Foreign trust FIF interests

Where an attributable taxpayer with a foreign trust FIF interest includes an amount in their assessable income under section 529, they can treat foreign income tax as having been paid by them on their attributed income if the following conditions are met:

• the section 529 amount is worked out under the calculation method, and
• foreign income tax, income tax or withholding tax has been paid by the foreign trust FIF on part or all of their notional income for the relevant notional accounting period.

If the relevant conditions are met, the foreign income tax they are deemed to have paid is worked out using the same formula as for a foreign company FIF interest.

Example

AB Co has a 30% interest in CD unit trust, a foreign trust FIF. AB Co works out its attributed income under section 529 using the calculation method. CD unit trust's calculated profit or notional income for the relevant notional accounting period is $2 million, after a notional deduction of $200,000 is allowed for foreign income tax actually paid by CD unit trust on its notional income. AB Co includes an amount of $600,000 in its assessable income under section 529, being the notional income of CD unit trust, multiplied by AB Co's attribution percentage of 30%.

AB Co meets the conditions for the tax-paid deeming rules to apply in relation to its interest in CD unit trust, a foreign trust FIF, in that:

The foreign income tax that AB Co is deemed to have paid on its attributed income is worked out by multiplying $200,000, the tax actually paid by CD unit trust, by AB Co's share of CD unit trust's calculated profit (as worked out using the calculation method), divided by CD unit trust's calculated profit of $2 million. As AB Co's share of the calculated profit of CD unit trust, worked out under the calculation method, is 30%, the amount of foreign income tax that it is taken to have paid is $200,000 multiplied by 30% (that is, $60,000). AB Co must also gross-up its assessable income by the $60,000 of foreign income tax that it is deemed to have paid.

Tax paid deeming rules apply only in respect of first-tier FIF interests

The tax-paid deeming rules only apply to attributable taxpayers in respect of first-tier FIF interests. Where an attributable taxpayer has an interest in a FIF that in turn has an interest in another FIF, or an attributable taxpayer has an interest in a CFC that in turn has a FIF interest, the tax paid by the second-tier FIF does not come within the scope of the tax-paid deeming rules that apply to attributable taxpayers.

Specifically, this is because the tax-paid condition only applies to foreign income tax actually paid by the first-tier FIF or CFC, not any foreign income tax paid by the second tier FIF. This is the case even though the notional income of the first tier FIF or CFC may include an amount in its notional income or notional assessable income that relates to its interest in the second tier FIF and the attributable taxpayer in turn includes the relevant attributed income amount that relates to the second tier FIF interest in its assessable income under sections 529 or 456.

Example

A Co has a 100% interest in a CFC, which in turns holds a 30% interest in a FIF. In working out the CFC's attributed income, $1 million is included in its notional assessable income for income attributable to its FIF interest, worked out under the calculation method. Foreign income tax of $100,000 is paid by the FIF but the CFC pays no foreign income tax.

As A Co is the attributable taxpayer in relation to the CFC and an amount is included in its assessable income under section 456, it is only the tax paid by the CFC on its notional assessable income for the statutory accounting period that A Co is deemed to have paid. As the foreign income tax of $100,000 is paid by the FIF, none of it is deemed to have been paid by A Co.