Senate

Explanatory Memorandum

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

CHAPTER 3 - REGIONAL HEADQUARTERS - INCOME TAX CONCESSIONS

Overview

3.1 The Bill will amend the Income Tax Assessment Act 1936 in order to provide certain concessions designed to encourage multinational corporations to locate their regional headquarters (RHQs) in Australia.

Summary of the amendments

Purpose of the amendments

3.2 The Bill proposes to:

•

allow deductions for certain business relocation expenses associated with the setup of an RHQ company in Australia [ clause 110]; and

•

exempt non-residents from liability to dividend withholding tax (DWT) on dividends paid out of certain foreign source dividend income of Australian resident companies [ clause 44].

Date of effect

3.3 Deductions for setup costs will be available for expenses incurred or reimbursements made on or after 1 July 1994. [Clause 111 - new 82CA]

3.4 In the case of the DWT exemption, resident companies will be able to credit their Foreign Dividend Account (FDA) with qualifying foreign source dividend income received on or after 1 July 1994. From that date, a resident company that has a surplus in its FDA will be able to pay a dividend that consists of an FDA declaration amount. [Clause 49]

Background to the legislation

What is an RHQ?

3.5 The generally strong economic development evident in the Asia/Pacific region has prompted multinational corporations to establish a base from which to provide support services for their new or expanding operations in the region. The term RHQ broadly refers to an entity that provides support services to its associated companies located in other countries in the region and acts as an intermediary between the associated companies and the parent company located elsewhere, for example, in Europe or North America. In the Australian context an RHQ is an Australian company which is established to perform the above mentioned functions for associated companies located in our region.

The aim of the RHQ concessions

3.6 The measures were announced by the Government in its Working Nation White Paper on Employment and Growth as part of a policy to encourage multinational corporations to locate their RHQs in Australia.

The concessions

3.7 The White Paper announced the Government's decision to provide an exemption from dividend withholding tax for certain foreign source dividend income flowing through Australian resident companies and to allow certain costs associated with the setup of an RHQ company in Australia to be deductible for income tax purposes.

3.8 Although introduced as part of the RHQ policy initiatives, the DWT exemption will not be limited to shareholders of companies performing RHQ activities in Australia. It will also be available to non-resident shareholders of all Australian resident companies which derive qualifying foreign source dividend income.

Deductibility of setup costs

3.9 During the establishment period an RHQ company may not be an operating business and will therefore not be deriving assessable income. Alternatively, an RHQ may establish its operations but may not derive assessable income for some time. Under the law as it now stands setup costs incurred prior to the operations commencing in Australia or prior to the RHQ company deriving assessable income would normally be treated as outgoings of a capital nature. In certain circumstance these costs would be depreciable and in others may not be deductible at all.

3.10 To be eligible for the proposed deduction a company will need to be an RHQ and incur the setup costs or reimburse an associated company within a designated period.

Dividend withholding tax exemption

3.11 Currently, a non-resident shareholder's liability to DWT on a dividend paid by an Australian resident company depends on the extent to which the dividend is franked (that is, the extent to which Australian company income tax has been paid) (paragraph 128B(3)(ga)) and whether Australia has concluded a Double Tax Agreement with the shareholder's country of residence. Under these agreements, DWT is generally imposed at the rate of 15 per cent, reduced from the 30% rate imposed (other than for residents of Papua New Guinea) by the Income Tax (Dividends, Interest and Royalties Withholding Tax) Act 1974 .

3.12 Under the new arrangements a non-resident will be exempt from DWT to the extent that the dividend consists of an FDA declaration amount. A dividend will consist of an FDA declaration amount if the company has declared a percentage that allocates the surplus in its FDA to its shareholders.

Explanation of the amendments

Deductibility of RHQ setup costs

Object of the concession

3.13 To assist readers in using the legislation, a proposed new Subdivision - Subdivision CB of Division 3 of Part III - is to be inserted in the Income Tax Assessment Act 1936 [clause 111] . The object of the Subdivision, which is set out in simple terms, is to provide an income tax deduction for certain expenditure incurred by companies which are authorised by the Treasurer to establish a regional headquarters in Australia [new section 82C] .

