New Business Tax System (Consolidation and Other Measures) Act 2003 (16 of 2003)
Schedule 9 Consolidation: foreign dividend accounts
Part 1 Basic amendments
Income Tax Assessment Act 1997
1 At the end of Division 717
Add:
Subdivision 717-J - Foreign dividend accounts
Guide to Subdivision 717-J
717-500 What this Subdivision is about
Only the head company of a consolidated group has an operating foreign dividend account, so only the head company can make an FDA declaration to relieve from withholding tax a dividend paid by a member of the group to a foreign resident. The balance of the account reflects what has happened to all members of the group.
Table of sections
Object
717-505 Object of this Subdivision
Treatment of foreign dividend accounts around joining time
717-510 No FDA surplus for joining company
Single entity rule for foreign dividend accounts
717-515 Single entity rule for FDA credits and FDA debits
FDA declaration for dividend paid by subsidiary member
717-520 Head company may make FDA declaration
717-525 Multiple FDA declarations for dividends paid on same day
717-530 Extended operation of sections 717-520 and 717-525
[This is the end of the Guide.]
Object
717-505 Object of this Subdivision
(1) The object of this Subdivision is to affect the operation of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936 so that each *consolidated group operates a single *foreign dividend account, by ensuring that:
(a) an *FDA credit and an *FDA debit arise so that:
(i) the balance of the foreign dividend account of the *head company of the group reflects the balance of the foreign dividend account of a company that becomes a *subsidiary member of the group; and
(ii) the balance of the foreign dividend account of the subsidiary member of the group is nil; and
(b) the head company is the only *member of the group that can have an *FDA surplus; and
(c) the head company can make an *FDA declaration relating to a dividend (within the meaning of that Subdivision) or *non-share dividend paid by any member of the group.
(2) In this Act:
FDA credit has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.
FDA debit has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.
FDA declaration has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.
FDA surplus has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.
foreign dividend account has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.
Treatment of foreign dividend accounts around joining time
717-510 No FDA surplus for joining company
(1) This section operates for the purposes of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936 if a company (the joining company ) becomes a *subsidiary member of a *consolidated group at a time (the joining time ) just after another time (the balance time ).
(2) If the joining company has an *FDA surplus at the balance time:
(a) an *FDA debit equal to the FDA surplus arises for the joining company at the balance time; and
(b) an *FDA credit equal to the FDA surplus arises for the *head company of the group at the joining time.
(3) If the joining company's total *FDA debits arising before the balance time exceed its total *FDA credits arising before the balance time:
(a) an FDA credit equal to the excess arises for the joining company at the balance time; and
(b) an FDA debit equal to the excess arises for the *head company of the group at the joining time.
(4) For the purposes of subsections (2) and (3) of this section, work out whether, when, and how much (if any) of, an *FDA debit arises for the joining company under paragraph 128TB(1)(d) of the Income Tax Assessment Act 1936 in relation to the income year that actually includes the balance time as if that income year:
(a) started at:
(i) the start of that income year; or
(ii) if the joining company ceased to be a *subsidiary member of a *consolidated group after the start of that income year but before the balance time - the time the joining company last ceased to be a subsidiary member of a consolidated group before the balance time; and
(b) ended just before the balance time.
Note: This ensures that the FDA debit (if any) for the joining company under paragraph 128TB(1)(d) of the Income Tax Assessment Act 1936 arises just before the balance time, so that it is taken into account for the purposes of subsections (2) and (3) of this section.
Single entity rule for foreign dividend accounts
717-515 Single entity rule for FDA credits and FDA debits
If a company is a *subsidiary member of a *consolidated group for any period, it and any other subsidiary member of the group are taken for the purposes of sections 128TA and 128TB of the Income Tax Assessment Act 1936 to be parts of the *head company of the group, rather than separate entities, during that period.
Note 1: This has the effect that:
(a) FDA credits and FDA debits arise under sections 128TA and 128TB (respectively) of the Income Tax Assessment Act 1936 for the head company of a consolidated group but not for a subsidiary member of the group; and
(b) the shareholdings of all members of a consolidated group are aggregated to work out whether dividends paid to a member are non-portfolio dividends for the purposes of those sections.
