Senate

Explanatory Memorandum

(Circulated by the authority of the Treasurer the Hon Ralph Willis, M.P.)

CHAPTER 2 - FOREIGN INVESTMENT FUND AND CONTROLLED FOREIGN COMPANY MEASURES

Section 1 - Introduction

2.1 The foreign investment fund (FIF) measures came into effect on 1January 1993. The measures provide for the taxation, on an accruals basis, of investments held by Australian residents in non-controlled foreign companies, interests held by Australian beneficiaries in non-controlled foreign trusts and investments in foreign life policies (FLPs) by Australian policy holders. Also, as part of those measures, new rules governing the taxation of Australian beneficiaries of foreign trust estates were introduced with effect from the 1992-93 income year.

2.2 The FIF measures aim to remove the tax advantage of deferring Australian tax by accumulating income in offshore companies and trusts that are not controlled by Australian residents. They complement the controlled foreign company (CFC) and transferor trust measures which have been in operation since the 1990-91 income year.

2.3 The proposed amendments will:

•

ensure that profits which have been taxed under the FIF measures are only traced for tax relief purposes in relation to a resident taxpayer and not in relation to a CFC;

•

ensure that double taxation does not arise from the interaction of the CFC, transferor trust and FIF measures where a taxpayer has an interest in a CFC which is held through a non-resident trust estate;

•

ensure that FIF income derived by a non-resident trust is included in the assessable income of an Australian taxpayer who has transferred property to the trust to the extent the trust does not distribute its profits;

•

address the potential double taxation of profits of a resident public unit trust which may arise because of concessional treatment provided to small investors who hold units in the trust;

•

remove the modifications which currently apply when calculating the FIF income of a CFC where a FIF makes an interim distribution to the CFC;

•

align the treatment of corporate limited partnerships (including dividends paid by corporate limited partnerships) under the foreign tax credit, foreign loss, CFC and FIF provisions of the Act with the treatment of companies (and dividends paid by companies) under those provisions;

•

modify the calculation and availability of an allowable deduction that may be claimed where a taxpayer has incurred a FIF loss under the market value or cash surrender value methods for determining FIF income;

•

provide currency conversion rules for FIF losses arising under the market value and cash surrender value methods for determining FIF income;

•

ensure that no more than 100% of the calculated profit of a FIF is attributed to Australian residents who hold an interest in the FIF;

•

provide that the attributable portion of a dividend under the CFC measures is reduced to the extent the dividend was paid out of profits upon which a taxpayer has been taxed previously under the FIF measures; and

•

correct a drafting error in the exemption from the FIF measures provided for companies engaged in several activities.

These amendments will apply retrospectively where they operate to the advantage of taxpayers. A detailed explanation of each of the amendments commences following section 3 of this chapter.

Section 2 - General overview of the FIF measures

2.4 The FIF measures apply to Australian resident taxpayers who, at the end of an income year, have an interest in a foreign company or trust. The measures also apply to taxpayers who hold a FLP at any time during a year of income.

2.5 Broadly, the FIF measures operate to approximate a resident taxpayer's share of the undistributed profits of a FIF (called FIF income) and to assess the taxpayer on those profits. This treatment is designed to remove the deferral of Australian tax on the profits of a FIF which may otherwise arise where those profits are accumulated offshore rather than remitted to Australian investors.

2.6 The FIF measures provide a number of exemptions from FIF taxation. These exemptions are designed to exclude from the FIF measures interests in FIFs which are not the target of the measures. Where an exemption does not apply, the amount of FIF income to be included in a taxpayer's assessable income is determined using one of the following three taxing methods:

(i)

the market value method;

(ii)

the deemed rate of return method; or

(iii)

the calculation method.

2.7 In the case of FLPs, the amount of FIF income will be determined under the cash surrender value method or the deemed rate of return method.

2.8 Under these methods of taxation, a taxpayer's interest in a FIF is measured in relation to notional accounting periods of a FIF commencing on 1 January 1993 and for subsequent periods. The notional accounting period of a FIF is generally the same as a taxpayer's year of income. However, a taxpayer may elect to use the period for which the annual accounts of the FIF are made.

2.9 The assessable income arising under the FIF measures is included in the taxpayer's assessable income for the income year in which the notional accounting period of the FIF ends.

Section 3 - General overview of the CFC measures

2.10 Broadly, the CFC measures operate to tax the Australian controllers of a CFC on a current basis when profits are derived by the CFC, i.e., on an accruals basis. The measures tax the Australian controllers on their share of the passive and other tainted profits (generally, income from transactions with related parties) of the CFC where those profits are not taxed at a rate comparable to that which would have applied if the profits had been taxed in Australia. This treatment is designed to remove the deferral of Australian tax on the profits of a CFC which may otherwise arise if those profits are accumulated offshore rather than remitted to its Australian controllers.

2.11 The CFC measures include a share of the attributable income of a CFC in the assessable income of an Australian controller. This share is based upon the interests held by the Australian controller in the CFC.

2.12 The attributable income of a CFC is calculated on the basis that the CFC is a resident of Australia. However, the profits of the CFC which are taken into account for the purposes of this calculation are generally the low-taxed passive and other tainted profits of the CFC. In this regard, the FIF income of a CFC is specifically included in the calculation of the CFC's attributable income.

Section 4 - FIF attribution credits - CFCs

Summary of the amendments

Purpose of the amendments

2.13 The amendments will ensure that profits which have been taxed under the FIF measures are only traced for tax relief purposes in relation to a resident taxpayer and not in relation to a CFC. [Clause 8]

Date of effect

2.14 The amendments will apply for statutory accounting periods of CFCs ending after 30 June 1994. [Clause 10]

Background to the legislation

2.15 Attribution accounts are used in the CFC and FIF measures to trace profits which have been taxed under those measures. The object of tracing these profits is to identify when distributions (e.g., dividends) are paid out of profits which have been previously taxed on an accruals basis. This allows relief from double taxation to be provided so that, for instance, a distribution is not taxed to the extent it is referable to profits which have been taxed on an acruals basis. Similarly, a capital gain on the disposal of an interest in a CFC or a FIF is reduced to the extent that the CFC or FIF has an attribution surplus (i.e., retained profits which have been accruals taxed under the CFC or FIF measures) in relation to a taxpayer at the time of the disposal.

