Foreign investment funds guide (current to 30 June 2010)

• This document has changed over time. View its history.

Chapter 6: Avoiding double taxation

This document has been archived. It is current only to 30 June 2010.

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.

Example: 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.

Reduction of FIF income for FIF interests acquired under an employee share scheme

Overview

The FIF measures include rules that prevent double taxation by reducing FIF income by the amount which will be taxed under the employee share scheme arrangements. [section 530A]

Are you entitled to a reduction of FIF income?

You may be entitled to a reduction of FIF income if you acquired a share or right in a FIF under an employee share scheme.

Under the employee share scheme arrangements, you must normally include in your assessable income a discount you received on a share or right issued under an employee share acquisition scheme. You cannot reduce your FIF income if you included the discount in your assessable income at the time the share or right was issued.

However, sometimes you can defer the taxation of a discount on a share or right until a later time. In these cases, you can reduce your FIF income by the amount of unrealised gains on a share or right that accrues before the discount becomes assessable.

To work out the reduction of FIF income, you need to work out whether the discount on a share or right has become assessable. If the discount is not assessable until after the end of a notional accounting period of a FIF, then to the extent that your FIF income relates to the share or right that income is zero. [subsection 530A(2)]

If the discount became assessable during the notional accounting period, your FIF income is reduced only by the increase in the market value of the share or right from the beginning of the period until the time the discount became assessable. [subsection 530A(3)] You cannot reduce your FIF income if the discount was assessable before the beginning of a notional accounting period. Work out the market value of a share or right on a particular day using the rules provided in the employee share scheme arrangements.

For further information on the rules, phone the Individual Infoline on 13   28   61 .

Using the worksheets to work out FIF income

Record the reduction of FIF income in the relevant worksheet at the label dealing with a reduction for distributions of the type to which subsection 530(1) applies. If you have already shown an amount at the label referred to, add the amount of the reduction you can claim to that amount.

Use Worksheet 1 , part 3, box J - if you are using the market value method .

Use Worksheet 2 , part 4, box G - if you are using the deemed rate of return method .

Use Worksheet 3 , part 6, box L - if you are using the calculation method .

Use Worksheet 4 , part 4, box G - if you are using the deemed rate of return method for FLPs.

Use Worksheet 5 , part 3, box L - if you are using the cash surrender value method for FLPs.

Attribution accounts

Overview

FIF attribution accounts record the income attributed or distributed to you from each of your interests in a FIF or a FLP. They allow you to claim exemptions for FIF income previously attributed to you. Therefore, they operate to prevent double taxation where, after being subject to FIF taxation under the FIF measures, you later:

• receive a distribution of income or gains from a FIF or a FLP [section 23AK]
• dispose of the interest in a FIF or a FLP [section 613]
• use a FIF loss to reduce assessable income [sections 532 and 533], or
• transfer your interest in a foreign non-complying superannuation fund to a complying Australian superannuation fund and choose to have the assessable component of the transferred amount treated as assessable income of the complying superannuation fund. [section 533B]

Keep records of:

• income attributed to you from a FIF or a FLP
• income distributed to you by a FIF or a FLP either directly or through interposed FIF attribution account entities - defined below under Terminology
• the amount of any reduction of consideration you can claim on disposal of an interest in the FIF or FLP, and
• the amount of any deduction from assessable income you claim because of a FIF loss.

Attribution accounts operate on the simple basis of credits and debits.

In the FIF measures:

• a credit is referred to as a FIF attribution credit
• a debit is referred to as a FIF attribution debit.

Where the amount of FIF attribution credits in an attribution account exceeds the amount of FIF attribution debits, the excess is referred to as a FIF attribution surplus. This section explains these concepts and the way in which double taxation is avoided.

Attribution accounts enable you to keep track of amounts attributed to you under the FIF measures and amounts distributed to you from the FIF or FLP out of those attributed amounts. You must maintain attribution accounts if you wish to prevent double taxation under the FIF measures.

Terminology

To help you to understand how FIF attribution accounts operate, the terms are explained below. You must keep attribution accounts for each FIF or FLP interest that you hold directly or indirectly.