Commencement date

3.14 The tax concession for setup costs of an RHQ company will apply to eligible expenditure incurred by an RHQ company on or after 1 July 1994. [New section 82CA]

Only eligible companies can become RHQs

3.15 Foreign corporations will have a choice whether to relocate to Australia or establish a new company in Australia. The company, however, must be in existence at the time it makes an application to become an RHQ company. It should apply to the Treasurer in writing to become an RHQ company and should provide enough information to show that it intends to establish facilities in Australia for the main purpose of providing regional headquarters support. [New section 82CD]

Becoming an RHQ company

3.16 An RHQ company is defined as a company which has been determined by the Treasurer under new section 82CE to be an RHQ company [new section 82CB] . Based on a company's application the Treasurer may make a written determination that the company is an RHQ company [new subsection 82CE(1)] . The determination under new subsection 82CE(3) must be made in accordance with written guidelines made by the Treasurer [new paragraph 82CE(4)] .

3.17 Both the determination made by the Treasurer and the guidelines are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901 . Broadly speaking, this means that the disallowable instruments must be laid before both Houses of Parliament and that either House may pass a resolution disallowing any of the instruments. [New subsection 82CE(5)]

RHQ setup costs

What type of RHQ setup costs are to be deductible?

•

expenditure in setting up facilities in Australia, the main purpose of which is to provide " regional headquarters support" (see paragraph 3.22); and

•

reimbursement of the above type of setup costs of the RHQ company that were previously incurred by an associated offshore company (see paragraph 3.20).

3.18 In either case the expenditure may be of a revenue or capital nature. Certain costs, however, are expressly excluded . They are:

•

costs associated with undertaking a feasibility study;

•

the cost of purchasing tangible assets such as plant, equipment, land and buildings; and

•

the cost of moving an RHQ from one location in Australia to another location in Australia. [New paragraphs 82CB(1) (c) (d) and (e)]

Time requirements

3.19 RHQ setup costs will be allowable deductions if they are incurred no earlier than 12 months before and no later than 12 months after the date the RHQ company first derives assessable income from the provision of regional headquarters support [new subparagraph 82CB(1)(a)(ii)] . This will, in effect, give RHQs a 24 month time period in which to incur the costs. However, in the case of RHQ setup costs that are actually incurred by the RHQ company, (as distinct from any costs that are reimbursed to an associated offshore company) the 12 month period cannot extend back before 1 July 1994 [new section 82CA] .

Reimbursements to associated companies

3.20 A reimbursement to an associated offshore company will be allowed as an income tax deduction if the expenditure incurred by the associated offshore company would have qualified as setup costs if the RHQ company had actually incurred the expenditure itself.

3.21 Although reimbursement costs are also covered by the "12 months before and 12 months after" rule, they are not restricted to expenditure incurred on or after 1 July 1994 as is the case with setup costs incurred directly by an RHQ company. [New paragraph 82CB(1)(b)]

Examples

The Treasurer has determined that a company is an RHQ company from 15 July 1994. Assume the RHQ company first derives assessable income specifically from the provision of regional headquarters support on 29July 1994. The RHQ company can claim any setup costs as allowable deductions which are incurred on and after 1 July 1994 till 29 July 1995.

Given the above facts if an associated offshore company incurred setup costs on behalf of an RHQ company on 1 April 1994 and the RHQ company reimburses the associated offshore company on 31 July 1994, the reimbursement would be an allowable deduction to the RHQ company as the expense was incurred by the RHQ company after 1 July 1994 even though it was incurred by the associated offshore company before 1July1994. The important fact is that reimbursement was made in respect of expenditure incurred within the first 12 month period.

However, if the associated company incurred setup costs on behalf of the RHQ company on 30 June 1993 the costs would not be deductible as they were first incurred outside the first 12 month period.

Regional headquarters support

3.22 In order for a company to become an RHQ company the Treasurer needs to be satisfied that a company intends to establish facilities with the main purpose of providing "regional headquarters support".

3.23 'Regional headquarters support' is defined to mean the provision of 'management related services' , 'data services' or 'software support services' to its 'associated companies' or parts of itself ( e.g. a branch) which are located in countries other than Australia. These terms are discussed below. [New subsection 82CB(2)]

3.24 The following services are all included in the definition of 'management related services':

•

finance and treasury services;

•

business planning services;

•

marketing services;

•

accounting services; and

•

research and development services.

