(aa) if the exempt amount is a payment covered by section 83‑240 or 305‑65 of the Income Tax Assessment Act 1997—the exempt amount (excluding any part of that amount that represented contributions made by the taxpayer) were assessable income of the taxpayer; and
(b) the taxpayer were not entitled to any rebate of tax.
Notional gross taxable income means the number of whole dollars in the amount that would have been the taxpayer’s taxable income of the year of income if the exempt amount were not exempt income.
Other taxable income means the amount (if any) remaining after deducting from so much of the other income as is assessable income:
(d) any deductions allowable to the taxpayer in relation to the year of income that relate exclusively to that assessable income; and
(e) so much of any other deductions (other than apportionable deductions) allowable to the taxpayer in relation to the year of income as, in the opinion of the Commissioner, may appropriately be related to that assessable income; and
(f) the amount calculated using the formula in subsection (4).
(4) The formula referred to in paragraph (3)(f) is:
Start formula Apportionable deductions times open bracket start fraction Other taxable income over Apportionable deductions plus Notional gross taxable income close bracket end fraction end formula
where:
Apportionable deductions means the number of whole dollars in the apportionable deductions allowable to the taxpayer in relation to the year of income.
Other taxable income means the amount that, apart from paragraph (3)(f), would be represented by the component Other taxable income in subsection (3).
Notional gross taxable income means the number of whole dollars in the amount that would have been the taxpayer’s taxable income of the year of income if the exempt amount were not exempt income.
(5) Subsection (3) applies to a taxpayer in respect of income of a year of income as if any payment covered by section 83‑240 or 305‑65 of the Income Tax Assessment Act 1997 that related to the termination of employment that was made in respect of the taxpayer during that year of income were income of the taxpayer of that year of income that is exempt from tax under this section.
(6) For the purposes of this section, a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service:
(a) absent on recreation leave, other than:
(i) leave wholly or partly attributable to a period of service or employment other than that foreign service;
(ii) long service leave, furlough, extended leave or leave of a similar kind (however described); or
(iii) leave without pay or on reduced pay; or
(b) absent from work because of accident or illness.
(6A) 2 or more periods in which a person has been engaged in foreign service are together taken to constitute a continuous period of foreign service until:
(a) the end of the last of the 2 or more periods; or
(b) a time (if any), since the start of the first of the 2 or more periods, when the person’s total period of absence exceeds 1/6 of the person’s total period of foreign service;
whichever happens sooner.
Example: Kate is engaged in foreign service for 20 days, is absent for 2 days and is then engaged in foreign service for 10 days. These 2 periods of foreign service constitute a continuous period of foreign service, because the total period of absence is never more than 1/10 of the total period of foreign service.
Kate is then absent for 5 days before commencing a further period of foreign service. No matter how long the further period lasts, it can never constitute a continuous period of foreign service with the first 2 periods of foreign service, because on the fourth day of the second absence the total period of absence is 1/5 of the total period of foreign service.
(6B) In subsection (6A):
total period of absence, in relation to a particular time, means the number of days, in the period starting at the start of the first of the 2 or more periods and ending at that time, for which the person was not engaged in foreign service.
total period of foreign service, in relation to a particular time, means the number of days, in the period starting at the start of the first of the 2 or more periods and ending at that time, for which the person was engaged in foreign service.
(6F) Where:
(a) a person has derived foreign earnings during a year of income; and
(b) at the time of making an assessment in respect of income of the person of the year of income, the Commissioner is of the opinion that, at a later time, circumstances will exist because of which those foreign earnings will be exempted from tax by this section;
the Commissioner may apply the provisions of this section as if those circumstances existed at the time of making the assessment.
(7) In this section:
employee includes:
(a) a person employed by a government or an authority of a government or by an international organisation; or
(b) a member of a disciplined force.
foreign earnings means income consisting of earnings, salary, wages, commission, bonuses or allowances, or of amounts included in a person’s assessable income under Division 83A of the Income Tax Assessment Act 1997 (about employee share schemes), but does not include any payment, consideration or amount that:
(a) is included in assessable income under Division 82 or Subdivision 83‑295 or Division 301, 302, 304 or 305 of the Income Tax Assessment Act 1997; or
(b) is included in assessable income under Division 82 of the Income Tax (Transitional Provisions) Act 1997; or
(c) is mentioned in paragraph 82‑135(e), (f), (g), (i) or (j) of the Income Tax Assessment Act 1997; or
(d) is an amount transferred to a fund, if the amount is included in the assessable income of the fund under section 295‑200 of the Income Tax Assessment Act 1997.
foreign service means service in a foreign country as the holder of an office or in the capacity of an employee.
income tax, in relation to a foreign country:
(a) in all cases—does not include a municipal income tax; and
(b) in the case of a federal foreign country—does not include a State income tax.