2.16 There are separate attribution account systems for the purposes of keeping track of profits which have been taxed under the CFC and FIF measures. In this regard, the CFC attribution account system currently ensures that Australian controllers of a CFC are not taxed again on FIF income included in a CFC's attributable income (paragraphs 371(1)(aa) and 371(1)(ab)). However, in addition to an Australian controller being treated under the CFC attribution account system as having been taxed on the FIF income of a CFC, the FIF attribution system treats the CFC as having been taxed on that FIF income. Technically, this treatment can lead to double counting of income attributed under the FIF measures as is demonstrated by the following example.

Example

2.17 A CFC has an interest in a FIF which gives rise to FIF income of $100 being included in the attributable income of the CFC. An Australian company (Ausco) is attributed 100% of the CFC's attributable income including the $100 FIF income. This is illustrated by the following diagram:

Consequences

2.18 An attribution credit of $100 would arise for the FIF in relation to Ausco (paragraph 371(1)(aa) and subsection 371(2A)). However, it is not clear that a FIF attribution credit of $100 does not also arise for the FIF in relation to the CFC (paragraph 605(1)(a) and subsection 605(2)).

2.19 It was not intended that a FIF attribution credit would arise for a FIF in relation to a CFC because a CFC is not taxed on FIF income. It should be noted in this regard that FIF income is only included in the attributable income of a CFC in order to determine the amount to be included in the assessable income of its Australian controllers under the CFC measures - the CFC is not itself taxed on that FIF income.

2.20 Accordingly, it is not normally necessary to provide a CFC with relief from double taxation of FIF income using the FIF attribution account system (the CFC attribution account system serves this purpose). Moreover, to allow a FIF attribution credit to arise for a FIF in relation to a CFC would result in double counting under the attribution account systems for the purposes of providing relief from double taxation which may, in some instances, result in more double taxation relief being provided than is appropriate.

Explanation of the amendments

2.21 The amendments will clarify that a FIF attribution credit does not arise for a FIF in relation to a CFC as a result of FIF income being included in the notional assessable income of the CFC. This will be achieved by inserting a reference to section 605 (the provision which gives rise to a FIF attribution credit) into section 389 [clause 9]. Consequently, section 605 will be disregarded for the purposes of calculating the attributable income of a CFC.

Section 5 - Controlled foreign trusts - attributable taxpayer exemption

Summary of the amendments

Purpose of the amendments

2.22 To ensure that double taxation does not arise from the interaction of the CFC, transferor trust and FIF measures where a taxpayer has an interest in a CFC which is held through a non-resident trust estate. [Clause 11]

Date of effect

2.23 The amendments will apply from the commencement of the FIF measures, i.e., 1 January 1993. [Subclause 2(2)]

Background to the legislation

2.24 Double taxation may arise from the interaction of the controlled foreign company (CFC) and foreign investment fund (FIF) measures where a taxpayer has an interest in a CFC which is traced through a non-resident trust estate. This may occur for the following reasons.

2.25 The CFC and FIF measures both seek to ensure that Australian residents are taxed on their economic interest in the profits of certain non-resident entities as those profits are derived. It was anticipated that there would be some overlap between the measures. Accordingly, there are a number of exemptions from the FIF measures which ensure that the CFC measures take precedence over the FIF measures. In particular, section 494 ensures that the FIF measures will not apply to an interest in a FIF if a taxpayer is also an attributable taxpayer under the CFC measures in relation to that interest. In addition, section 431A ensures that FIF income is not included in a taxpayer's share of the attributable income of a CFC where that taxpayer is an attributable taxpayer under the CFC measures in relation the FIF.

2.26 However, there may still be instances where a taxpayer is effectively taxed under both the FIF and CFC measures on the profits of a FIF which is held through a non-resident trust estate. This is because FIF income may be included in the net income of a non-resident trust estate where the trust has an interest in a FIF. Thus, a taxpayer who is a resident beneficiary of the trust may be taxed on a share of the trust's FIF income under section 97 of the general provisions dealing with the taxation of trusts. In addition, a resident beneficiary may also be taxed under the CFC measures in relation to a FIF interest held by a non-resident trust where the trust's FIF interest is also treated as a CFC and the beneficiary's indirect interest in the CFC is measured by tracing through the trust.

2.27 Section 493, which provides an exemption from the FIF measures for interests in FIFs which are controlled foreign trusts, does not prevent the abovementioned double taxation from arising. This is because section 97 may apply to include a share of a non-resident trust estate's FIF income in the assessable income of a taxpayer who is a beneficiary of the trust in instances where the taxpayer's interest in the trust is exempt from the FIF measures (subsection 96A(1)). Thus, a taxpayer may be taxed on an interest in a company which is traced through a non-resident trust under the CFC measures and also under section 97 if FIF income is included in the trust's net income in relation to that company.

2.28 Further, the attributable taxpayer exemption in section 494 is of no assistance in preventing the abovementioned double taxation. This is because section 494 only operates to ensure that the operative provision for the FIF measures (i.e., section 529) does not apply where a taxpayer is an attributable taxpayer under the CFC measures in relation to a FIF. This does not prevent a taxpayer from being assessed on a share of a non-resident trust estate's FIF income under section 97.

2.29 The following is an example which illustrates how double taxation may arise under the FIF and CFC measures where a CFC is held through a non-resident trust estate.

Example

Facts

2.30 A non-resident trust estate (XYZ trust) has two beneficiaries ("A" and "B") both of whom are residents which are equally entitled to the corpus of the trust. Further, XYZ trust wholly owns a non-resident company (CFCco).

Consequences

2.31 CFCco is a CFC because "A" and "B" together control 100% of CFCco after taking into account their interest traced through XYZ trust. [Sections 340 and 349-355] Thus, "A" and "B" may be taxed under the CFC measures on a share of CFCco's attributable income.

2.32 In addition, the net income of XYZ trust may include FIF income referable to XYZ trust's interest in CFCco (CFCs are also FIFs). Thus, if beneficiary "A" or "B" are presently entitled to a share of XYZ trust's income (or are deemed to be presently entitled to a share of XYZ trust's net income under section 96B and 96C), they may be taxed under section 97 on a share of the FIF income referable to CFCco which is included in XYZ trust's net income. Accordingly, profits accumulated by CFCco may be attributed directly to "A" and "B" under the CFC measures and indirectly as FIF income included in the net income of XYZ trust.