3.25 Examples of services which are considered to fall within this definition are managing the finances of the associated offshore companies, e.g. the management of cash balances, borrowings and lending, new business development and logistical support services. [New82CB(1)]

3.26 The definition of the term "data services" makes it clear that the provision of data services must involve a substantial input, transmission or manipulation of data or the production of information from data. Examples of data services will be providing telecommunication functions for the transmission of data to and from the RHQ company and its associated offshore companies and providing a central booking system, e.g. an airline booking system for use by the associated offshore companies. [New subsection 82CB(3)]

3.27 The term 'software support services' is given the broad meaning of providing software support to clients which consists of advice and assistance in relation to computer software sold by the company. Examples of software support services would be the provision of a 'help desk' facility to provide advice and assistance to computer users working for the associated offshore companies and/or providing computer programming assistance to those users. [New subsection 82CB(4)]

3.28 In basic terms two companies are an 'associated company' if one controls directly or indirectly more than 10% of the voting power in the other company, or a third company controls more than 10% of the voting power in both of them. [New section 82CC]

Dividend withholding tax exemption

Object of the concession

3.29 The object of the new exemption is to alleviate an impediment to the investment by non-residents in Australian resident companies that derive foreign source dividend income which otherwise does not attract Australian income tax.

3.30 A proposed new subdivision - Subdivision B of Division 11A of Part III - is to be inserted in the Income Tax Assessment Act 1936 [clause 48] . The object of the Subdivision is to make provision for the operation of foreign dividend accounts (FDAs) for the purpose of the exemption from withholding tax provided by paragraph 128B(3)(gaa) [new section 128S] .

The exemption

3.31 A non-resident who derives dividend income will be exempt from DWT to the extent that the dividend consists of a 'foreign dividend account declaration amount' (FDA amount). [New paragraph 128B(3)(gaa)]

3.32 The exemption will apply to the part of a dividend that is not already exempt under paragraph 128B(3)(ga). That is, where the dividend has been franked, the new exemption will apply to the unfranked part of the dividend. Under the imputation system, a DWT exemption already applies to the franked amount of the dividend. The franked amount represents profits that have been taxed in Australia at the company level.

Certain income not included in assessable income

3.33 The Bill will also amend section 128D of the Income Tax Assessment Act 1936 . Without this amendment the dividends which are to be exempt from withholding tax would technically be subject to tax under the normal assessment process. [Clause 47]

3.34 An FDA amount results from the declaration, in accordance with new section 128TC , of a 'foreign dividend account declaration percentage' (FDA declaration percentage) by the company paying the dividend.

3.35 A resident company will be able to specify an FDA declaration percentage if qualifying dividends are paid to the company on or after 1July 1994. The qualifying categories of dividend that are to be credited to the FDA are defined in new subsection 128TA(1) . These are:

'non-portfolio dividends' as currently defined by section 317 that are:

(a)

exempt from income tax by section 23AJ;

(b)

non-exempt dividends for which an entitlement to a foreign tax credit under sections 160AF or 160AFC may arise; and

•

dividends that consist of an FDA amount and are paid by a related company as defined by subsection 51AE(16).

3.36 Dividends other than non-portfolio dividends and dividend income exempt from income tax under sections 23AI or 23AK are excluded from the new arrangements.

3.37 Section 23AI and 23AK exempt dividends are paid out of attributed income (under the controlled foreign companies or the foreign investment fund provisions) which has been subject to Australian tax. Dividends paid out of this income are catered for under existing law as companies can frank the dividends thereby exempting them from DWT.

Amount of a dividend

3.38 Because of the way the foreign tax credit system operates, any dividend income received by an Australian multinational would be grossed up by any foreign tax paid (including any underlying tax on the profits from which the dividends are paid), thus artificially inflating the amount of a dividend which is to be subject to the withholding tax exemption. New 128SA will ensure that only the net dividend received is taken into account. The net dividend properly reflects the profit amount capable of being distributed by a resident company to its own shareholders. [Clause48]

The foreign dividend account (FDA)

3.39 The FDA will be a notional account which will quantify on any given day the amount of distributable profits that can be paid as DWT-free dividends. Basically, the FDA will be credited with amounts of qualifying dividends paid on or after 1 July 1994 and debited for expenditure relating to the qualifying dividends and for the part of the dividends, if any, on which Australian tax is payable.

3.40 The FDA will also be debited when a dividend to which the new exemption applies is paid. This will occur when an FDA surplus exists, that is, where the FDA credits exceed the FDA debits [new subsection 128T(1)] and the company makes an FDA declaration in relation to the dividend.

Section 23AJ exempt dividend income

3.41 Dividend income is exempt under section 23AJ where 'non-portfolio' dividends are received by a resident company from a company resident in either a listed or unlisted country and to the extent that the dividend is an 'exempting receipt' as defined by section 380.

