How much of the company's attributable income is included in your assessable income
What is your attribution percentage?
What is the company's ATTRIBUTABLE INCOME? It depends on residence and the attribution test!
Resident In Unlisted Country & Failed Active Income Test
Resident In Unlisted Country & Passed Active Income Test
You are an attributable taxpayer
The company in which you hold the shares is a controlled foreign company
That company fails the active income test for the year of income
So how much of the company's income will be included in your income, whether or not it has declared and remitted to you a dividend?
That depends on ...
the attributable income of the controlled foreign company...and...
your attribution percentage.
The amount included in your assessable income will be your attribution percentage of the company's attributable income
What is your attribution percentage?
Your attribution percentage is the highest of the your percentage of...
total paid-up CAPITAL of the company
total RIGHTS TO VOTE,or participate in decision making concerning....
the making of distributions of capital or profits
changes to the constituents documents of the company
variation of the share capital
total RIGHTS to distributions of CAPITAL of the company on WINDING UP
total RIGHTS to distributions of PROFITS on WINDING UP of the company
total RIGHTS to distributions of CAPITAL of the company OTHERWISE THAN on WINDING UP
total RIGHTS to distribution of PROFITS of the company OTHERWISE THAN on WINDING UP
Answer this question….
Taxpayer is entitled to 20% of capital of a company on winding up, and has 30% of the voting shares. What is his attribution percentage (figure only - no % sign)
The attribution percentage is the highest of all the various control measures - 30% of voting shares is higher than 20% of rights to capital
What is the company's ATTRIBUTABLE INCOME?
It depends on
WHERE it is RESIDENT and
whether it passed the ACTIVE INCOME TEST
Resident In Unlisted Country &
Failed Active Income Test
The following amounts are
included in attributable incomeadjusted TAINTED INCOME derived by the company DIRECTLY
adjusted TAINTED INCOME derived by the company INDIRECTLY as a partner in a partnership
TRUST amounts arising DIRECTLY
TRUST amounts arising INDIRECTLY because the company is a partner in a partnership
If you are wondering what is meant by ADJUSTED TAINTED INCOME, it is similar to tainted income, which you will have learned from the last topic and consists of
passive income,
tainted sales income and
tainted service income.
You will recall the definition of passive income included
net gains on disposal of tainted assets
net tainted commodity gains
net tainted currency exchange gains
When calculating ADJUSTED TAINTED INCOME, instead of the net gain, the actual amount derived on each disposal is used.
Resident In Unlisted Country &
Passed Active Income Test
The following amounts are
included in attributable incomeTRUST amounts arising DIRECTLY
TRUST amounts arising INDIRECTLY because the company is a partner in a partnership
. NOT ALL TAINTED INCOME IS INCLUDED
We usually talk about ASSESSABLE INCOME and EXEMPT INCOME but these provisions make use of the terms NOTIONAL ASSESSABLE INCOME and NOTIONAL EXEMPT INCOME- which are not exactly the same thing.
Some amounts of tainted income are not included in NOTIONAL ASSESSABLE INCOME. For a company in an UNLISTED COUNTRY these include...
Amounts taxed in Australia
Amounts derived from carrying on business through a permanent establishment in a listed country.
Most dividends paid by a foreign company
Failed Active Income Test
The following amounts are
included in attributable incomeincome from sources outside the listed country that is
not taxed in a listed country ....
not eligible designated concession income
eligible designated concession income that is adjusted tainted income
TRUST amounts arising DIRECTLY which are not subject to tax in a listed country
TRUST amounts arising INDIRECTLY because the company is a partner in a partnership which are not subject to tax in a listed country
Any other amounts are notional exempt income
Passed Active Income Test
The following amounts are
included in attributable incomeincome from sources outside the listed country that is
not taxed in a listed country ....
not eligible designated concession income
TRUST amounts arising DIRECTLY which are not subject to tax in a listed country
TRUST amounts arising INDIRECTLY because the company is a partner in a partnership which are not subject to tax in a listed country
Any other amounts are notional exempt income
Where adjusted tainted income includes net gains
For the calculation of attributable income, instead of a net amount being tainted the individual components that are used for the calculation of a net gain are treated as adjusted tainted income.
.
All income from sources outside the country of residence of the controlled foreign corporation will be included in notional assessable income UNLESS
they are taxed in a listed country
they are eligible designated concession income
NOTIONAL EXEMPT INCOME for a company in a listed country includes
Amounts taxed in Australia
Most dividends if ...
the eligible designated concession income and
the income and profits from sources outside the listed country which are not subject to tax
are less than a threshold amount.
What's the threshold amount?
GROSS TURNOVER LESS THAN $1 MILLION - 5% of gross turnover
GROSS TURNOVER $1 MILLION OR MORE - $50,000
NB this exemption applies only to companies resident in listed countries
related topics | apprentice tax practitioner program | tax law