(1) For the purpose of applying this Act and the Income Tax Assessment Act 1997 in calculating the attributable income of an eligible CFC, sections 25A and 52 of this Act and sections 15‑15 and 25‑40 of the Income Tax Assessment Act 1997 do not apply in respect of the disposal of a non‑taxable Australian asset of the eligible CFC.
(2) A reference in subsection (1) to a non‑taxable Australian asset is a reference to a CGT asset other than one that has the necessary connection with Australia (within the meaning of the Income Tax Assessment Act 1997).
(3) The residency assumption is to be ignored in determining whether an asset is a taxable Australian asset for the purposes of this section.
397 Modified application of trading stock provisions
When applying this Act and the Income Tax Assessment Act 1997 in calculating the attributable income of the eligible CFC:
(a) Subdivision B of Division 2 of Part III of this Act has effect as if the value of any article of trading stock to be taken into account at the beginning or end of a year of income were its cost price; and
(b) Division 70 of the Income Tax Assessment Act 1997 has effect as if the value of any item of trading stock to be taken into account at the beginning or end of an income year were its cost.
398 Modified application of depreciation provisions
(1) Where property has been held by the eligible CFC in a non‑attributable income period in relation to the application of a depreciation provision to the property (in relation to the eligible CFC and the eligible taxpayer) prior to the eligible period, subsection (2) applies.
(2) Such amount as the Commissioner considers appropriate to take account of the holding of the property as mentioned in subsection (1) is, under the depreciation provision:
(a) a notional allowable deduction to the eligible CFC; or
(b) included in the notional assessable income of the eligible CFC;
as the case requires, for the eligible period in relation to the eligible taxpayer, in substitution for any amount that would otherwise be so included or allowable.
(3) For the purpose of exercising his or her power under subsection (2) to determine a notional allowable deduction in relation to:
(a) former sections 54 to 62 of this Act; or
(b) the former Division 42 (Depreciation) of the Income Tax Assessment Act 1997 (other than Subdivisions 42‑L and 42‑M); or
(c) Division 40 of that Act (other than Subdivision 40‑E);
the Commissioner must assume that the property was used by the eligible CFC during any non‑attributable income period wholly and exclusively for the purpose of producing notional assessable income.
398A Application of Division 3A of Part III
(1) Subject to subsection (2), Division 3A of Part III applies in calculating the attributable income of the eligible CFC.
(2) Section 82R does not apply, subject to subsection (3), to outgoings during the eligible period under a convertible note if:
(a) the note was issued by the eligible CFC (whether or not the company concerned was a CFC at the time):
(i) before 1 July 1990; or
(ii) on or after 1 July 1990 and before 1 July 1992, where:
(A) the terms of the issue of the note were publicly announced by the eligible CFC before 1 July 1990; or
(B) the eligible CFC was, under a contract entered into before 1 July 1990, obliged to issue the note; and
(b) at the end of each statutory accounting period of the eligible CFC preceding the eligible period and ending after 30 June 1990, the eligible taxpayer was an attributable taxpayer in relation to the eligible CFC; and
(c) the eligible period begins before 1 July 2000.
(3) If:
(a) the terms of a note to which subsection (2) would, apart from this subsection, apply are varied (otherwise than because of a compromise or arrangement approved by a court); and
(b) the Commissioner considers that the variation is substantial enough to represent a new loan;
subsection (2) does not apply to outgoings under the note after the time at which the variation takes place.
399 Modifications of net income of partnerships and trusts
(1) If, in calculating the attributable income of the eligible CFC, it is necessary to determine the net income of a partnership or trust under section 90 or 95, it is to be assumed that:
(a) the modifications of this Act in this Division (other than excluded modifications) apply to the partnership or the trust in the same way as they apply to the eligible CFC (except where a provision modified only applies to companies); and
(b) for the purpose of applying those modifications, the partnership or trust is taken to be a resident of the same listed or unlisted country as the eligible CFC; and
(c) the Income Tax Assessment Act 1997 is further modified by disregarding section 855‑50; and
(d) for the purposes of applying Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 in accordance with the preceding paragraphs, the trust is a resident trust for CGT purposes.