3.42 'Non-portfolio dividend' is defined by section 317. Broadly speaking, a non-portfolio dividend is a dividend where the recipient company has a voting interest of at least 10% of the voting power in the company paying the dividend.

FDA credit

3.43 The recipient company will, at the time the dividend is paid, be able to credit the FDA with the amount of the dividend that is exempt under section 23AJ. [New section 128TA]

FDA debit

3.44 If a company incurs expenditure, on or after 1 July 1994, that is attributable to the section 23AJ exempt dividend income it derives, its distributable profits will reflect the corresponding reduction in the company's ability to pay dividends from this class of income. That reduction will also be reflected in the FDA. An FDA debit, equal to the amount of the expenditure, will arise at the time such expenditure is incurred. [New section 128TB]

Qualifying non-exempt dividend income

3.45 The second category of qualifying dividends are those that are both non-portfolio and non-exempt dividends where the recipient company is taken, under Division 18 of Part III of the Income Tax Assessment Act 1936 , to have paid and to have been personally liable for foreign tax in respect of the dividends.

FDA credit

3.46 The recipient company will, at the time the dividend is paid, be able to credit the FDA with the amount of the dividend. [New128TA]

FDA debit

3.47 If a company incurs expenditure, on or after 1 July 1994, that is attributable to qualifying non-exempt dividend income it derives, its distributable profits will reflect the corresponding reduction in the company's ability to pay dividends from this class of income. That reduction will also be reflected in the FDA. An FDA debit, equal to the amount of the expenditure, will arise at the time such expenditure is incurred. [New section 128TB]

3.48 Because qualifying non-exempt dividends are subject to Australian income tax, a portion of the income of that class will be capable of being distributed as a franked dividend. As a non-resident is exempt from DWT on the franked amount of the dividend, the FDA mechanism would confer a double exemption from DWT if the taxed component of qualifying non-exempt dividends were not excluded. An FDA debit for the "Australian-taxable dividend amount" will therefore prevent the double counting of the DWT-exempt component.

Australian-taxable dividend amount

3.49 The "Australian-taxable dividend amount" is an approximation of the part of a company's qualifying non-exempt dividend income that is not relieved from income tax by foreign tax credits under Division 18 of Part III of the Income Tax Assessment Act 1936 .

3.50 It is calculated using the following formula [new subsection 128TB(2)] :

(COMPANY TAX RATE [GROSSED-UP DIVIDEND AMOUNT - DIVIDEND DEDUCTIONS] - FOREIGN TAX ON DIVIDENDS) / COMPANY TAX RATE


3.51 This formula simplifies the calculation that would otherwise need to be made to exclude the part of the dividend on which Australian tax is payable.

3.52 The components of the formula are as follows:

3.53 The following example illustrates the calculation of the Australian-taxable dividend amount.

Example

Given the following:

Qualifying non-exempt dividends 19 000

Foreign withholding tax 3 000

Foreign underlying tax 2 000

Allowable deductions 4 000

Company tax rate = 33%

Then:

Foreign tax on dividends = $5 000

Grossed-up dividends = $24 000

Therefore, FDA debit for the Australian-taxable dividend amount

= [ .33 ( 24000 - 4000 ) - 5000 ] .33


= $4 848

3.54 An FDA debit equal to the Australian-taxable dividend amount will arise at the end of each year of income ending on or after 1 July 1994. [New subsection 128TB(4)]

Dividends paid to related companies

3.55 An Australian company will be able to pay a dividend, to the extent that it is matched by an FDA amount, to a 'related' company as defined by subsection 51AE(16) [new section 128TA] . The payment of the dividend will give rise to a credit in the related company's FDA. This will allow companies with group structures to pass on qualifying dividend income to other members of the group without the income losing its DWT-exempt character. This could occur for example where qualifying foreign dividend income is received by one member of the group that pays dividends to another Australian resident member which in turn pays dividends to non-resident shareholders.

Related companies

3.56 In basic terms two companies are related if one company has 100% ownership in the other or they both share 100% common ownership.

FDA credit

3.57 The recipient company will, at the time the dividend is paid, be able to credit the FDA with the FDA amount. [New section 128TA]

FDA debit

3.58 If a company incurs expenditure, on or after 1 July 1994, that is attributable to dividends that consist of FDA amounts paid to it by a related company, its distributable profits will reflect the corresponding reduction in the company's ability to pay dividends from this class of income. That reduction will also be reflected in the FDA. An FDA debit, equal to the same portion of the expenditure as the dividends consist of FDA amounts, will arise at the time such expenditure is incurred [new 128TB] . The apportioning of expenditure between that incurred in relation to the part that consists of an FDA amount and that incurred in relation to any other dividend income is provided for by a formula in new subparagraph 128TB(3)(c)(ii) .

