Foreign income return form guide 2009
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Appendixes
Appendix 1 - Foreign income regulations
Introduction
Part 8A of the Income Tax Regulations 1936, and associated schedules, deal with the taxation of foreign source income. The provisions:
- declare those countries that are to be treated as listed, unlisted and section 404 countries
- provide that Swiss cantonal taxes are treated as if they were federal taxes
- contain rules for determining whether an amount is designated concession income
- specify when the capital gains are taken to have been subject to tax for the purpose of the controlled foreign company (CFC) measures, the transferor trust measures, and the non-assessable non-exempt treatment of foreign branches of Australian companies, and
- set out the accruals taxation laws of other countries that are recognised for the purpose of providing relief from double accruals taxation.
Listed countries
Schedule 10 of the Income Tax Regulations 1936 specifies the countries that are listed countries and section 404 countries. These lists are reproduced in attachment A .
Designated concession income
Normally, amounts derived in a listed country are exempt from accruals taxation. This exemption does not apply to amounts of 'eligible designated concession income'. Broadly, an amount may be designated concession income if it is concessionally taxed in a listed country.
What kinds of income or profits are specified as designated concession income?
Income or profits are designated concession income only if:
- they are of a kind specified in the Income Tax Regulations 1936 in relation to a particular listed country, and
- they are derived by an entity that is of a type specified in the Income tax Regulations 1936.
The full list of designated concession income has been reproduced in attachment B .
Capital gains deemed subject to tax
Capital gains are defined (except for the purposes of regulation 152D) of the Income Tax Regulations 1936 as gains or profits of a capital nature that arise from the sale or disposal of all or part of a capital gains tax (CGT) asset, other than gains or profits that would not be capital gains but for a provision of Australian tax law.
Regulation 152D provides that a capital gain (defined as gains or profits or other amounts of a capital nature) will be taken to be subject to tax in a listed country where the gain would have been subject to tax except for the operation of a rollover relief provision of a kind specified in the Income Tax Regulations 1936 contained in the tax law of that country. Broadly, the types of rollover relief relate to the types of rollover relief provisions available for capital gains tax purposes under Australian tax law.
Attachment A
Listed countries
- Canada
- France
- Germany
- Japan
- New Zealand
- United Kingdom of Great Britain and Northern Ireland
- United States of America.
Section 404 countries
- Argentina
- Austria
- Bangladesh
- Belgium
- Brazil
- Brunei
- Bulgaria
- China (except the Hong Kong Special Administrative Region)
- Czech Republic
- Denmark
- Fiji
- Finland
- French Polynesia
- Greece
- Hungary
- Iceland
- India
- Indonesia
- Iran
- Ireland
- Israel
- Italy
- Kenya
- Kiribati
- Korea, Republic of
- Luxembourg
- Malaysia
- Malta
- Mexico
- Myanmar
- Netherlands
- New Caledonia
- Norway
- Pakistan
- Papua New Guinea
- Philippines
- Poland
- Portugal
- Romania
- Russian Federation
- Saudi Arabia
- Singapore
- Slovak Republic
- Solomon Islands
- South Africa
- Spain
- Sri Lanka
- Sweden
- Switzerland
- Taiwan
- Thailand
- Tokelau
- Tonga
- Turkey
- Tuvalu
- Vietnam
- Western Samoa
- Zimbabwe.
Attachment B
Items of designated concession income
Country | Entity | Kind of income or profit | Feature of income or profit under tax law of the country |
Canada | An entity that operates in Canada as an international banking centre under Canadian law | All passive income and tainted services income | Not subject to tax in Canada in a tax accounting period |
Canada | A company that operates in Canada as an investment corporation, or as a mutual fund corporation, under Canadian tax law | All passive income | Not taxed in Canada at the normal company tax rate |
France | A company that operates in France as a société d'investissement à capital variable (SICAV) under French law | All passive income | Not subject to tax in France in a tax accounting period |
France | A company that is treated as a resident of France for the purposes of the tax law of France, and that has elected to be taxed on a tonnage basis rather than on income or profits | All income or profits | Not used as the basis for establishing the amount of taxable income, taxable profits, tax base or tax liability of the entity under the tax law of France |
Germany | A company that is treated as a resident of Germany for the purposes of the tax law of Germany | All passive income in carrying on business outside Germany at or through a permanent establishment | Not subject to tax in Germany in a tax accounting period |
Germany | Either: (a) a company that is treated as a resident of Germany for the purposes of the tax law of Germany, or (b) any company in carrying on business in Germany at or through a permanent establishment of the company in Germany | Capital gains in respect of shares in companies | Not taxed in Germany at the normal company tax rate |
Germany | A company that is treated as a resident of Germany for the purposes of the tax law of Germany, and that has elected to be taxed on a tonnage basis rather than on income or profits | All income or profits | Not used as the basis for establishing the amount of taxable income, taxable profits, tax base or tax liability of the entity under the tax law of Germany |
Japan | An entity in carrying on business in Japan at or through a permanent establishment of the entity in that country | All income or profits derived from Japanese governmental bonds | Not subject to tax in Japan in a tax accounting period |
New Zealand | Either: (a) a company that is treated as a resident of New Zealand for the purposes of the tax law of New Zealand, or (b) any entity in carrying on business in New Zealand at or through a permanent establishment of the entity in New Zealand | Capital gains in respect of tainted assets | Not subject to tax in New Zealand in a tax accounting period |