Note 2: Section 717-10 may also affect FDA credits and FDA debits for the head company of a consolidated group. It treats the head company as having paid and been personally liable for foreign tax on foreign income included in its assessable income if a subsidiary member of the group actually paid and was personally liable for the tax.
FDA declaration for dividend paid by subsidiary member
717-520 Head company may make FDA declaration
(1) This section operates if:
(a) on a day, a company that is a *subsidiary member of a *consolidated group pays dividends (within the meaning of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936) to shareholders (within the meaning of that Act) in respect of *shares in the company; and
(b) on the day, there is an *FDA surplus for the *head company of the consolidated group.
(2) The *head company may make an *FDA declaration specifying an *FDA declaration percentage under subsection 128TC(1) of the Income Tax Assessment Act 1936 as if the head company were paying the dividends.
Note: If the head company makes an FDA declaration:
(a) an FDA debit equal to the sum of the FDA declaration amounts worked out for the dividends by reference to the FDA declaration percentage will arise for the head company just after the start of the day under section 128TB of the Income Tax Assessment Act 1936; and
(b) foreign resident shareholders in the subsidiary member will be relieved from withholding tax on amounts of the dividends not exceeding the FDA declaration amounts.
(3) In this Act:
FDA declaration percentage has the same meaning as in Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936.
(4) However, subsection 128TC(2) of the Income Tax Assessment Act 1936 operates in relation to the *FDA declaration percentage on the basis that:
(a) the company mentioned in that subsection is the *subsidiary member; and
(b) the dividends were paid to shareholders in respect of *shares in the subsidiary member.
(5) To avoid doubt, subsection 128TC(5) of the Income Tax Assessment Act 1936 operates in relation to the *head company's *FDA declaration by reference to amounts worked out on the basis described in subsection (4) of this section.
(6) To avoid doubt, sections 128TD and 128TE of the Income Tax Assessment Act 1936 apply to the *head company in relation to an *FDA declaration made because of subsection (2) of this section, even though the shareholders and dividends mentioned in those sections applying in relation to the declaration are shareholders in, and dividends paid by, the *subsidiary member.
717-525 Multiple FDA declarations for dividends paid on same day
(1) This section operates if the *head company of a *consolidated group makes 2 or more *FDA declarations relating to dividends (within the meaning of Subdivision B of Division 11A of Part III of the Income Tax Assessment Act 1936) paid by *members of the group on a single day.
Note: It does not matter whether all those FDA declarations are made under section 128TC of the Income Tax Assessment Act 1936 as affected by section 717-520 of this Act or whether one of the declarations relates to dividends actually paid by the head company.
FDA declaration percentage in each FDA declaration
(2) The *FDA declaration percentage for each *FDA declaration must be such that the sum of the amounts worked out under subsection 128TC(2) of the Income Tax Assessment Act 1936 in relation to the FDA declarations is not greater than the *head company's *FDA surplus at the beginning of the day.
(3) If (apart from this subsection) that sum is greater than the *head company's *FDA surplus at the beginning of the day, each of the *FDA declarations is valid but is taken always to have effect as if the *FDA declaration percentage specified in the declaration were the percentage worked out using the formula:
(4) Subsection 128TC(5) of the Income Tax Assessment Act 1936 does not operate in relation to any of the *FDA declarations.
Penalty for statement reflecting wrong percentage
(5) Subsection 128TE(1) of the Income Tax Assessment Act 1936 operates as if it referred to subsection (3) of this section instead of subsection 128TC(5) of that Act.
(6) To avoid doubt, subsection (3) of this section does not prevent subsection 128TE(1) of the Income Tax Assessment Act 1936 from making the *head company liable to pay additional tax by way of penalty.
717-530 Extended operation of sections 717-520 and 717-525
Section 128AAA (the applied section ) of the Income Tax Assessment Act 1936 applies to sections 717-520 and 717-525 of this Act in the same way as the applied section applies to Division 11A of Part III of that Act.
Note: Section 128AAA of the Income Tax Assessment Act 1936 applies Division 11A of Part III of that Act to non-share dividends in the same way as that Division applies to dividends.
[The next Division is Division 719.]