3.59 The following flowcharts illustrate the effect on the FDA of:

(A)

a foreign source dividend paid to a resident company; and

(B)

a dividend (that consists of an FDA amount) paid to a resident company by a related company.

Foreign dividend account declaration

3.60 A resident company that has an FDA surplus will be able to pay a dividend that consists of an FDA amount. A dividend that is franked can only consist of an FDA amount to the extent of the unfranked amount. A fully franked dividend cannot, therefore, consist of an FDA amount but it will be possible for an unfranked dividend to consist entirely of an FDA amount.

3.61 The extent to which a dividend consists of an FDA amount is to be determined by a declaration made by the company before the dividend is paid. That declaration must be in writing and specify a percentage, the 'FDA declaration percentage', by which the dividends to be paid on a particular day will consist of FDA amounts. [New subsection 128TC(1)]

3.62 The FDA amount for a dividend will be calculated by multiplying the amount of the dividend by the FDA declaration percentage. [New subsection 128TC(4)]

3.63 The FDA declaration percentage will have an upper limit that is determined by the formula in new subsection 128TC(2) . The object of the formula is to encourage the equitable distribution of a company's FDA surplus among all shareholders. At the same time it is designed to discourage companies from paying dividends that consist of FDA amounts to particular non-resident shareholders to the exclusion of resident shareholders. The formula requires the FDA surplus at the beginning of the day to be greater than or equal to the amount calculated as follows:

FDA DECLARATION PERCENTAGE[ TOTAL NON-RESIDENT DIVIDENDS + [MAXIMUM NON_RESIDENT DIVIDEND PERCENTAGE * TOTAL CALCULATION VALUE FOR DIVIDEND PURPOSES OF OTHER SHARES ]]


The components of the formula are as follows:

3.64 The formula requires the FDA declaration percentage to be applied against the sum of:

•

the total dividends to be paid to non-resident shareholders or related companies; and

•

the amount calculated by multiplying the 'maximum non-resident dividend percentage' with the 'total calculation value for dividend purposes of other shares'.

3.65 The 'maximum non-resident dividend percentage' component accommodates the possibility of dividends being paid to non-residents or related companies at different rates on different classes of share. However, it would ordinarily be expected that only one percentage figure would exist. That percentage is then multiplied by the total 'calculation value for dividend purposes' of all shares other than those on which dividends have already been taken into account in the 'total non-resident dividends' component.

3.66 The 'total calculation value for dividend purposes of other shares' component covers shares on which no dividends are paid on the relevant day as well as shares on which dividends are paid (other than to non-resident or related company shareholders).

Example

Given, on the day dividends are to be paid by a resident company:

•

The following extract from a company's shareholders' equity account:

$

Paid-up ordinary share capital 100 000

Preference share capital 1 000

Share premium reserve 99 000

Where:

•

The amount credited to the share premium reserve was subscribed entirely by preference shareholders. A dividend of 5% per annum payable on preference shares is calculated by reference to the sum of the nominal capital of $1 per share and share premium of $99 per share.

•

The company makes a written FDA declaration specifying an FDA declaration percentage of 50% in relation to dividends to be paid to ordinary shareholders on that day.

•

The dividend to be paid on ordinary shares is 10c per share. The nominal, or par, value of ordinary shares is $1 The dividend rate is therefore 10%.

•

No dividend is to be paid to preference shareholders on the day.

•

The shareholder structure of the company consists of resident shareholders holding 40% of the issued ordinary shares and non-resident shareholders holding 60% of the issued ordinary shares.

•

The surplus in the company's FDA at the beginning of the day is $12 000.

Then, the components of the formula for the FDA percentage limit are:

3.67 The formula with each of its components is as follows:

12,000 > or = than [6000 + [10% of $140000]]
that is, $12,000 > or = than 10,000


3.68 It shows that the FDA declaration percentage specified by the company does not exceed the limit in the formula.

Foreign dividend account declaration amount (FDA amount)

3.69 The percentage a company specifies in an FDA declaration will be used to calculate the FDA amount for all of the dividends paid on the day to which the declaration relates. An FDA debit equal to the sum of the FDA amounts on those dividends will arise immediately after the beginning of the day on which the dividends are paid [new section 128TB] . This debit adjusts the FDA surplus to reflect the reduced amount of profits sourced from qualifying foreign dividends that remain available for distribution to shareholders.