2.33 The following diagram illustrates the above example:

2.34 Similarly, double taxation may arise where a taxpayer who has transferred property to a non-resident trust estate is attributed a share of the net income of the trust under the transferor trust measures (Division 6AAA). This is because the share of the net income of a non-resident trust estate which is included in the assessable income of an Australian transferor may include FIF income which is referable to the trust's interest in a company. Further, the transferor may also be attributed a share of the company's attributable income under the CFC measures based upon the interest which the transferor holds in the CFC through the trust.

Explanation of the amendments

2.35 New subsections 96A(3A) and 96A(3B) will ensure that taxation does not arise under both the CFC and FIF measures where a beneficiary in a non-resident trust estate has an interest in a CFC which is held through that trust [clause 12]. In this regard, double taxation may only arise in relation to non-resident trust estates where they are also controlled foreign trusts (CFTs) for the purposes of the CFC measures because a trust must be a CFT before the CFC measures may apply to an interest in a company held indirectly through that trust. Accordingly, subsections 96A(3A) and 96(3B) only apply to CFTs. A beneficiary will continue to be taxed on an indirect interest in a CFC which is held through a non-controlled foreign trust under section 97.

2.36 New subsection 96A(3A) applies where the statutory accounting period of a CFC coincides with the notional accounting period of a FIF held by a CFT. In addition, the CFC and FIF must be the same entity. In this case, no amount will be included in the beneficiary's share of the net income of the CFT under the FIF measures in relation to the FIF if section 456 (i.e., the operative provision of the CFC measures) applies to the beneficiary in relation to the FIF at the end of that period.

2.37 New subsection 96A(3B) is relevant where the statutory accounting period of a CFC does not coincide with the notional accounting period of a FIF held by a CFT. Broadly, subsection 96A(3B) operates in the same way as subsection 96A(3A) with the exception that section 456 must apply to the beneficiary in both of the statutory accounting periods of the CFC which overlap the FIF's notional accounting period.

2.38 Currently, subsection 96A(1A) ensures that an amount not included in a beneficiary's assessable income under section 97 is not included in the trustee's assessable income under section 99 or 99A, or in the attributable income of a resident taxpayer who has transferred property to the trust ("transferor") under section 102AAU. However, a similar provision is not required where a beneficiary's share of the net income of a CFT is reduced because of new subsection 96A(3A) or 96A(3B). This is because a trustee of a CFT is only assessed under sections 99 or 99A on the net income of the trust which is attributable to sources in Australia and thus, the trustee would not be assessed on the trust's FIF income.

2.39 Moreover, the amendments described below largely remove the potential for taxation of a "transferor" on an amount excluded from a beneficiary's share of the net income of a CFT under new subsections 96A(3A) or 96A(3B). This is because section 456 will normally apply to the "transferor" given that subsections 356(5) and 360(1) have the effect of deeming a "transferor" to have a direct attribution interest in a CFT, and an attribution tracing interest through a CFT, of 100%. Economic double taxation of a transferor and a CFT's beneficiaries under the CFC measures is addressed by subsection 362(5).

2.40 New subparagraph 102AAU(1)(c)(ix) will have the effect that the attributable income of a CFT (a trust to which the transferor trust measures apply will always be a CFT - paragraph 342(a)) in relation to a particular "transferor" will be reduced by excluded foreign investment fund income amounts. These amounts are defined by new subsections 102AAU(7) and (8). [Clause 13]

2.41 New subsection 102AAU(7) applies where the statutory accounting period of a CFC coincides with the notional accounting period of a FIF held by a CFT. In addition, the CFC and FIF must be the same entity and section 456 (i.e., the operative provision of the CFC measures) must apply to the "transferor" in relation to the entity at the end of those periods. Where these conditions are satisfied, the excluded foreign investment fund amount will be the amount which was included in the CFT's attributable income under the FIF measures as a result of the CFT having an interest in the FIF.

2.42 New subsection 102AAU(8) is relevant where the statutory accounting period of a CFC does not coincide with the notional accounting period of a FIF held by a CFT. Broadly, subsection 102AAU(8) operates in the same way as subsection 102AAU(7) with the exception that section 456 must apply to the "transferor" in both of the statutory accounting periods of the CFC which overlap the FIF's notional accounting period.

2.43 New subsections 96A(3A), 96A(3B), 102AAU(7) and 102AAU(8) all require that section 456 applies to either a beneficiary's or a "transferor's" interest in a CFC. As stated in TD 93/167, section 456 is considered to have applied in relation to a particular statutory accounting period of a CFC even though:

(a)

the CFC has no amounts of notional assessable income to which sections 384 or 385 apply (this would be the case if the CFC passes the active income test); or

(b)

the amount of notional assessable income of the CFC does not exceed its notional allowable deductions; or

(c)

subsection 385(4) applies to the CFC.

Section 6 - Attributable FIF income of a listed country transferor trust

Summary of the amendments

Purpose of the amendments

2.44 The amendments will ensure that FIF income derived by a non-resident trust is included in the assessable income of Australian taxpayers who have transferred property to the trust to the extent the trust does not distribute its profits. [Clause 14]

Date of effect

2.45 The amendments will apply to the calculation of attributable income for non-resident trust estates from the 1994/95 and later years of income. [Clause 16]

Background to the legislation

2.46 Normally, the transferor trust measures operate to tax Australian residents who have transferred property to a non-resident trust on the income of the trust which is not distributed to its beneficiaries. However, where a trust derives only income or profits which are subject to tax in a listed country (i.e., broadly, a country which imposes comparable rates of tax to Australia) or which are designated concession income (section 102AAE), the Australian taxpayers who have transferred property to the trust are only taxed on the eligible designated concession income of the trust which is not distributed to the trust's beneficiaries (paragraph 102AAU(1)(b)). Broadly, designated concession income comprises certain types of passive income (specified in the regulations) on which no tax is payable or a reduced amount of tax is payable in a listed country. Moreover, eligible designated concession income in relation to a particular listed country is designated concession income which is either not subject to tax or designated concession income in relation to other listed countries (section 317).

2.47 Currently, it is not clear that FIF income is to be included in the attributable income of a listed country trust where the trust has an interest in a FIF. This is because FIF income is not eligible designated concession income and therefore, arguably, should not be taken into account in determining the attributable income of a listed country trust under section 102AAU. It was, however, intended that FIF income would be included in the attributable income of these trusts.