23AH Foreign branch income of Australian companies not assessable
Objects
(1) The objects of this section are:
(a) to ensure that active foreign branch income derived by a resident company, and capital gains made by a resident company in disposing of non‑tainted assets used in deriving foreign branch income, (except income and capital gains from the operation of ships or aircraft in international traffic) are not assessable income or exempt income of the company; and
(b) to include in the assessable income of a resident company that part of its income and capital gains derived through a branch in a foreign country that is comparable to the amounts that would be included in an attributable taxpayer’s assessable income for income and capital gains derived by a CFC resident in the same foreign country; and
(c) to get the same outcomes where one or more partnerships or trusts are interposed between a resident company and a foreign branch; and
(d) to limit the effect mentioned in paragraph (a) where there is a branch hybrid mismatch for the purposes of Division 832 of the Income Tax Assessment Act 1997.
Foreign branch income not assessable
(2) Subject to this section, foreign income derived by a company, at a time when the company is a resident, in carrying on a business at or through a PE of the company in a listed country or unlisted country is not assessable income, and is not exempt income, of the company.
Foreign capital gains and losses disregarded
(3) Subject to this section, a capital gain from a CGT event happening to a CGT asset is disregarded for the purposes of Part 3‑1 of the Income Tax Assessment Act 1997 if:
(a) the gain is made by a company that is a resident; and
(b) the company used the asset wholly or mainly for the purpose of producing foreign income in carrying on a business at or through a PE of the company in a listed country or unlisted country; and
(c) the asset is not taxable Australian property.
(4) Subject to this section, a capital loss from a CGT event happening to a CGT asset is disregarded for the purposes of Part 3‑1 of the Income Tax Assessment Act 1997 if:
(a) the loss is made by a company that is a resident; and
(b) the company used the asset wholly or mainly for the purpose of producing foreign income in carrying on a business at or through a PE of the company in a listed country or unlisted country; and
(c) had the loss been a gain, it would be disregarded under subsection (3).
Exception relating to hybrid mismatch rules
(4A) Subsection (2) does not apply to foreign income derived by the company if the foreign income is branch hybrid mismatch income (see subsection (14C)).
Exceptions: listed country PE
(5) Subsection (2) does not apply to foreign income derived by the company if:
(a) the PE is in a listed country; and
(b) the PE does not pass the active income test (see subsection (12)); and
(c) the foreign income is both:
(i) adjusted tainted income (see subsection (13)); and
(ii) eligible designated concession income in relation to a listed country.
(6) Subsection (3) or (4) does not apply to a capital gain or capital loss if:
(a) the PE is in a listed country; and
(b) for a capital gain—the gain is from a tainted asset and is eligible designated concession income in relation to a listed country; and
(c) for a capital loss—the loss is from a tainted asset and would be eligible designated concession income in relation to a listed country if it were a capital gain.
Exceptions: unlisted country PE
(7) Subsection (2) does not apply to foreign income derived by the company if:
(a) the PE is in an unlisted country; and
(b) the PE does not pass the active income test (see subsection (12)); and
(c) the foreign income is adjusted tainted income (see subsection (13)).
(8) Subsection (3) or (4) does not apply to a capital gain or capital loss if:
(a) the PE is in an unlisted country; and
(b) the gain or loss is from a tainted asset.
Income derived in disposing of a business
(9) This section applies to foreign income derived by an entity in the course of disposing, in whole or in part, of a business carried on in a listed country or unlisted country at or through a PE of the entity in the listed country or unlisted country as if the foreign income had been derived in carrying on that business.
Interposed partnerships or trusts
(10) This section applies to any indirect interest (through one or more partnerships or trust estates) of a company in foreign income derived by a partnership or trustee through a PE of the partnership or trustee in a listed country or unlisted country as if that indirect interest were foreign income derived by the company through a PE of the company in that country.
(11) This section applies to any indirect interest (through one or more partnerships or trust estates) of a company in a capital gain or capital loss made in relation to an asset of a partnership, or made by a trustee, in carrying on a business at or through a PE of the partnership or trustee in a listed country or unlisted country as if that indirect interest were a capital gain or capital loss made by the company through a PE of the company in that country.
Active income test
(12) A PE of an entity passes the active income test for a year of income if the entity would have passed the active income test in section 432 if:
(a) the assumptions in subsection (14) were made; and
(b) subsection 432(3) and 446(2) and paragraphs 432(1)(b) and (e) and 447(1)(b), (d) and (f) had not been enacted.
Adjusted tainted income
(13) For the purposes of this section, the adjusted tainted income of a PE of an entity is income or other amounts that would be adjusted tainted income of the entity for the purposes of Part X if:
(a) the assumptions in subsection (14) were made; and
(b) subsection 446(2) and paragraphs 447(1)(b), (d) and (f) had not been enacted.