FIF attribution account entity

A FIF attribution account entity is:

• a company that is not a resident of Australia
• a partnership
• a trust, or
• a FLP.

[section 601]

FIF attribution account payments

A FIF attribution account payment occurs when a FIF in which you have an interest makes a payment to you or to another FIF in which you also have an interest.

FIF attribution account payments include:

• a dividend paid by a company to a shareholder
• an amount of interest paid to the holder of a convertible note
• a partner's share of the net income of a partnership for the income year
• a beneficiary's share of the net income of a trust estate for the income year
• an amount included in the assessable income of a beneficiary under section 99B of the ITAA 1936 during the income year for a distribution made by a trust estate
• an amount of net income of a trust estate on which the trustee would be assessable under section 99 or 99A of the ITAA 1936
• a payment made by the entity which issued a FLP to a person who has an interest in the FLP
• superannuation, termination of employment and similar payments included in your assessable income under Division 82, 301, 302, 304 or 305 of the ITAA 1997 or Division 82 of the Income Tax (Transitional Provisions) Act 1997 . [section 603]

FIF attribution surplus

The surplus in a FIF attribution account at the time a FIF attribution account payment is made is the amount by which the total FIF attribution credits are more than the total FIF attribution debits. [section 604]

Where an attribution account has an attribution surplus, it generally means that a greater amount of income from a FIF has accrued to you than has been distributed to you.

FIF attribution credit

Your FIF will have a FIF attribution credit recorded in its attribution account in one of two ways:

1. Your FIF will have a FIF attribution credit recorded in its attribution account if an amount of FIF income is included in your assessable income under the FIF measures under section 529 of the ITAA 1936. In this case, the attribution credit arises at the end of the relevant notional accounting period. [subsection 605(1), paragraphs 605(7)(a), (b) and (c)]
   
    
2. A FIF attribution credit will also occur where you maintain attribution accounts for two FIFs and one FIF makes a distribution - that is, an attribution account payment - to the second FIF.

You should record a FIF attribution credit for the FIF receiving the distribution or other attribution account payment in its attribution account. The FIF making the distribution or other attribution account payment will have recorded a FIF attribution debit in its attribution account. In this case, the FIF attribution credit is recorded at the time the FIF makes the distribution or other attribution account payment. [paragraphs 605(1)(d) and 605(7)(d)]

In either case, the amount of the FIF attribution credit is equal to the amount included in your assessable income or the amount of the FIF attribution debit which arises for the FIF attribution account entity making the distribution. [subsection 605(2)]

FIF attribution debit

You will record a FIF attribution debit when the FIF in which you have an interest makes a distribution to you. FIF attribution debits trace the movements of profits included in your assessable income under the FIF measures and prevent that income, where it has been attributed to you, from being taxed again.

You will have recorded a FIF attribution debit for a FIF attribution account entity where:

• the entity makes a FIF attribution account payment to you or to a FIF attribution account entity in which you have an interest, and
• immediately before the payment is made, the entity making the FIF attribution account payment has a FIF attribution surplus in relation to you. [subsection 606(1)]

The FIF attribution debit arises when the FIF attribution account payment is made. [subsection 606(3)]

The amount of the FIF attribution debit is the lesser of the FIF attribution surplus and:

• if the FIF attribution account payment was made to you, the FIF attribution account payment
• in any other case, your FIF attribution account percentage for the FIF that receives the FIF attribution account payment. [subsection 606(2)]

The FIF attribution debit may be reduced if a first tier FIF was previously a CFC under Part   X of the ITAA 1936. The current FIF attribution debit may be reduced only where an attribution debit under the CFC measures was recorded for the entity when it was a CFC. The reduction for the current FIF attribution credit is equal to the CFC attribution credit recorded when the FIF was a CFC. This allows the FIF attribution credit to be deferred until the attribution surplus for the CFC is used.