Explanation of the amendments

2.48 The amendments will clarify that FIF income is to be included in the attributable income of a listed country trust estate. This will be achieved by amending paragraph 102AAU(1)(b) to exclude amounts of FIF income (i.e., amounts included in the trust's assessable income under section 529) from the exempt income of the trust. [Clause 15]

Section 7 - Double taxation of FIF income derived by a resident public unit trust

Summary of the amendments

Purpose of the amendments

2.49 The amendments will address the potential double taxation of profits of a resident public unit trust which may arise because of concessional treatment provided to small investors who hold units in the trust. [Clause 17]

Date of effect

2.50 The amendments will apply from the commencement of the FIF measures, i.e., 1 January 1993 . [Subclause 2(2)]

Background to the legislation

2.51 Representations made during the consultation process on the FIF measures expressed concern that small investors who are unitholders in a resident public unit trust may effectively be taxed on the trust's FIF income. This was because the trust's net income (i.e., taxable profits) includes FIF income and beneficiaries who are entitled to a share of the trust's income are taxed on a corresponding share of the trust's net income. Accordingly, small investors who receive a share of a trust's income would, in effect, be taxed on a share of the trust's FIF income.

Example

2.52 A small investor is presently entitled to 1% of the income of XYZ trust which is a resident trust estate. XYZ trust has income for the purposes of both trust and taxation law of $100,000. In addition, XYZ trust has $10,000 FIF income for the purposes of the taxation law.

Consequences

2.53 The small investor would be assessed under section 97 on $1,100 (i.e., 1% x ($100,000 income + $10,000 FIF income)) being the investor's share of the trust's net income. Of this amount, $100 (i.e., 1% x $10,000) relates to the trust's FIF income. Thus, the small investor has effectively been taxed on $100 FIF income as a result of the FIF measures.

2.54 In response to the representations on this matter, it was decided that the net income of a resident public unit trust would not include FIF income for the purposes of determining a beneficiary's share of the trust's net income where the beneficiary is a small investor (subsection 96A(2)/paragraph 96A(2)(c)) . This made it necessary to also deny the benefit of any tax relief for FIF taxation which is normally available when determining in later years the amount to be included in the assessable income of a small investor who was not taxed on the FIF income which gave rise to that benefit (paragraph 96A(2)(d)).

2.55 Currently, however, the above treatment may technically result in double taxation of the FIF income of a resident public unit trust. This may occur because either section 99 or 99A may operate to tax the trustee of a resident public unit trust on that part of the net income of the trust which is not included in the assessable income of a small investor because of the operation of paragraph 96A(2)(c). This result was not intended.

Explanation of the amendments

2.56 New paragraph 96A(2)(e) will ensure that the trustee of a resident public unit trust will not be assessed under sections 99 or 99A on the net income of the trust which is not included in the assessable income of a beneficiary because of the operation of paragraph 96A(2)(c). This will be achieved by disregarding paragraph 96A(2)(c) for the purposes of applying sections 99 or 99A. [Clause 18]

2.57 In addition, amounts included in a beneficiary's share of the trust's net income as a result of paragraph 96A(2)(d) will be disregarded for the purposes of applying sections 99 or 99A. This will ensure that the calculation of the amount to be included in a trustee's assessable income under section 99 or 99A will not be reduced by an amount included in a beneficiary's assessable income under paragraph 96A(2)(d). Amounts included in a beneficiary's assessable income under paragraph 96A(2)(d) do not relate to net income of the trust for the current year and therefore should not affect the taxation of the trustee on that net income.

Section 8 - Reduction of FIF amount by interim dividends paid to a CFC

Summary of the amendments

Purpose of the amendments

2.58 The amendments will remove the modifications in the CFC measures which currently apply when determining a reduction of FIF income because of interim distributions made by the FIF. [Clause 19]

Date of effect

2.59 The amendments will apply from the commencement of the FIF measures, i.e., 1 January 1993 . [Subclause 2(2)]

Background to the legislation

2.60 The methods applicable for determining the profits of a FIF, in effect, provide an approximation of a FIF's total profits for a particular period (called a notional accounting period of the FIF). The extent to which a FIF's profits are attributed to a taxpayer under the FIF measures is reduced to the extent that they have been distributed by the FIF during the notional accounting period for which the FIF's profits are being calculated (section 530). This treatment ensures that a taxpayer is not taxed on the same amount under the FIF measures and the provisions of the law which tax realised profits.

2.61 Currently, the law modifies the reduction of FIF income under section 530 for the purposes of determining the attributable income of a CFC (section 431B). The modification is that a CFC's FIF income is not reduced, as would normally be the case, to the extent that the CFC receives an assessable distribution from a FIF during the FIF's income year. Rather, a CFC's FIF income is reduced to the extent that the CFC receives an assessable distribution from a FIF after the end of the FIF's notional accounting period and before the end of the CFC's statutory accounting period.

Example

2.62 A FIF has a notional accounting period of 1 April 1993 to 31 March 1994. Normally assessable distributions (including certain distributions which are exempt because they have been paid from profits which have been comparably taxed by another country) made by the FIF during that period would reduce the FIF income which is calculated for the period (section 530). However, if the FIF is held by a CFC which has a statutory accounting period of 1 July 1993 to 30 June 1994, only assessable distributions made by the FIF after the end of the FIF's notional accounting period, i.e., 31 March 1994 and before the end of the CFC's statutory accounting period, i.e., 30 June 1994 would reduce the FIF income included in the CFC's attributable income (section 431B) . This modification is illustrated by the following diagram:

2.63 It has been found on review that the abovementioned reduction of FIF income for interim distributions by a FIF to a CFC does not give the correct result. This is because it is only necessary, in order to prevent double taxation, to reduce the profits of a FIF which are to be taxed under the FIF measures to the extent those profits have been distributed prior to the point in time when the amount of those profits is determined using one of the methods for calculating FIF income.

2.64 Double taxation of distributions from profits of a FIF which are made after the profits have been included in a CFC's attributable income under the FIF measures is avoided through the operation of the attribution account system (Division 4 of Part X). The attribution account system, in conjunction with subsection 402(3), allows for the exemption of distributions from a FIF to the extent they have been paid out of profits included in a CFC's attributable income under the FIF measures.

2.65 The correct adjustments to a CFC's FIF income for interim distributions made by a FIF can be achieved by treating a CFC in the same way as any other taxpayer. That is, by reducing the CFC's FIF income by interim distributions which are included in the CFC's notional assessable income (paragraph 530(1)(c)) or which are exempt under paragraph 402(2)(c), paragraph 403(b) or section 404 because they have been comparably taxed (paragraph 530(1)(d)).