Assumptions for subsections (12) and (13)
(14) The assumptions referred to in paragraphs (12)(a) and (13)(a) are:
(a) except in applying paragraphs 447(1)(a), (c) and (e) and 450(6)(c), (7)(d) and (8)(b), the only income or other amounts derived by the entity were the income derived in carrying on business at or through the PE; and
(b) the entity’s statutory accounting periods were the same as the entity’s years of income; and
(c) in applying paragraphs 447(1)(a), (c) and (e) and 450(6)(c), (7)(d) and (8)(b):
(i) the part of the entity’s operations that consists of the business carried on at or through the PE were a company (the PE company); and
(ii) the remaining part of the entity’s operations were a separate company (the HQ company); and
(iii) the PE company and the HQ company had carried out the transactions that they would have carried out if the PE company were engaged in the same or similar activities as the PE under the same or similar conditions as the PE and were dealing wholly independently with the HQ company; and
(iv) any income derived by the HQ company were disregarded; and
(d) if the entity is an AFI entity (within the meaning of subsection 326(2))—the entity were an AFI subsidiary; and
(e) in applying paragraphs 447(1)(a), (c) and (e), the HQ company were an associate of the PE company.
(14A) This section does not apply to foreign income, or to a capital gain or capital loss, of a company to the extent that the income, gain or loss is from:
(a) the operation of ships or aircraft in international traffic at or through a PE of the company in a listed country or unlisted country; or
(b) things that are ancillary to that operation.
(14B) A company operates a ship or aircraft in international traffic if the company operates it for transporting passengers or goods between a place in one country and a place in another country.
Branch hybrid mismatch income
(14C) For the purposes of this section, if foreign income derived by the company is an amount that, for the purposes of Division 832 of the Income Tax Assessment Act 1997, is a payment:
(a) received by the company; and
(b) that, apart from subsection (4A) of this section, would give rise to a branch hybrid mismatch;
then so much of the foreign income as does not exceed the amount of the branch hybrid mismatch is branch hybrid mismatch income.
(14D) For the purposes of this section, PE, when it is used in Division 832 of the Income Tax Assessment Act 1997, does not have the meaning it has in that Act but instead has the same meaning as in this section.
Definitions
(15) In this section:
company does not include a company in the capacity of a trustee.
double tax agreement has the same meaning as in Part X.
eligible designated concession income has the same meaning as in Part X.
foreign income includes an amount that:
(a) apart from this section, would be included in assessable income under a provision of this Act other than Part 3‑1 or 3‑3 of the Income Tax Assessment Act 1997 (CGT); and
(b) is derived from sources in a listed country or unlisted country.
listed country has the same meaning as in Part X.
permanent establishment, or PE, in relation to a listed country or unlisted country:
(a) if there is a double tax agreement in relation to that country—has the same meaning as in the double tax agreement; or
(b) in any other case—has the meaning given by subsection 6(1).
statutory accounting period has the same meaning as in Part X.
tainted asset has the same meaning as in Part X.
unlisted country has the same meaning as in Part X.
23AI Amounts paid out of attributed income not assessable
(1) Where:
(a) either:
(i) an attribution account payment of a kind referred to in paragraph 365(1)(a), (b), (c) or (e) is made to a taxpayer (other than a partnership or taxpayer in the capacity of trustee of a trust); or
(ii) an attribution account payment of a kind referred to in paragraph 365(1)(d) is made to a taxpayer; and
(b) on the making of the payment, an attribution debit arises, for the entity making the payment, in relation to the taxpayer;
the following provisions have effect:
(c) if the payment is of a kind referred to in paragraph 365(1)(a)—the payment is not assessable income, and is not exempt income, to the extent of the debit;
(d) if the payment is of a kind referred to in paragraph 365(1)(b) and, apart from this section, an amount would be included in the taxpayer’s assessable income under section 92 in respect of an individual interest in the net income of the partnership of the year of income referred to in that paragraph—that amount is not assessable income, and is not exempt income, to the extent of the debit;
(e) if the payment is of a kind referred to in paragraph 365(1)(c) and, apart from this section, an amount would be included in the taxpayer’s assessable income under section 97, 98A or 100 in respect of a share of the net income of the trust of the year of income referred to in that paragraph—that amount is not assessable income and is not exempt income, to the extent of the debit;
(ea) if the payment is of a kind referred to in paragraph 365(1)(c) and, apart from this section, an amount would be assessable to the trustee of the trust referred to in that paragraph under section 98 in respect of a share of the net income of the trust of the year of income referred to in that paragraph—that amount is not so assessable to the extent of the debit;
(f) if the payment is of a kind referred to in paragraph 365(1)(d)—the payment is not, to the extent of the debit, assessable to the taxpayer as mentioned in that paragraph;