United Kingdom | A company that is treated as a resident of the United Kingdom for the purposes of the tax law of the United Kingdom | Capital gains in respect of shares in companies where: (a) the CGT assets of the companies, or (b) the underlying CGT assets of the companies held through one of more non-resident entities that are associates include CGT assets having the necessary connection with Australia | Not subject to tax in the United Kingdom in a tax accounting period as a consequence of the substantial shareholding exemption available under the tax law of the United Kingdom |
United Kingdom | A company that is treated as a resident of the United Kingdom for the purposes of the tax law of the United Kingdom, and that has elected to be taxed on a tonnage basis rather than on income or profits | All income or profits | Not used as the basis for establishing the amount of taxable income, taxable profits, tax base or tax liability of the entity under the tax law of the United Kingdom |
United Kingdom | An entity that operates in the United Kingdom as an open-ended investment company under the law of the United Kingdom | All passive income | Not taxed in the United Kingdom at the normal company tax rate |
United States | Either: (a) a company that is treated as a resident of the United States for the purposes of the tax law of the United States, or (b) any entity in carrying on business in the United States at or through a permanent establishment of the entity in that country | All income or profits derived from tax-exempt governmental bonds | Not subject to tax in the United States in a tax accounting period |
United States | An entity that operates in the United States as a regulated investment company under the tax law of the United States | All passive income | Not taxed in the United States at the normal company tax rate |
Appendix 2 - Accruals taxation on the change of residence of a controlled foreign company (CFC) from an unlisted country to a listed country or to Australia
The attributable taxpayers in relation to a CFC are taxed under section 457 on the amount that relates to the period until the change of residence. Non-portfolio dividends received by the CFC during the period are not included.
Change of residence of a CFC from an unlisted country to Australia
If a CFC changes residence from an unlisted country to Australia, a resident taxpayer who is an attributable taxpayer of the CFC is taxable on the taxpayer's attribution percentage of the adjusted distributable profits of the CFC. The amount of the distributable profits that is taxable to a resident taxpayer includes the adjusted tainted income of the CFC (excluding non-portfolio dividends) less any expenses relating to that adjusted tainted income.
Example 1
AustCo owns 75% of CFC1, a CFC that is resident in an unlisted country. CFC1 becomes a resident of Australia on 30 September 2006. CFC1 has a statutory accounting period of 1 July-30 June. For the period 1 July - 30 September CFC1 earned the following amounts of income:
Portfolio dividends
$10,000
Non-portfolio dividends
$15,000
Tainted interest income
$12,000
Tainted services income
$23,000
$60,000
CFC1's adjusted tainted income is $45,000. It incurs expenses of $5,000 in earning the adjusted tainted income.
CFC1's adjusted distributable profits are $40,000.
Therefore the amount attributable to AustCo under section 457 is 75% x $40,000 = $30,000.
Change of residence of a CFC from an unlisted country to a listed country
If a CFC changes residence from an unlisted country to a listed country, a resident attributable taxpayer has to include in assessable income a share of the adjusted distributable profits of the CFC.
The amount to be included is worked out in the same way as the amount that arises where an unlisted country CFC becomes a resident of Australia. However, a further adjustment is made to the CFC's distributable profits. The CFC is treated as having disposed of all of its tainted assets for their market value at the time it changed residence. Accordingly, the distributable profits also include a net profit arising on the deemed disposal of those assets.
Example 2
AustCo owns 75% of CFC2, a CFC that is resident in an unlisted country. CFC2 becomes a resident of a listed country on 30 September 2006. CFC2 has a statutory accounting period of 1 July-30 June. For the period 1 July - 30 September CFC2 earned the following amounts of income:
Portfolio dividends
$10,000
Non-portfolio dividends
$15,000
Tainted interest income
$12,000
Tainted services income
$23,000
$60,000
CFC2's adjusted tainted income is $45,000. It incurs expenses of $5,000 in earning the adjusted tainted income. The net profit (deemed) arising on CFC2's tainted assets at 30 September is $100,000.
CFC2's adjusted distributable profits are $140,000.
Therefore the amount attributable to AustCo under section 457 is 75% x $140,000 = $105,000.
Treatment of residence changes arising from changes to the lists of countries
If an unlisted country CFC is treated as having changed residence to a listed country as a result of the unlisted country becoming listed, section 457 will not apply to this type of change in residence.
Appendix 3 - Summaries and worksheets
Overview
Section 1 of this appendix contains the following summary sheets that may be useful when preparing your tax return.
attributed income | |
working out your share of the attributable income of a CFC | |
active income test |
Section 1 also contains the following worksheets:
- worksheet 1 - working out your control and attribution percentages
- worksheet 2 - working out the tainted income ratio for a CFC
- worksheet 3 - working out amounts from partnerships to be included in the tainted income ratio
- worksheet 4 - working out the attributable income of a CFC.
Section 2 contains a summary sheet for the transferor trust and related measures (summary sheet 4).
The summaries and worksheets are intended as guides only and may not cover all the qualifications and conditions contained in the law that may apply to a particular case.
Last Modified: Tuesday, 30 June 2009Copyright
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