Example

2.66 In the above example, an attribution credit would arise in relation to the FIF for an attributable taxpayer of the CFC at the end of the FIF's notional accounting period, i.e., 31 March 1994 (paragraph 371(1)(aa) and subsection 371(2A)) . Accordingly, distributions made by the FIF after 31March 1994 will not be included in the CFC's attributable income to the extent an attribution debit arises for the FIF in relation to the CFC's attributable taxpayers as a result of the FIF making that distribution (subsection 402(3)) . Broadly, such a distribution would give rise to an attribution debit of the lesser of the amount of the distribution and the undistributed amount of the FIF's profits which have been taxed under the FIF measures (section 372). There is therefore no need for section 530 to apply to reduce FIF income for the FIF's notional accounting period ending 31 March 1994 for distributions made to the CFC after that period has ended because the double taxation is prevented by the operation of subsection 402(3).

2.67 However, there is currently no provision to reduce the CFC's FIF income where the CFC receives an assessable distribution from the FIF during the period 1 April 1993 to 31 March 1994 (section 530 does not apply because of the modifications made by section 431B). This may effectively result in a distribution from the FIF during that period being included in the notional assessable income of the CFC under the FIF measures and also under another provision of the Act (e.g., section 44 where a non-portfolio dividend is paid by a company FIF to a CFC in an unlisted country). Note that relief from double taxation of these distributions would be provided if section 530 were to apply normally, i.e., without modification by section 431B.

Explanation of the amendments

2.68 The amendments will repeal section 431B thereby removing the modifications which currently apply for the purposes of determining the reduction of a CFC's FIF income for distributions received by the CFC from a FIF [clause 20]. Thus, broadly, the same rules will apply to CFCs for the purposes of preventing double taxation of distributions from FIFs as those which apply to other taxpayers.

Section 9 - Taxation of corporate limited partnerships under the CFC and FIF measures

Summary of the amendments

Purpose of the amendments

2.69 The amendments will align the treatment of corporate limited partnerships (including dividends paid by corporate limited partnerships) under the foreign tax credit, foreign loss, CFC and FIF provisions of the Act with the treatment of companies (including dividends paid by companies) under those provisions. [Clause 21]

Date of effect

2.70 The amendments will apply from the 1994-95 year of income. [Clause 24]

Background to the legislation

2.71 Changes to the law with effect from the 1992-93 year of income operate to treat certain limited partnerships ("corporate limited partnerships") as companies for taxation purposes. It follows from this treatment that an interest held by a resident corporate limited partnership in a CFC or FIF should be treated in the same way under the CFC and FIF measures as an interest held by a resident company in a CFC or FIF. However, there are currently technical problems with regard to the way provisions of the law dealing with the treatment of corporate limited partnerships interact with the CFC and FIF provisions of the Act. There are also problems with regard to the way they interact with the foreign tax credit and foreign loss provisions of the Act. These problems are discussed below.

2.72 The CFC measures do not currently apply to an interest held by a resident corporate limited partnership in a CFC because the CFC measures only operate to attribute income to Australian entities (sections 456 and 361). Moreover, a corporate limited partnership is not an Australian entity within the meaning of section 336.

2.73 Section 336 provides that each of the following is an Australian entity:

(a)

an Australian partnership;

(b)

an Australian trust;

(c)

an entity (other than a partnership or trust) that is a Part X Australian resident.

However, a corporate limited partnership does not currently fall into any of the above categories.

2.74 A resident corporate limited partnership is not an Australian partnership (paragraph (b) above) because section 94K provides that a reference in the income tax law to a partnership does not include a reference to a corporate limited partnership.

2.75 Moreover, a corporate limited partnership is not a resident of Australia "within the meaning of section 6" and therefore does not qualify as a "Part X Australian resident" (section 317, paragraph (c) above). This is the case even though a reference in the income tax law to a company is normally taken to include a corporate limited partnership because there is an exception to that rule where the term "company" is used in the section 6 definition of "resident" or "resident of Australia" (section 94J).

2.76 A similar problem arises in relation to the FIF measures because they only apply to those companies which are Part XI Australian residents as defined in section 470 (paragraph 485(3)(c)). The definition of Part XI Australian resident is essentially the same as that for a Part X Australian resident and therefore gives rise to the problems discussed above.

2.77 Moreover, a corporate limited partnership currently cannot qualify for the exemption under section 23AJ for certain dividends received from non-resident companies because a corporate limited partnership cannot satisfy the requirement in paragraph 23AJ(1)(b) that it is a resident "within the meaning of section 6".

2.78 Another problem with the treatment of corporate limited partnerships is that references to a company in the definition of a "dividend" in section 6 are not taken to be references to a corporate limited partnership (section 94J). Thus, although section 94L may apply to deem a corporate limited partnership to have paid a dividend for taxation purposes, a dividend paid by a corporate limited partnership is not a dividend "within the meaning of section 6". Therefore, a dividend paid by a corporate limited partnership will not be treated as passive income by paragraph 160AEA(1)(a) (which defines passive income for the purposes of the foreign tax credit and foreign loss provisions) or 446(1)(a) (which defines passive income for the purposes of the CFC measures). These provisions should apply to distributions which are treated as dividends paid by a corporate limited partnership.

Explanation of the amendments

2.79 The amendments will align the treatment of corporate limited partnerships (including dividends paid by corporate limited partnerships) under the foreign tax credit, foreign loss, CFC and FIF provisions of the Act with the treatment of companies (including dividends paid by companies) under those provisions. This will be achieved by substituting section 94T, which deals with residency of corporate limited partnerships, with new section 94T which will make it clear that corporate limited partnerships are to be treated as residents "within the meaning of section 6" where they are formed in Australia, carry on business in Australia or have their central management and control in Australia [clause 23]. These are the same requirements for residency as were provided by former section 94T.

2.80 In addition, section 94L which has the effect of treating distributions from corporate limited partnerships as dividends will be amended to also treat those distributions as dividends "within the meaning of section 6". [Clause 22]

Section 10 - Deduction for FIF losses

Summary of the amendments

Purpose of the amendments

2.81 The amendments will modify the calculation and availability of a deduction under section 532 or 533 where a taxpayer has incurred a FIF loss under the market value or cash surrender value methods for determining FIF income to ensure that:

(i)

FIF losses are converted to Australian currency for the purposes of calculating the deduction; and

(ii)

quarantining does not apply to a deduction from assessable income for FIF losses.

