Revised Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 3 Prescribed dual residents
Outline of chapter
3.1 Schedule 3 to this bill amends the ITAA 1936 to make corrections to the intercorporate dividend rebate provisions so that:
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- the intercorporate dividend rebate is not available in respect of any unfranked dividends paid to or by a dual resident company, including dividends paid within a wholly-owned group; and
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- the deduction allowed to certain non-resident owned companies to offset the removal of the rebate is not available in respect of unfranked dividends paid to or by a dual resident company.
Context of amendments
3.2 A drafting error in amendments made last year to deny the intercorporate dividend rebate to unfranked dividends paid to all companies, other than those paid to resident companies within a wholly-owned company group, inadvertently extended the rebate to unfranked dividends paid to or by dual resident companies within wholly-owned groups on or after 1 July 2000. Before these amendments, dual resident companies were denied the rebate for unfranked dividends in all circumstances.
3.3 Also, a deduction allowed to certain non-resident owned companies to offset the removal of the rebate from 1 July 2000 was inadvertently made available in respect of unfranked dividends paid to or by a dual resident company.
3.4 The explanatory memorandum to the New Business Tax System (Miscellaneous) Act (No. 1) 2000 , which contains the relevant amendments, explicitly stated in paragraphs 1.2 and 1.17 that there would be no change to the tax treatment of dividends paid to or by dual resident companies.
3.5 A dual resident company is a company that is a resident of both Australia and another country for income tax purposes that:
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- is treated in effect as a non-resident of Australia for the purposes of a double taxation treaty; or
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- qualifies as a resident of Australia solely under the central management and control test in subsection 6(1) of the ITAA 1936, but also has central management and control outside Australia.
Summary of new law
3.6 The intercorporate dividend rebate will not be available in respect of any unfranked dividends paid to or by a dual resident company, including dividends paid within a wholly-owned group. Nor will a related deduction allowed to certain non-resident owned companies under section 46FA be available in respect of unfranked dividends paid to or by a dual resident company.
Detailed explanation of new law
3.7 Subsection 46F(2) denies the intercorporate dividend rebate for unfranked dividends received by most resident companies. However, subsection 46F(3) preserves the rebate for unfranked dividends paid within wholly-owned groups by providing that subsection 46F(2) does not apply in respect of such dividends.
3.8Subsection 46F(3A) excludes unfranked dividends paid to or by a dual resident company within a wholly-owned group from the operation of subsection 46F(3). Consequently, all unfranked dividends paid to or by a dual resident company will be denied the rebate under subsection 46F(2). [Schedule 3, item 2, subsection 46F(3A)]
3.9 Section 46FA provides a deduction for a resident company that receives an unfranked non-portfolio dividend and on-pays the dividend to the companys non-resident parent. Paragraph 46FA(1)(ba) will ensure that the deduction is not available in respect of dividends that are paid to or by a dual resident company. [Schedule 3, item 3, paragraph 46FA(1)(ba)]
Application and transitional provisions
3.10 These amendments will apply to dividends paid on or after 1 July 2000. These are the dividends in relation to which the rebate and deduction would otherwise be allowed unintentionally because of a drafting error. [Schedule 3, item 4]