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Foreign income – items 22 to 24

Instructions to complete items 22 to 24 in the partnership tax return relating to foreign income.

Last updated 19 July 2023

22. Attributed foreign income

For more information on calculating the amounts shown at label M and X, see the Foreign income return form guide 2023.

Where a return is required because the partnership had a period in the income year when it was not a member of a consolidated group or MEC group (a non-membership period), the partnership should complete an International dealings schedule 2023 where it has derived foreign income attributable to any non-membership period.

Complete in this item:

Attributed foreign income

Did you have overseas branch operations or a direct or indirect interest in a foreign trust, foreign company, controlled foreign entity or transferor trust?

Overseas branch operations include:

  • business operations carried on by an Australian resident entity at or through a fixed place of business in another country
  • business operations carried on by a foreign resident entity at or through a fixed place of business in Australia.

Direct or indirect interests in a controlled foreign company or a foreign trust are taken to have the same meaning as set out in Division 3 of Part X of the ITAA 1936.

A partnership has an interest in a transferor trust if the partnership has ever made, or caused to be made, a transfer of property or services to a non-resident trust. Transfer of property and services is defined in section 102AAB of the ITAA 1936.

Sections 102AAJ and 102AAK of the ITAA 1936 provide guidance on whether there was a transfer, or a deemed transfer, of property or services to a non-resident trust.

Listed country

Show at label M the amount of gross attributed foreign income from controlled foreign entities and transferor trusts of listed countries. Listed countries are set out in Regulation 19 of the Income Tax Assessment (1936 Act) Regulation 2015.

Attributed foreign income is the income attributed to the taxpayer from controlled foreign entities, calculated in accordance with Division 7 of Part X of the ITAA 1936, and includes an amount grossed-up under section 392 of the ITAA 1936, to the extent of any foreign taxes paid.

Show at label M the amount of income attributed from a transferor trust that is a listed country trust estate, calculated in accordance with Subdivision D of Division 6AAA of the ITAA 1936.

A listed country trust estate is defined in section 102AAE of the ITAA 1936.

Unlisted country

Show at label X the amount of attributed foreign income from controlled foreign entities in unlisted countries. Unlisted countries are countries that are not listed in Regulation 19 of the Income Tax Assessment (1936 Act) Regulation 2015.

Show at label X the amount of income attributed from a transferor trust if the amount has not been shown at label M.

Small business income tax offset

If the partnership is a small business entity and has attributed net business income, any individual partners may be entitled to the small business income tax offset.

Refer to the instructions for item 5 Business income and expenses and complete Worksheet 1A.

The individual partners will need to know their share of net small business income from the partnership to work out their entitlement to the small business income tax offset.

23. Other assessable foreign source income

If the partnership received assessable dividends directly or indirectly from a New Zealand franking company, the dividends (including any supplementary dividends) must be declared as assessable foreign income even if dividend withholding tax was deducted in New Zealand. The individual partners may be able to claim a foreign income tax offset for any New Zealand dividend withholding tax paid on the dividend.

If the dividend from a New Zealand franking company is assessable income, then the amount of the Australian franking credit attached to the dividend is also assessable income if the partnership is eligible to receive imputation benefits. Subject to the holding period rule and related payments rule, the partners can claim a franking tax offset equal to the amount of the Australian franking credit included in its assessable income. For more information, see Appendix 1.

The dividend may include an amount of New Zealand imputation credits. Australian residents can't claim any amounts of New Zealand imputation credits.

All dividend income, deductions and foreign tax paid must be converted into Australian dollars. The amount of Australian franking credits should also be expressed in Australian dollars.

Income tests require each partner to report their share of the partnership rental property income or loss. If you have included foreign rental income at item 23, include it in your net rental property income or loss at label H and complete your share of net rental property income or loss at item 54 – label K. For more information, see 53. Income tests.

Complete it this item:

Gross foreign source income

Show at label B the gross amount of assessable income derived from foreign sources, including amounts distributed from partnerships and other trusts as well as New Zealand franking company dividends and supplementary dividends. Include any foreign tax withheld or paid at source on that income.

Do not include at label B:

  • any income which is exempt from tax in Australia or treated as non-assessable non-exempt income under sections 23AI and 23AK of the ITAA 1936
  • any amount of New Zealand imputation credits
  • any amount of Australian franking credits attached to dividends from a New Zealand franking company, show these at label D
  • income already shown at item 22 Attributed foreign income
  • any capital gains or capital losses.

Each partner must include their share of any capital gains or capital losses on their own tax return.

If the TOFA rules apply to the partnership, include 'gross foreign source income' from financial arrangements subject to the TOFA rules at label B.

Net foreign source income

Show at label V the net income derived from foreign sources.

The amount at label V is the gross amount shown at label B, minus any deductions allowable to the partnership against that income. Debt deductions (such as interest and borrowing costs) that relate to assessable foreign source income and that are not attributable to an overseas permanent establishment of the taxpayer should not be applied against assessable foreign source income at this item. Include them at item 18 Other deductions.

If the amount at label V is negative, print L in the box at the right of the amount.

If the amount you show at label V includes foreign source business income, see Small business income tax offset.

If the TOFA rules apply to the partnership, include 'net foreign source income' from financial arrangements subject to the TOFA rules at label B.

Current year foreign losses

Foreign losses can be deducted in calculating the partnership's net income or loss under section 90 of the ITAA 1936. This has the effect of either decreasing the partnership's net income (and the amount available to be allocated to each partner according to their interest) or increasing the amount of the partnership loss (and the amount of the loss allocated to each partner according to their interest).

Foreign income tax offset

Show at label Z the amount of any foreign income tax paid by the partnership on foreign source income.

If foreign income tax has actually been paid by the partnership, then the partners may be able to claim a foreign income tax offset in their individual income tax returns if they meet the necessary conditions.

Start of example

Example 10: Foreign income tax offset

A partnership of 2 Australian partners with equal interests in all income of the partnership derives net income of $1,000 on which it pays $100 of foreign income tax. The partners each include $500 in their assessable income, being their share of the net income of the partnership. They will both be entitled to a tax offset to the extent that foreign income tax is paid on the amount that is part of their assessable income. The foreign income tax paid is apportioned according to each partner’s share of the net income of the partnership included in their assessable income. Therefore, the amount of foreign tax that counts towards the offset for each partner is $50, as this is the proportionate amount of foreign income tax they are taken to have paid on the amount included in their assessable income, that is, (500 ÷ 1,000) × $100. The amount of foreign income tax offset that each partner can claim is subject to the foreign income tax offset limit calculated under subsection 770-75(2) of the ITAA 1997.

For more information, see the Guide to foreign income tax offset rules 2023.

End of example

Australian franking credits from a New Zealand franking company

Show at label D the amount of Australian franking credits that are included in the net income of the partnership because of franked dividends received from a New Zealand franking company directly, or indirectly through another partnership or trust.

The amount shown at label D is not necessarily the total amount that each partner can claim; see Appendix 1.

Small business income tax offset

If any part of the amount at label V is net business income from a small business entity, any individual partners may be entitled to the small business income tax offset.

Refer to the instructions for item 5 Business income and expenses and complete Worksheet 1A.

The individual partners will need to know their share of net small business income from the partnership to work out their entitlement to the small business income tax offset.

24 Total of items 20 to 23

Show at item 24 the total of the amounts shown at items 20 to 23.

If this amount is a net loss, print L in the box at the right of the amount. Do not include prior year Australian or foreign source losses here.

Continue to: Overseas transactions or thin capitalisation – items 29 to 30

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