(2) In this section:
excluded modifications means modifications made by sections 411 to 418 (inclusive).
399A Modified application of bad debt etc. provisions
(1) For the purposes of applying this Act in calculating the attributable income of the eligible CFC for the eligible period:
(b) section 63D of this Act is to be disregarded; and
(c) subsection (2) of this section has effect.
(2) Where:
(a) apart from this subsection, an amount would be a notional allowable deduction to the eligible CFC under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997 in respect of the writing off of a debt as bad; and
(b) the debt was created or acquired in the ordinary course of a money‑lending business of the eligible CFC that carries on that business; and
(c) assuming that income:
(i) that has been derived by the eligible CFC in respect of the debt; or
(ii) that would have been reasonably likely to have been derived by the eligible CFC in respect of the debt if it had not become bad;
were instead derived by the eligible CFC during periods to which it may reasonably be attributed, there would be a part or parts (which part or the total of which parts is in this subsection called the notional exempt income period) of the period (in this subsection called the eligible debt holding period) beginning when the debt was so created or acquired, and ending when it was written off, in respect of which some or all of that income would not be included in the notional assessable income of the eligible CFC for any statutory accounting period;
then only a proportion of the amount referred to in paragraph (a) is a notional allowable deduction, being the proportion calculated using the following formula:
Start formula start fraction Eligible debt holding period minus Notional exempt income period over Eligible debt term end fraction end formula
where:
Eligible debt holding period means the number of days in the eligible debt holding period.
Notional exempt income period means the number of days in the notional exempt income period.
Eligible debt term means:
(d) where the debt was acquired from a person other than an associate—the number of days in the eligible debt holding period; or
(e) in any other case—the number of days in the period beginning on the day on which the debt was created (whether by the eligible CFC or another person) and ending at the end of the day on which it was written off.
(3) For the purposes of subsection (2):
(a) where a debt that is written off was acquired from another person, the creation and any previous acquisition of the debt is to be disregarded, other than for the purposes of paragraph (2)(e); and
(b) if, on the assumption in paragraph (2)(c), income would be derived by the eligible CFC during a period before the first statutory accounting period of the eligible CFC beginning on or after 1 July 1990, then, in spite of anything in that paragraph, that income is taken not to be included in the notional assessable income of the eligible CFC for any statutory accounting period; and
(c) it is to be assumed that, for any statutory accounting period for which there is no requirement to calculate the attributable income of the eligible CFC in relation to the eligible taxpayer, there is such a requirement.
(4) Where a part of a debt is written off as bad, the preceding provisions of this section apply as if the part were an entire debt that is written off as bad.
(5) This section has the same effect in relation to an allowable deduction under section 63E in respect of the whole or part of a debt that is extinguished as it has in relation to an allowable deduction under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997 in respect of the whole or part of a debt that is written off as bad.
400 Modified cross‑border requirement for transfer pricing
(1) This section applies in calculating the attributable income of the eligible CFC.
(2) Conditions that operate between the eligible CFC and another entity do not satisfy the cross‑border test in subsection 815‑120(3) of the Income Tax Assessment Act 1997 if:
(a) the other entity is a CFC; and
(b) the eligible CFC and the other entity are residents of the same listed country (disregarding section 383 of this Act).
