a tax accounting period |
United Kingdom |
A company that is treated as a resident of the United Kingdom for the purposes of the tax law of the United Kingdom |
Capital gains in respect of shares in companies where: (a) the CGT assets of the companies, or (b) the underlying CGT assets of the companies held through one of more non-resident entities that are associates include CGT assets having the necessary connection with Australia |
Not subject to tax in the United Kingdom in a tax accounting period as a consequence of the substantial shareholding exemption available under the tax law of the United Kingdom |
United Kingdom |
A company that is treated as a resident of the United Kingdom for the purposes of the tax law of the United Kingdom, and that has elected to be taxed on a tonnage basis rather than on income or profits |
All income or profits |
Not used as the basis for establishing the amount of taxable income, taxable profits, tax base or tax liability of the entity under the tax law of the United Kingdom |
United Kingdom |
An entity that operates in the United Kingdom as an open-ended investment company under the law of the United Kingdom |
All passive income |
Not taxed in the United Kingdom at the normal company tax rate |
United States of America |
Either: (a) a company that is treated as a resident of the United States of America for the purposes of the tax law of the United States, or (b) any entity in carrying on business in the United States of America at or through a permanent establishment of the entity in that country |
All income or profits derived from tax-exempt governmental bonds |
Not subject to tax in the United States of America in a tax accounting period |
United States of America |
An entity that operates in the United States of America as a regulated investment company under the tax law of the United States of America |
All passive income |
Not taxed in the United States of America at the normal company tax rate |