3.70 In the example above, the FDA debit that arises, under new paragraph 128TB(1)(a) , in relation to the FDA amounts of the dividends paid would total $5 000. This is calculated by applying the 50% FDA declaration percentage to the total amount of dividends paid.

Excessive 'FDA declaration percentage'

3.71 If a company declares a percentage that results in the formula calculation exceeding the company's FDA surplus at the beginning of the day, the declaration is to be treated as having effect as if the percentage declared had been such that the formula calculation would equate with the FDA surplus [new subsection 128TC(5)] . The effects of this will be:

•

a failure by the company to deduct sufficient withholding tax on dividends paid to non-residents. There would be a deficiency in DWT of the difference between the amount deducted and the amount that should have been deducted if the appropriate declaration percentage had been specified. A consequence of this is that the company will become liable, under section 221YQ, for the unpaid withholding tax and for any additional tax, under subsection 128C(3), for its late payment.

•

an incorrect recording of the FDA amount on dividend statements issued by the company to its shareholders. If that misstatement results in the incorrect deduction of withholding tax by another person, the company will become liable for the shortfall under new section 128TE .

Dividend statements

3.72 A shareholder will be notified of the extent to which a dividend consists of an FDA amount by a statement the company is required to provide either before or at the time the dividend is paid.

3.73 Dividend statements will be required by new subsection 128TD(1) to contain the following information:

(a)

if the dividend consists entirely of an FDA amount, a statement to the effect that a non-resident who derives the dividend is not liable to pay withholding tax on the dividend; or

(b)

if the dividend consists, in part, of an FDA amount:

the FDA amount;

the amount of the dividend that remains after deducting the sum of the FDA amount and any franked amount;

the amount of withholding tax, if any, deducted from the dividend.

3.74 A company may include this information in the statement it is already required, by section 160AQH, to provide to shareholders when it pays a frankable dividend [new subsection 128TD(2)] . Whether the information is included in that statement or in a separate statement, the statement will need to be in a form approved by the Commissioner of Taxation [new subsection 128TD(3)] .

3.75 The Commissioner intends to provide guidelines on the approved form of dividend statement required by new section 128TD by way of public ruling. The ruling may also prescribe any other information that new subsection 128TD(4) will require to be included in a dividend statement.

Penalty for incorrect dividend statement

3.76 A company that provides a shareholder with a dividend statement that overstates the FDA amount will become liable for an additional tax penalty. [New subsection 128TE(1)]

3.77 The amount of the additional tax penalty will be an amount equal to the withholding tax shortfall in relation to the dividend, reduced by any withholding tax shortfall:

for which the company would become liable as a result of an excessive FDA declaration percentage, as provided for by new 128TC(5) (see paragraph 3.69 above); or

that would result from an overstatement of the franked amount of the dividend [new subsection 128TE(2)] . Under section 160ARY, a company would be liable for franking additional tax if the franked amount of the dividend had been overstated. The franking additional tax would be of an amount equal to the overstatement of the franking rebate that a shareholder would have become entitled to if the shareholder were a resident of Australia

3.78 The amount of additional tax payable is to be determined by an assessment made by the Commissioner [new subsection 128TE(3)] . Notice of that assessment may be incorporated in a notice of assessment made under any other provision of the Income Tax Assessment Act 1936 [new subsection 128TE(4)] .

3.79 The operation of other provisions of the Income Tax Assessment Act 1936 dealing with assessments and the collection and recovery of tax will be extended to the additional tax penalty for incorrect dividend statements [new subsection 128TE(5)] . These provisions are as follows:

Record keeping

3.80 Section 262A will apply in relation to the proposed exemption and companies will be required to keep records for the purpose of ascertaining whether there is an FDA surplus and in relation to the FDA declaration. [New section 128TF]

Transitional

3.81 Resident companies will be able to declare an FDA percentage if qualifying dividends are paid to the company on or after 1 July 1994. However, a FDA declaration in relation to those dividends cannot be made until commencement of the legislation.

3.82 Companies will be able to make a declaration in relation to dividends paid in the transitional period within 90 days of commencement. The declarations will be effective on the date the dividends were paid and will remove the liability, that arose under the existing law at the time of making the payment, to deduct DWT. [Clause50]