In addition, a FIF attribution debit also arises where the whole or part of an unapplied FIF loss for a notional accounting period is an allowable deduction from your assessable income. In this case the amount of the FIF attribution debit is the amount of the deduction and the debit arises at the end of the notional accounting period of the FIF. The debit is only allowed for an unapplied FIF loss worked out under:

• the market value method, for a FIF (company or trust), or
• the cash surrender value method, for a FLP. [section 607]

A FIF attribution debit can also arise on the assessable component of an interest you transfer from a foreign non-complying superannuation fund (the FIF) to a complying Australian superannuation fund. This occurs where you have previously been subject to FIF taxation on your interest in the FIF and you choose to have the assessable component of the transferred amount (otherwise assessable to you under section 305-70 of the ITAA 1997) treated as assessable income of the Australian superannuation fund. The amount of the attribution debit is the lesser of the attribution surplus of the FIF or the assessable component of the transferred amount that you chose to be treated as assessable income of the Australian superannuation fund. [section 607AA]

FIF attribution account percentage

Your FIF attribution account percentage in relation to a FIF attribution account entity is the interest you hold, directly or indirectly through one or more interposed FIF attribution account entities, in the income or profits of the entity. [section 602]

FIF attribution credit to an Australian partnership or trust or where a FIF has an interest in another FIF

Special rules apply for determining the amount of the FIF attribution credit which arises where:

• you hold an interest in a FIF or FLP through an Australian partnership or Australian trust, or
• you use the calculation method to decide the foreign investment fund income of a FIF which has an interest in another FIF or FLP.

Interest held through interposed partnership or trust

If the FIF attribution account payment is to an Australian partnership or an Australian trust, a FIF attribution credit does not arise for the partnership or trust. Instead, it arises for the person paying tax - that is, the partner, the beneficiary or the trustee. [subsection 605(8)]

Where there are multiple trusts or a chain of partnerships and trusts, the credit arises for the person who ultimately pays the tax. [subparagraph 605(9)(a)(ii)]

This is achieved by using a tax detriment. A tax detriment is the effect on the assessable income of a person as a result of the inclusion of an amount in the net income of an Australian partnership or an Australian trust.

The tax detriment is the increase in assessable income or reduction of allowable deductions, or the sum of an increase or reduction, of the partner, beneficiary or trustee. [section 478]

Where there is such a tax detriment, a FIF attribution credit arises equal to the amount of the tax detriment. The credit is in relation to the partner, beneficiary or trustee who suffered the tax detriment and it will arise at the same time that the credit would have arisen to the partnership or trust. [subsection 605(8)]

The rules outlined above relating to attribution for interests held through interposed partnerships and trusts do not apply to:

• a corporate unit trust within the meaning of Division 6B of Part   III of the ITAA 1936
• a public trading trust (see Division 6C of Part III)
• a complying superannuation fund, a non-complying superannuation fund, a complying approved deposit fund, a non-complying approved deposit fund or a pooled superannuation trust, or
• a resident public unit trust within the meaning of subsection 96A(4) of the ITAA 1936.

For these entities the attribution credit attaches to the trust and does not flow through to the beneficiary of the trust. Instead, the trustee receives the FIF attribution credit. [subsection 605(11)]

FIF attribution credit for FIF income where a FIF has an interest in another FIF -diagram 1

Under the calculation method, an interest held by a FIF - the interposed FIF (FIF1 in diagram   1 ) - in another FIF or FLP (FIF2 in diagram   1 ) is taken into account when working out the notional income of the interposed FIF.

A FIF attribution credit may be recorded in the attribution accounts you keep for an interposed FIF because an amount of FIF income is included in your assessable income under section 529 of the ITAA 1936. If the credit arises as a result of FIF1's interest in FIF2, the credit will be made to the FIF attribution account of FIF2. The credit will arise at the end of the notional accounting period of FIF2. [paragraph 605(1)(b), subsection 605(3) and paragraph 605(7)(b)]

The formula below is used to work out the amount of the FIF attribution credit which will arise for FIF2. It also works out how much of the FIF income included in a resident taxpayer's assessable income comes from FIF2. [subsections 605(1) and (3)]

FIF2 attribution credit

=

FIF income x section 529 amount notional income

FIF income is the amount of the foreign investment fund income of FIF1 which came from FIF2 - see diagram   1 below.

