Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 2 - Income  

Subdivision D - Dividends  

SECTION 46FA   DEDUCTION FOR DIVIDENDS ON-PAID TO NON-RESIDENT OWNER  

Allowable deduction

46FA(1)    

An amount is allowable as a deduction from the assessable income of a company (the resident company ) if:

(a) the resident company is paid a dividend (the original dividend ) that:

(i) is paid by a company that is a resident; and

(ii) is a non-portfolio dividend; and

(iii) is not a fully-franked dividend; and

(b) the resident company is not a group company in relation to the company that paid the original dividend in relation to the year of income in which the dividend is paid; and

(ba) neither the resident company, nor the company that pays the dividend, is a prescribed dual resident; and

(c) ignoring the amendments made by Schedule 1 to the Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006 , but for subsection 46AB(1) or 46AC(2) or subparagraph 46F(2)(a)(i) of this Act as in force just before the commencement of those amendments, the resident company would have been entitled to a rebate under section 46 of this Act as so in force in respect of the unfranked amount of the original dividend; and

(d) the resident company pays a dividend (the flow-on dividend ) to a company that is not a resident (the non-resident company ); and

(e) the flow-on dividend is not a fully-franked dividend; and

(f) the resident company declares that the unfranked amount of the flow-on dividend is an on-payment of the unfranked amount of the original dividend to the extent of a specified percentage (not exceeding 100%); and

(g) when the original dividend is paid, when the declaration is made and when the flow-on dividend is paid, the resident company is:

(i) a resident; and

(ii) wholly owned by the non-resident company.

The deduction is from assessable income of the year of income in which the flow-on dividend is paid. The amount of the deduction is equal to the flow-on amount worked out using subsection (2).

46FA(2)    
The flow-on amount is:

Percentage specified under paragraph (1)(f)

×

Unfranked amount of the flow-on dividend

Flow-on declarations

46FA(3)    
The declaration under paragraph (1)(f) (the flow-on declaration ) must be made:

(a) in writing; and

(b) before the flow-on dividend is paid.

The declaration cannot be revoked or varied.

46FA(4)    

The flow-on declaration is effective only to the extent to which the flow-on amount does not exceed the surplus in the resident company's unfranked non-portfolio dividend account immediately before the declaration is made.

Note:

See section 46FB for the unfranked non-portfolio dividend account.

Unfranked amount of flow-on dividend unfrankable

46FA(5)    

Part 3-6 of the Income Tax Assessment Act 1997 (the imputation system) applies to the unfranked amount of the flow-on dividend as if it were an unfrankable distribution within the meaning of section 202-45 of that Act if a deduction is allowed to the resident company in relation to the flow-on dividend.

Wholly owned by non-resident company.

46FA(6)    
The resident company is wholly owned by the non-resident company if all the shares in the resident company are held by and beneficially owned by the non-resident company.

46FA(7)    
However, the company is not wholly owned by the non-resident company if a person is in a position to affect rights, in relation to the resident company, of the non-resident company.

46FA(8)    
The resident company is also not wholly owned by the non-resident company if at some future time a person will be in a position to affect rights as described in subsection (7).

A person in a position to affect rights

46FA(9)    
A person is in a position to affect rights of a company in relation to another company if the person has a right, power or option:

(a) to acquire those rights from one or other of those companies; or

(b) to do something that would prevent one or other of those companies from exercising its rights for its own benefit, or from receiving any benefit arising from having those rights.

46FA(10)    
It does not matter whether the person has the right, power or option because of the constitution of one or other of those companies, any agreement or otherwise.

Definitions

46FA(11)    

In this section:

fully-franked dividend
means a dividend whose franking percentage (within the meaning of section 203-35 of the Income Tax Assessment Act 1997 ) is 100%.

group company
has the same meaning as in former section 160AFE as in force immediately before 1 July 2002.

non-portfolio dividend
has the same meaning as in section 317 .

non-resident company
means a company that is not a resident.

unfranked amount
of a dividend (including an unfrankable distribution within the meaning of section 202-45 of the Income Tax Assessment Act 1997 ) means the amount of the dividend less the franked part.