The foreign investment fund (FIF) measures have a number of mechanisms to prevent double taxation of a FIF's profits.
Reduction of FIF income for distributed profits
The amount of FIF income for a notional accounting period of the FIF or FLP that you are to include in your assessable income for an income year is reduced by amounts of income that a FIF or FLP distributes to you during that notional accounting period - for example, an interim dividend.
You reduce the FIF income to be included in your assessable income by the amount that was distributed to you by the FIF or the FLP to the extent it was:
- included in your assessable income (such as interest or a dividend)
- included in your assessable income in the income year immediately preceding the year in which the FIF or FLP income is assessed
- a non-assessable non-exempt non-portfolio dividend paid to an Australian resident company [section 23AJ], or
- notional exempt income of a CFC under section 23AJ or section 404. [section 530]
The Foreign income return form guide has more information about exempt income of a CFC.
The amount of the reduction of FIF income that is available cannot be more than the amount you would otherwise have included in your assessable income for the current income year for that particular FIF or FLP. [section 529 and subsection 530(1)]
Example: Market value method
Fiona had an interest in a FIF at the end of her income year (30 June) and her interest was not exempt from the FIF measures. She used the market value method to decide the amount to include in her assessable income under the FIF measures for the notional accounting period 1 July to 30 June. The FIF income worked out under that method was A$20,000.
On 25 June, the FIF paid her an assessable dividend of A$10,000.
Normally, Fiona's FIF income would be A$20,000. However, because of subsection 530(1), her FIF income is reduced by the amount of the assessable dividend - that is, from A$20,000 to A$10,000.
End of exampleExample: Cash surrender value method
At the end of his income year, Ken held a FLP that was subject to the FIF measures.
He elected to use the cash surrender value method to calculate the amount to include in his assessable income under the measures.
He also elected to use a notional accounting period of 1 January to 31 December, as this was when the cash surrender value was available. The FIF income worked out under this method for the notional accounting period 1 January 2005 to 31 December 2005 was A$15,000.
The entity which issued the FLP made a payment of A$5,000 on 10 January 2005. Ken included this payment in his assessable income in 2004-05.
Normally, his FIF income for 2005-06 would be A$15,000. However, because of subsection 530(1), he can reduce his FIF income by the payment made and assessed in the previous income year that related to his 2005-06 FIF income. Therefore, Ken's FIF income for 2005-06 will be reduced from A$15,000 to A$10,000 because the A$5,000 was assessed in 2004-05.
End of example