Section 529 amount is the amount included in your assessable income under section 529 of the FIF measures in relation to FIF1. See diagram   1 below.

Notional income is the notional income of FIF1, including its income from FIF2.

You must apply the above formula to each FIF or FLP in which FIF1 has an interest. You must also reduce the FIF attribution credit which would otherwise arise for FIF1. Reduce FIF1 attribution credit by the sum of the amounts of the FIF attribution credits worked out under the formula for FIF2. [subsections 605(1), (3) and (5)]

Diagram 1: Flow of income where a FIF has an interest in another FIF

FIFs held by a second tier FIF - diagram 2

If you use the calculation method to work out the attributable income of the second tier FIF (FIF2 in diagram   2 ), you must maintain separate FIF attribution accounts for each FIF or FLP that you hold through a second tier FIF.

Use these accounts to prevent double taxation by allocating the FIF income that you included in your assessable income to the different FIFs or FLPs in the chain of FIFs and FLPs.

Use the following formula to work out the amount of the FIF attribution credit which will arise for the third- tier FIF eligible entity (FIF3). [paragraph 605(1)(c) and subsection 605(4)]

FIF3 attribution credit

=

FIF income x section 529 amount notional income of FIF1

FIF income is the amount worked out using the formula:

section 579 amount x section 576 amount notional income of FIF2

Section 579 amount is the amount included in the notional income of FIF2 from FIF3.

Section 576 amount is the amount included in the notional income of FIF1 from FIF2.

Notional income of FIF2 is its notional income for the notional accounting period of FIF1 worked out under the calculation method.

Section 529 amount is the amount included in your assessable income under the FIF measures because you have an interest in FIF1.

Notional income of FIF1 is FIF1's notional income for its notional accounting period worked out under the calculation method.

This formula will apply to each FIF or FLP in which FIF2 has an interest. In addition, the FIF attribution credit, which would otherwise arise for FIF2 under the first formula used in relation to diagram   1, is reduced by the sum of the FIF attribution credits that arise for entities that FIF2 has an interest in - for example, FIF3 in diagram   2. [subsection 605(6)]

Diagram 2: FIFs held by a second tier FIF

Example: Working out assessable income for three tiers of FIFs

Sharon, a resident taxpayer, has a 5% interest in a first tier FIF (FIF1) which has a 25% interest in a second tier FIF (FIF2). In turn, FIF2 has a 10% interest in another FIF (FIF3).

Work out the amount to be included in Sharon's assessable income because of her interest in FIF1 - diagram   3 .

The calculation method is used for FIF1 and FIF2. It cannot be used to determine the FIF income of a third tier FIF (FIF3). The market value method must be used to determine the change in value of FIF3.

Each FIF has a notional accounting period ending 30   June 2010. During the relevant period, FIF1 does not derive any income. FIF2 derives $10,000 income. In addition, under the market value method, FIF2 is taken to have derived $20,000 FIF income from FIF3. FIF2 has a past calculated loss of $10,000.

FIF2 has notional income of $30,000, the section   579 amount $20,000   +   $10,000 of derived income. FIF2's calculated profit would be $20,000, that is, $30,000 less its past calculated loss of $10,000.

FIF1's notional income will include $5,000 FIF income under section 576 (25%   x   $20,000), which is its share of FIF2's calculated profit. The calculated profit of FIF1 would be $5,000.

Sharon's assessable income would include an amount of $250 (5%   x   $5,000) under the FIF measures as a result of her interest in FIF 1.

Diagram 3: Amount included in assessable income because of an interest in FIF1

Sharon's attribution accounts would look like this:

Sharon's attribution account - FIF1
Debit	Credit
	30/6/10	$0 ($250   -   $250)

Sharon's attribution account - FIF2
Debit	Credit
	30/6/10	$83.34 ($250   -   $166.66)

Sharon's attribution account - FIF3
Debit	Credit
	30/6/10	$166.66

The FIF attribution credit which would arise for FIF3 in relation to Sharon is worked out using the following formula:

FIF income x section 529 amount notional income of FIF1

This formula is used in working out the part of the FIF income included in Sharon's assessable income that can be attributed to FIF3.