[Clauses 25 and 27]

Date of effect

2.82 The amendment described at item (i) above will apply to the calculation of FIF income for notional accounting periods of FIFs ending after the commencement of the 1994/95 year of income [clause 29] . The amendment described at item (ii) will apply from the commencement of the FIF measures, i.e., 1 January 1993 [subclause 2(2)] .

Background to the legislation

2.83 Broadly, a taxpayer may claim a deduction from assessable income for a loss arising under the market value or cash surrender value methods for determining FIF income to the extent the FIF or FLP has a FIF attribution surplus (i.e., retained profits which have been taxed previously under the FIF measures) (sections 532 and 533) . This treatment was provided on the basis that a FIF loss reflects a reduction in a FIF's profits which can be distributed to a taxpayer. Accordingly, the deduction provides relief for the FIF taxation of profits which are no longer available for distribution.

2.84 There are currently two problems with the calculation and availability of the abovementioned deduction for FIF losses. First, there are no explicit currency conversion rules in sections 532 or 533 to ensure that the amount of a deduction which may be claimed for a FIF loss is calculated with regard to amounts expressed in Australian currency. In this regard, it is considered the intention of the law is clear that the currency in which a FIF loss is expressed is to first be converted to Australian currency for the purposes of determining the deduction under sections 532 or 533. This is because the amount of a deduction under those sections is determined with regard to a FIF attribution surplus which is expressed in Australian currency. It is intended only to clarify the existing law by formally stating that a FIF loss is to be converted to Australian currency for the purposes of calculating a deduction under section 532 or 533.

2.85 Secondly, section 79D may operate to quarantine a deduction for FIF losses under section 532 or 533 because FIF income belongs to the passive class of foreign income and a deduction under those sections may be said to relate to FIF income. It was not intended, however, that the deduction be quarantined.

Explanation of the amendments

2.86 New subsection 533A will ensure that FIF losses are converted to Australian currency for the purposes of calculating the availability of a deduction under section 532 or 533 [clause 28]. This conversion is to take place using the rate of exchange applicable at the end of the notional accounting period of a FIF in which the loss arises.

2.87 The amendment of subsection 160AFD(9) to exclude deductions available under section 532 or 533 from the definition of "foreign income deduction" will ensure that quarantining does not apply to a deduction which is available under those sections [clause 26]. This is because the definition of "foreign income deduction" in section 79D uses the definition in subsection 160AFD(9) and therefore the amendment of that subsection will ensure that a deduction under section 532 or 533 is not limited by section 79D.

Section 11 - Unapplied FIF losses under the market value and cash surrender value methods for determining FIF income

Summary of the amendments

Purpose of the amendments

2.88 The amendments will provide currency conversion rules for FIF losses arising under the market value and cash surrender value methods for determining FIF income. [Clause 30]

Date of effect

2.89 The amendments will apply to the calculation of FIF income for notional accounting periods of FIFs ending after the commencement of the 1994/95 year of income. [Clause 33]

Background to the legislation

2.90 Currently, there is no provision which formally states that unapplied previous FIF losses (i.e., FIF losses reduced to the extent they have been used to enable a taxpayer to claim a deduction from assessable income under section 532/533) are to be calculated in, or converted into, the same currency as the gross FIF income from which they are to be deducted. For instance, the currency conversion rules for the purposes of the market value method currently only apply when determining the FIF amount in section 538 and not in the calculation of FIF income in section 542.

2.91 Under section 542, unapplied previous FIF losses are deducted from gross FIF income in order to determine the amount of FIF income which is to be included in the relevant taxpayer's assessable income. However, it is not formally stated that these unapplied previous FIF losses be calculated in, or converted into, the same currency as that in which a FIF's gross FIF income is expressed. A similar problem arises under the cash surrender value method for determining the FIF income of a FLP.

2.92 It is not normally the case that an unapplied previous FIF loss would be expressed in a different currency to gross FIF income. For instance, subsection 539(6) has the effect that the values of amounts used in the calculation of FIF income are to be obtained from a particular stock exchange for as long as it is practicable to do so. Accordingly, amounts used in the calculation of FIF income under the market value method would normally be expressed in the currency used by a particular stock exchange (subsection 538(3) and paragraph 538(2)(a)).

2.93 One case where an unapplied previous FIF loss might not be expressed in the currency in which gross FIF income is calculated is where a taxpayer elects under subsection 538(4) to express amounts relevant to the calculation of gross FIF income in Australian currency. In this case, an unapplied previous FIF loss would not be calculated using amounts expressed in Australian currency to the extent those amounts are referable to notional accounting periods of a FIF prior to that in which the election was made.

Explanation of proposed amendments

2.94 New subsections 542(8) will ensure that an unapplied previous FIF loss (subsections 542(5), (6) and (7)) is calculated using the same currency as the currency in which gross FIF income (paragraph 542(2)(a)) is expressed. Where an amount used in the calculation of an unapplied previous FIF loss is expressed in a different currency to that in which gross FIF income is expressed, the amount is to be converted to the currency in which the gross FIF income is expressed using the rate of exchange which applied at the end of the notional accounting period of the FIF to which the amount relates. [Clause 31]

Example

2.95 A taxpayer elects under subsection 538(4) to express amounts used in the calculation of gross FIF income in Australian currency from the notional accounting period 1 July 1995 to 30 June 1996. In addition, there is a FIF loss (section 541) of $(US)100 from the notional accounting period 1 July 1993 to 30 June 1994 and gross FIF income of $(US)30 from the notional accounting period 1 July 1994 to 30 June 1995.

2.96 In this case, new subsection 542(8) requires that in calculating the amount of an unapplied previous FIF loss for the notional accounting period 1 July 1995 to 30 June 1996:

(i)

the $(US)100 FIF loss is to be converted to Australian currency using the rate of exchange applicable at 30 June 1994; and

(ii)

the $(US)30 gross FIF income is to be converted to Australian currency using the rate of exchange applicable at 30 June 1995.

2.97 Even though there is currently no formal step stated in the law that the amount of an unapplied previous FIF loss is to be expressed in the same currency as the amount of gross FIF income against which it is to be offset, it is considered that such a step is clearly implied. The proposed amendments are intended only to clarify the existing law by stating this step in calculating FIF income.

