Tax Laws Amendment (2007 Measures No. 4) Act 2007 (143 of 2007)

Schedule 1   New foreign income tax offset rules

Part 2   FIF income

Income Tax Assessment Act 1936

3   After section 559

Insert:

559A Choice to work out notional income and notional deductions under Part X

(1) The taxpayer may choose to work out the notional income and notional deductions of the FIF in accordance with subsection (3) if:

(a) the FIF is a foreign company; and

(b) the taxpayer's attribution percentage in relation to the FIF is 10% or more at the end of the relevant period; and

(c) if the taxpayer has previously made a choice under this subsection in relation to the FIF in relation to a notional accounting period of the FIF - the taxpayer has made such a choice in relation to the FIF in relation to every notional accounting period of the FIF (if any) occurring between:

(i) the end of the notional accounting period of the FIF for which the taxpayer first made such a choice in relation to the FIF; and

(ii) the start of the relevant period.

(2) For the purposes of this section:

(a) treat the FIF as a FIF that is a CFC; and

(b) treat the taxpayer as an attributable taxpayer in relation to the FIF throughout the relevant period; and

(c) treat the relevant period as the statutory accounting period of the FIF.

Main rule - work out notional income and notional deductions under Part X, etc.

(3) For the purposes of working out the notional income and notional deductions of the FIF of the relevant period:

(a) treat that notional income as the FIF's notional assessable income worked out under Part X for the relevant period; and

(b) treat those notional deductions as the FIF's notional allowable deductions worked out under Part X for the relevant period; and

(c) if the taxpayer is an AFI entity at a particular time in the relevant period - treat the FIF as an AFI subsidiary at that time.

(4) In working out the FIF's notional allowable deductions for the purposes of paragraph (3)(b):

(a) disregard sections 429 and 431 (which deal with losses); and

(b) instead, include notional deductions (if any) from the notional income of the FIF of the relevant period worked out under section 572 (which deals with notional deductions for calculated losses for prior periods).

(5) For the purposes of subsection (3), treat the FIF's commencing day mentioned in Subdivision C of Division 7 of Part X as the first day of the period over which, apart from this section, the profits or gains of a capital nature derived by the FIF during the relevant period would be determined.

Application of sections 575 to 579

(6) For the purposes of subsection (3), apply sections 575 to 579 in relation to a taxpayer (the actual taxpayer ), subject to the rules in subsections (7) and (8).

(7) If the actual taxpayer has made a choice under subsection (1) in relation to a FIF (the first-tier FIF ), in working out the first-tier FIF's notional assessable income for the purposes of paragraph (3)(a):

(a) disregard paragraphs 384(2)(ca) and 385(2)(ca) (which deal with amounts included in notional assessable income under Part XI); and

(b) instead, include in that notional assessable income the first-tier FIF's notional income worked out under section 576.

(8) If the taxpayer mentioned in paragraphs (1)(b) and (3)(c) is the first-tier FIF mentioned in section 576 (because of the effect of section 576 on this section):

(a) treat the references in those paragraphs to the taxpayer as references to the actual taxpayer (and not to the first-tier FIF); and

(b) if, as a result of paragraph (a), the actual taxpayer has made a choice under subsection (1) in relation to a FIF (the second-tier FIF ) - in working out the second-tier FIF's notional assessable income for the purposes of paragraph (3)(a):

(i) disregard paragraphs 384(2)(ca) and 385(2)(ca) (which deal with amounts included in notional assessable income under Part XI); and

(ii) instead, include in that notional assessable income the second-tier FIF's notional income worked out under section 579.

Note: The actual taxpayer cannot make a choice under subsection (1) in relation to a third-tier FIF, because the calculation method is not available in respect of a third-tier FIF (see subparagraph 579(b)(ii)).

Definitions

(9) In this section:

AFI entity has the same meaning as in section 326.

AFI subsidiary has the same meaning as in Part X (see section 326).

attributable taxpayer has the same meaning as in Part X (see section 361).

attribution percentage has the same meaning as in Part X (see section 362).

notional allowable deductions has the same meaning as in Part X (see section 382).

notional assessable income has the same meaning as in Part X (see section 382).