FIF3

FIF3's 'FIF income' - a component used in the formula for determining the FIF attribution credit which arises for FIF3 in relation to Sharon - would be worked out using the following formula:

section 579 amount x section 576 amount notional income of FIF2
FIF income	=	$20,000 x $5,000 $30,000	= $3,333.33

This result indicates that of the $5,000 of FIF2's income that is included in FIF1's income, $3,333.33 is referable to FIF2's interest in FIF3.

Substituting the relevant amounts in the first formula above, then:

FIF3's attribution credit

=

$3,333.33 x $250 $5,000

= $166.66

FIF2

If FIF2's notional income was $30,000 without including FIF3's income, the FIF attribution credit which would arise for FIF2 in relation to Sharon would be worked out using the formula:

FIF2 income included in FIF1 income x section 529 amount notional income of FIF1
FIF2's attribution credit	=	$5,000 x $250 $5,000	= $250

This amount must be reduced by the amount of the FIF attribution credit which would arise for FIF3. Consequently, a FIF attribution credit of $83.34 ($250   -   $166.66) would arise for FIF2 in relation to Sharon.

FIF1

Normally, a FIF attribution credit of $250 would arise for FIF1 in relation to Sharon. However, this credit must be reduced by the amount of the unmodified credit which would arise for FIF2. Consequently, the FIF attribution credit which arises for FIF1 is nil ($250   -   $250) see diagram   3 . [subsection 605(3)]

Exemption of distributions

A dividend or other FIF attribution account payment you receive from a FIF attribution account entity may be treated as non-assessable non-exempt income. [section 23AK]

The amount of the FIF attribution account payment that will be non-assessable non-exempt income when you receive the payment will be determined by the FIF attribution surplus in the attribution accounts of the FIF making the distribution. If the payment is more than the attribution surplus, only the part of the payment equal to the surplus will be non-assessable under section 23AK of the ITAA 1936.

Non-assessable distributions under section 23AK for previously attributed FIF income derived through a partnership or trust

If you receive the distribution from a FIF or FLP through an interposed partnership or trust, the amount will be treated as non-assessable non-exempt income where:

• after the distribution of an amount from the FIF to the partnership or trust, you would be required to include an amount in respect of the trust or partnership in your assessable income, and
• at the time of that distribution, you had a FIF attribution surplus in relation to the FIF or FLP.

The distribution to the partnership or trust will still be included when working out the net income of the trust or partnership. However, once your share of that net income is determined, an amount equal to your attribution surplus will be non-assessable non-exempt income.

Reduction of disposal consideration if FIF attributed income is not distributed

The disposal of an interest in a FIF attribution account entity is normally taken into account in working out your assessable income under the existing provisions of the ITAA 1936, either - for example - as income under section 6-5 of the ITAA 1997, or under the capital gains tax provisions in Part   3-1 of the ITAA 1997.

To avoid double taxation, the consideration received on the disposal of an interest in a FIF attribution account entity, which is to be taken into account for the purposes of the relevant assessment provision, will be deemed to be reduced by any amount previously attributed to you that has not been distributed to you.

The amount by which the disposal consideration will be reduced cannot exceed the lesser of either the disposal consideration or the attribution surplus of the FIF. An attribution debit for the same amount arises at the time you dispose of the FIF. [paragraph 613(1)(c)]

If you dispose of only part of an interest in a FIF attribution account entity, your FIF attribution surplus that can be used to reduce the consideration on disposal is reduced proportionately. [paragraphs 613(1)(c) and (e) and subsection 613(3)]

Tax Laws Amendment (Foreign Source Income Deferral) Bill (No. 1) 2010 contains proposed amendments that will, if enacted, retrospectively change the law in this area (see the 'What's new' section above).