2.98 New subsection 600(8) provides similar currency conversion rules for the purposes of the cash surrender value method for determining FIF income from a FLP. [Clause 32]

Section 12 - Reduction of attribution percentage under the calculation method

Summary of the amendments

Purpose of the amendments

2.99 The amendments will provide that the attribution percentage under the calculation method for determining FIF income is reduced in cases where the total interests held in a FIF by Australian residents exceed 100%. [Clause 34]

Date of effect

2.100 The amendments will apply from the commencement of the FIF measures, i.e., 1 January 1993. [Subclause 2(2)]

Background to the legislation

2.101 Currently, it is possible for Australian residents to be attributed more than 100% of the calculated profit of a FIF under the calculation method for determining FIF income. This is because a taxpayer's attribution percentage is normally calculated with regard to FIF interests which the taxpayer is entitled to acquire (section 581 and subsection 582(6)). It follows that a certain amount of double counting of FIF interests will arise if an Australian resident holds an interest in a FIF and another Australian resident is entitled to acquire an interest in the FIF. Thus, it is currently possible for the total of interests held by Australian residents in a FIF to exceed 100% and therefore those taxpayers when taken as a whole may be taxed on more than 100% of the FIF's profits.

2.102 A certain amount of double counting of FIF interests arising from a taxpayer's entitlement to acquire an interest in a FIF is considered necessary in order to prevent taxpayers from disguising their rights to the accumulated profits of a FIF. Of particular concern are instances where a non-resident holds an interest in a FIF and an Australian resident is entitled to acquire an interest in the FIF. In these cases, the Australian resident may benefit from the accumulation of income in the FIF by exercising the right to acquire an interest in the FIF at some time in the future. Thus, unless the FIF measures apply to the taxpayer's entitlement to acquire an interest in the FIF, the taxpayer could benefit from the accumulation of profits by the FIF and not be taxed under the FIF measures as those profits accrue.

2.103 However, despite the abovementioned concerns, it is not considered necessary to attribute more than 100% of a FIF's calculated profit to Australian residents in order to safeguard the operation of the FIF measures.

Explanation of the amendments

2.104 New subsections 581(4) and 582(6A) will reduce a taxpayer's attribution percentage under the calculation method for determining FIF income in some instances. This reduction will apply where the total attribution percentages held by Australian residents, to whom the operative provision of the FIF measures (i.e., section 529) applies in relation to a particular FIF, exceed 100%. In these cases, the attribution percentage will be reduced by a proportion based upon the extent to which the total of the attribution percentages held by those Australian residents exceed 100%. [Clauses 35 and 36]

Section 13 - Attribution of dividends paid from profits taxed under the FIF measures

Summary of the amendments

Purpose of the amendments

2.105 The amendments will provide that the attributable portion of a dividend under the CFC measures is reduced to the extent the dividend was paid out of profits upon which a taxpayer has been taxed previously under the FIF measures. [Clause 40]

Date of effect

2.106 The amendments will apply from the commencement of the FIF measures, i.e., 1 January 1993. [Subclause 2(2)]

Background to the legislation

2.107 An Australian controller of a CFC may be taxed under the CFC measures on a share of certain dividends received by that CFC from another CFC (section 458). The amount of the dividend so taxed is reduced to the extent the dividend was paid out of profits which have been taxed under the CFC measures. This reduction prevents double taxation of those profits.

2.108 The extent to which a dividend is treated as having been paid out of previously taxed profits is measured by the amount of an attribution debit which arises for the entity paying the dividend. Further, for this purpose, the attribution debit is grossed-up to the amount of an attribution debit which would have arisen if the attributable taxpayer wholly owned the CFC. The attribution debit is grossed-up in this way because the section 458 amount is calculated with regard to gross amounts rather than an attributable taxpayer's share of those amounts. In comparison, an attribution debit relates to the profits of a CFC upon which a particular taxpayer has been taxed under the CFC measures. Thus, if not for grossing-up of an attribution debit, a taxpayer would not receive sufficient relief from double taxation for amounts which have been taxed previously under the CFC measures when calculating the amount of a dividend which is to be attributed under section 458. The following example illustrates why this grossing-up is necessary.

Example

Facts

2.109 An Australian company (Ausco) owns 50% of a company in a listed country (CFC1) which in turn holds a company in an unlisted country (CFC2) as is illustrated by the following diagram:

2.110 In year 1, all of CFC2's profits are included in its attributable income. CFC2's attributable income is calculated to be $100,000 and Ausco is taxed on $50,000 (i.e., $100,000 attributable income x 50% attribution percentage) of CFC2's attributable income. This gives rise to an attribution credit for CFC2 of $50,000 in relation to Ausco.

2.111 In year 2, CFC2 distributes all of its profits from year 1 as a dividend to CFC1.

Consequences

2.112 Ausco has been taxed on the profits out of which CFC2 paid the dividend in year 1 and therefore should not be taxed again on the dividend. Thus, when calculating the amount of the dividend which will be attributed to Ausco under section 458, the dividend should first be reduced to the extent that Ausco has been taxed on the profits out of which the dividend was paid. In this case, the reduction should be the whole of the dividend, i.e., $100,000.

2.113 This reduction is provided for in section 458 in that the attributable dividend is reduced by the grossed-up attribution debit which arises for a company as a result of paying the dividend. Thus, the $100,000 dividend would be reduced by $100,000 (i.e., $50,000 attribution debit arising as a result of CFC2 paying the dividend divided by Ausco's attribution percentage of 50% in CFC2) when determining the extent to which Ausco will be taxed on the dividend.

2.114 It can be seen from the above example that in order to achieve the correct result under section 458, it is necessary to gross up the attribution debit which arises for CFC2 on paying the dividend. It would not be sufficient to reduce the dividend by the attribution debit which arises for CFC2 as a result of paying the dividend. This is because the attribution debit only reflects the amount of CFC2's profits upon which Ausco has been taxed whereas the calculation of the taxable portion of the dividend under section 458 is determined with regard to the whole dividend and not just Ausco's share of that dividend. Thus, Ausco would not receive sufficient relief from double taxation unless the dividend which is attributable under section 458 is reduced by the grossed-up amount of the attribution debit which arises for CFC2 as a result of paying the dividend.

