Income Tax Assessment Act 1936

PART X - ATTRIBUTION OF INCOME IN RESPECT OF CONTROLLED FOREIGN COMPANIES  

Division 7 - Calculation of attributable income of CFC  

Subdivision C - Modifications relating to Australian capital gains tax  

SECTION 422   ADJUSTMENT OF CAPITAL PROCEEDS WHERE CHANGE OF RESIDENCE BY ELIGIBLE CFC FROM UNLISTED TO LISTED COUNTRY  

422(1)   [Operation of section]  

For the purposes of applying this Act in calculating the attributable income of the eligible CFC, in relation to the eligible period in relation to the eligible taxpayer, the following provisions have effect.

422(2)   [What this section specifies]  

This section sets out what happens if:

(a) the eligible CFC ceases at a time (the residency change time ), during the eligible period or an earlier statutory accounting period, to be a resident of an unlisted country and becomes a resident of a listed country; and

(b) subsection 457(3) does not apply to the change of residence; and

(c) because of the change in its residency status, an amount is included in the eligible taxpayer's assessable income under section 457 (including because of paragraph 58(1)(d) of the Taxation Laws Amendment (Foreign Income) Act 1990 ); and

(d) a CGT event happens during the eligible period in relation to a CGT asset (the CFC asset ) that the eligible CFC owned since the residency change time.

422(3)   [Reduction or increase]  

If the conditions in subsection (4) are satisfied, the capital proceeds from the CGT event are reduced by the amount worked out under subsection (5). If the conditions in subsection (6) are satisfied, those capital proceeds are increased by the amount worked out under subsection (7).

422(4)    

Reduction of capital proceeds. If all the eligible CFC's assets were disposed of at the residency change time for their market values in the circumstances mentioned in subparagraph 457(2)(a)(ii) :

(a) distributable profits of the eligible CFC of a particular amount (the distributable profit amount ) would be created, or its distributable profits would be increased by an amount (also the distributable profit amount ); and

(b) the eligible CFC would have made a profit (the CFC asset profit ) on the disposal of the CFC asset.

422(5)   [Reduction of capital proceeds]  

The capital proceeds are reduced by:

Distributable profit       amount

×

CFC asset profit   Total asset profit

where:

total asset profits
is the sum of the profits that the eligible CFC would have made if all its assets were disposed of at the residency change time for their market values (ignoring disposals that would not result in a profit).

422(6)    

Increase in capital proceeds. If all the eligible CFC's assets were disposed of at the residency change time for their market values in the circumstances mentioned in subparagraph 457(2)(a)(ii) :

(a) the distributable profits of the eligible CFC would be reduced by an amount (the distributable profit reduction amount ); and

(b) the eligible CFC would have made a loss (the CFC asset loss ) on the disposal of the CFC asset.

422(7)   [When capital proceeds increased]  

The capital proceeds are increased by:

Distributable profit       reduction     amount

×

CFC asset loss     Total asset losses

where:

total asset losses
is the sum of the losses that the eligible CFC would have made if all its assets were disposed of at the residency change time for their market values (ignoring disposals that would not result in a loss).