FIF attribution debit for amount of loss and certain transfers used to reduce assessable income

A FIF loss that arises under the market value method or a FLP loss that arises under the cash surrender value method can be used to reduce your assessable income where you have a FIF attribution surplus for the FIF or FLP. Where the amount of a loss is used to offset assessable income, a FIF attribution debit arises for that amount in relation to the FIF or FLP. [sections 532, 533, 533A and 607]

You can also reduce your assessable income where you have an interest in a FIF that is a foreign non-complying superannuation fund and an amount is transferred from that FIF to a complying Australian superannuation fund. The amount of your deduction is the lesser of the assessable component of the transferred amount that you chose to be treated as assessable income of the Australian superannuation fund or the attribution surplus that you have in relation to the FIF. [sections 533B and 607AA]

Example: Transfer of FIF interest to a complying Australian superannuation fund

Tim had an interest in a foreign non-complying superannuation fund (the FIF) from 1   July 2004 to 30   September 2009. During those years, Tim was subject to FIF taxation on the FIF of $20,000. As there were no other attribution account entries for that period, Tim had an attribution account surplus for the FIF of $20,000. On 30   September 2009 Tim transferred the value of his interest in the FIF to a complying Australian superannuation fund. He also chose to have the assessable component of the transferred amount ($30,000) treated as assessable income of the complying Australian superannuation fund. Tim is entitled to a deduction of $20,000 for the 2009-10 income year under section 533B, being the lesser of the assessable component of the transferred amount and the attribution account surplus for the FIF.

FIF losses are converted to Australian currency to work out the availability of a deduction under the market value or cash surrender value methods of working out FIF income. Use the rate of exchange applicable at the end of the notional accounting period in which the loss arose. [section 533A]

Example: Attribution accounts

Beryl, a resident individual, has an interest in a foreign company - Forco - that is not a CFC. Forco's notional accounting period ends on 30   June, as does Beryl's income year. In the year ended 30   June 2007, she had FIF income in respect of Forco of $5,000. The $5,000 would be included in her assessable income under section 529.

In this case, she will treat the next $5,000 of dividends paid by Forco as non-assessable non-exempt income under section 23AK. To achieve this, Beryl would credit the FIF attribution account for Forco with the $5,000 at the end of Forco's notional accounting period as follows:

Beryl's FIF attribution account - Forco
Debit	Credit
	30/6/07	Attribution	$5,000

In the year ended 30   June 2008, Beryl's FIF income from her interest in Forco was $4,000. On 31   December 2007, Forco paid her a dividend of $3,000.

The dividend is a FIF attribution account payment. Beryl would debit her FIF attribution account with the $3,000 at the time the dividend was paid as follows:

Beryl's FIF attribution account - Forco
Debit			Credit
31/12/07	Dividend	$3,000	30/6/07	Attribution	$5,000

The $3,000 dividend that Beryl received would be non-assessable non-exempt income under section 23AK. The $4,000 FIF income for her interest in the FIF would be included in her assessable income under section 529. She would credit her FIF attribution account with $4,000 at the end of Forco's notional accounting period as follows:

Beryl's FIF attribution account - Forco
Debit			Credit
31/12/07	Dividend	$3,000	30/6/07	Attribution	$5,000
			30/6/08	Attribution	$4,000

On 30   June 2009, Forco paid Beryl a dividend of $7,000. There was no FIF income in that year. Beryl would debit the FIF attribution account with $6,000 - the lesser of the dividend and the surplus in the account - at the time the dividend was paid.

Beryl's FIF attribution account - Forco
Debit			Credit
31/12/08	Dividend	$3,000	30/6/07	Attribution	$5,000
	Balance	$6,000	30/6/08	Attribution	$4,000
30/6/09	Dividend	$6,000	31/12/08	Surplus	$6,000

Beryl would include in her assessable income the amount of the dividend that is more than the amount debited to the FIF attribution account - that is, $1,000. The remainder of the attribution account payment - that is, $6,000 - would be non-assessable non-exempt income under section 23AK of the ITAA 1936.

Note: The foreign income tax offset (FITO) rules have replaced the foreign tax credit system. For further information about the FITO rules, refer to Guide to foreign income tax offset rules .

ATO references:
NO NAT 2130