2.115 Currently, however, the section 458 amount is not reduced by the "grossed-up" amount of a FIF attribution debit which arises for the paying entity. Broadly, a FIF attribution debit reflects the extent to which a dividend has been paid out of profits which have been taxed previously under the FIF measures. Accordingly, double taxation of the paying entity's profits under the FIF measures and section 458 may arise unless a dividend paid from those profits is reduced for the purposes of section 458 by the "grossed-up" amount of a FIF attribution debit which arises for the entity which pays the dividend.

2.116 It should be noted that most non-portfolio dividends paid to a CFC will not give rise to a FIF attribution debit for the paying entity. This is because the attribution account system for the purposes of the CFC measures is used to keep track of profits which have been taxed previously as a result of FIF income being included in the attributable income of a CFC. Nevertheless, it is possible in some circumstances for non-portfolio dividends paid to a CFC to give rise to a FIF attribution debit for the paying entity. This may happen, for instance, where a CFC and an attributable taxpayer both hold a direct interest in a FIF (these may be interests with different distribution profiles). In this case, the CFC may receive a distribution from the FIF which gives rise to a FIF attribution debit in relation to the taxpayer (section 606) because the CFC is a FIF attribution account entity. Accordingly, a FIF attribution debit may arise where the CFC subsequently pays a non-portfolio dividend to another CFC in relation to the taxpayer. Moreover, section 458 may apply to that dividend.

Explanation of the amendments

2.117 The amendments will ensure that the attributable portion of a dividend under the CFC measures is reduced to the extent the dividend was paid out of profits upon which a taxpayer has been taxed previously under the FIF measures. This will be achieved by modifying the definition of formula component "GD" in section 458 to take into account a FIF attribution debit which arises as a result of a dividend paid by a CFC. [Clause 41]

Section 14 - Technical amendments

Summary of the amendments

Purpose of the amendments

2.118 The amendments will correct technical problems with the drafting of sections 511 and 523. [Clauses 37 and 42]

Date of effect

2.119 The amendments to section 511 and subparagraph 523(b)(ii)(C) will apply from the commencement of the FIF measures, i.e., 1 January 1993. The amendment of subparagraph 523(b)(ii)(D) is to apply to notional accounting periods of FIFs ending after the commencement of the 1994-95 year of income. [Subclause 2(2) and clause 39]

Background to the legislation

2.120 The exemption from the FIF measures in section 523 for foreign companies principally engaged in several activities basically mirrors the exemption in section 511 for foreign companies engaged in activities connected with real property (the exemption in section 523 deals with a number of activities other than those in connection with real property). However, there are differences between sub-subparagraphs 511(b)(ii)(C) and 523(b)(ii)(C), and also between sub-subparagraphs 511(b)(ii)(D) and 523(b)(ii)(D). These differences arise because the words "or by a wholly-owned subsidiary of the company that was principally engaged in carrying on the business of providing those services through directors or employees of that subsidiary" were inserted at the end of sub-subparagraph 523(b)(ii)(D) rather than sub-subparagraph 523(b)(ii)(C) as was intended. The amendments will correct this anomaly.

2.121 Another technical problem is that the third last line of section 511 refers to subparagraph (a)(i). The reference should be to paragraph (a).

Explanation of the amendments

2.122 The amendments will remove the words "or by a wholly-owned subsidiary of the company that was principally engaged in carrying on the business of providing those services through directors or employees of that subsidiary" from sub-subparagraph 523(b)(ii)(D) and insert them at the end of subparagraph 523(b)(ii)(C) [clause 38]. The amendments will also correct the reference to subparagraph (a)(i) in section 511 so that it refers to paragraph (a) [clause 43].

GLOSSARY

Attributable taxpayer"

A person who has, in general, a 10 per cent or greater interest in a Controlled Foreign Company or in a non-resident trust for the purposes of Part X of the Principal Act.

Attribution account (including FIF attribution account)

An attribution account establishes a link between:

•

income that has been attributed to the taxpayer from an entity; and

•

income actually distributed to that taxpayer by the entity.

This makes it possible to identify when, and to what extent, it is necessary to provide relief from double taxation on the distribution of profits which have been taxed on an accruals basis.

Calculation method

An alternative method, available at the taxpayer's election, to determine the amount to be included in a taxpayer's assessable income under the FIF measures. The amount is calculated by determining a taxpayer's share of a FIF's profits. A FIF's profits are calculated using rules similar (but simpler than) those that apply for a resident taxpayer.

Cash surrender value method

Method of taxation applying to taxpayers who have an interest in a FLP. In general, the amount included in assessable income is calculated by measuring the increase, if any, in the cash surrender value of an interest in a FLP between the last day of the previous notional accounting period and the last day of the current notional accounting period, with an adjustment for acquisitions, disposals and distribution.

Controlled foreign company or CFC

A company that is not a resident of Australia and is controlled by five or fewer residents- see Part X of the Principal Act.

Deemed rate of return method

The backup method to determine the amount to be included in the taxpayer's assessable income under the FIF measures which is used where it is not possible to use the market value method and a taxpayer does not choose to use the calculation method. The amount is calculated by applying a deemed rate of return to the value of the FIF or FLP interest.

FIF

A foreign investment fund.

FIF interest

An interest in a foreign investment fund.

Foreign Life Policy (FLP)

A foreign life policy is a life assurance policy (as defined in subsection 482(2)) issued by a non-resident.

Interest in a FIF

The total of all instruments in a company held by the taxpayer (such as a share, option, convertible note etc.) or in a trust (such as a unit, option to acquire a unit, a note convertible into a unit).

Market value method

The primary method to determine the amount to be included in the taxpayer's assessable income under the FIF measures. In general, the amount is calculated by measuring the increase, if any, in the market value of a FIF interest between the last day of the previous notional accounting period and the last day of the current notional accounting period with adjustment for acquisitions, disposals and distributions.

Notional accounting period

The period by reference to which the FIF measures will apply. In general, this will be the same as the taxpayer's year of income. The taxpayer may elect that the notional accounting period coincide with the accounting period that the FIF uses for reporting to shareholders or beneficiaries. In relation to FLPs, the taxpayer may elect that the notional accounting period of the FLP coincide with the period for which cash surrender values are available.

Statutory accounting period

The statutory accounting period is used as the measurement period of the CFC measures. It is a period of 12 months, ending on 30 June, unless the foreign company has elected for a 12 month period ending on another day (section 319).

Transferor trust

A non-resident trust to which a resident taxpayer has made, or is deemed to have made, a transfer of property or services under Division 6AAA of Part III of the Act.