401 Reduction of disposal consideration or capital proceeds if attributed income not distributed
(1) If:
(a) it is necessary, for the purposes of applying a provision of this Act in calculating the attributable income of the eligible CFC in relation to the eligible taxpayer, to take into account:
(i) the amount of consideration received, entitled to be received or taken to have been received, by the eligible CFC in respect of the disposal of an asset; or
(ii) the capital proceeds from a CGT event happening in relation to a CGT asset;
being an asset that is an interest in an attribution account entity (the disposal entity); and
(b) immediately before the disposal or CGT event takes place, either or both of the following conditions are satisfied:
(i) there is an attribution surplus for the disposal entity in relation to the eligible taxpayer;
(ii) there is an attribution surplus for one or more other attribution account entities in relation to the eligible taxpayer, where each such entity is one in which the eligible taxpayer has an indirect attribution account interest held through the disposal entity;
then:
(c) for the purpose of calculating the attributable income, the consideration or capital proceeds that, apart from this section, would be taken into account under the provision referred to in paragraph (a) in respect of the disposal or CGT event is, subject to subsection (3), taken to be reduced by the grossed‑up amount of the attribution surplus, or the sum of the grossed‑up amounts of the attribution surpluses, as the case requires; and
(d) for the purposes of this Act, attribution debits and credits arise in accordance with subsection (5).
(3) For the purposes of paragraph (1)(c):
(a) a reference to the grossed‑up amount of an attribution surplus is a reference to the amount of the surplus divided by the eligible taxpayer’s attribution account percentage for the eligible CFC; and
(b) where the disposal of the asset, or the CGT event, causes the eligible taxpayer’s attribution account percentage for an attribution account entity in relation to which there is an attribution surplus to be reduced by a proportion, then only that proportion of the attribution surplus is, subject to this subsection, to be taken into account under that paragraph; and
(c) where there is only one attribution surplus referred to in that paragraph and (after any application of paragraph (b) of this subsection) its grossed‑up amount exceeds the consideration in respect of the disposal or the capital proceeds from the CGT event, then the surplus is only to be taken into account to the extent that its grossed‑up amount equals the consideration or those capital proceeds; and
(d) where there are 2 or more attribution surpluses referred to in paragraph (1)(c) and (after any application of paragraph (b) of this subsection) the sum of their grossed‑up amounts exceeds the consideration in respect of the disposal or the capital proceeds from the CGT event, then:
(i) if the taxpayer makes an election that for the purposes of this paragraph, a part of each surplus (after any application of paragraph (b)) such that the sum of the grossed‑up amounts of the parts to which the election relates equals the consideration or those capital proceeds—only the part to which the election relates of each surplus is to be taken into account under paragraph (1)(c); or
(ii) if subparagraph (i) does not apply—only a proportion of each surplus (after any application of paragraph (b)) is to be taken into account under paragraph (1)(c), being the proportion calculated using the formula:
Start formula start fraction Consideration over Total grossed-up surplus end fraction end formula
where:
consideration means the amount of the consideration or the capital proceeds.
total grossed‑up surplus means the sum of the grossed‑up amounts of the attribution surpluses (after any application of paragraph (b)).
(4) An election for the purposes of paragraph (3)(d) must be made on or before the date of lodgment of the eligible taxpayer’s return of income for the year of income in which the eligible period ends or within such further period after the lodgment of the return as the Commissioner allows.
(5) For the purposes of this Act:
(a) an attribution debit is taken to arise at the time of the disposal under section 372, in relation to the eligible taxpayer, for each attribution account entity (in this section called a surplus entity) in relation to which there is an attribution surplus to which paragraph (1)(c) applies; and
(b) the amount of the attribution debit is equal to so much of the surplus as is taken into account under paragraph (1)(c); and
(c) there is no grossed‑up amount in relation to the attribution debit under section 373; and
(d) an attribution credit equal to the debit is taken to arise, at the time of the disposal or of the CGT event, under section 371 for the eligible CFC in relation to the eligible taxpayer.
(6A) In determining, for the purposes of this section, whether there was an attribution surplus immediately before a CGT event, and the amount of such a surplus, also take into account any attribution credit that later arises because the CGT event caused section 104‑175 of the Income Tax Assessment Act 1997 (as it notionally applies to the CGT event entity under this Division) to operate.
(7) In this section:
interest, in relation to an attribution account entity, means:
(a) if the entity is a company—an interest in shares in the company, or an entitlement to acquire such an interest; or
(b) if the entity is a partnership—an interest of a partner in the profits or property of the partnership, or an entitlement of a partner to acquire such an interest; or
(c) if the entity is a trust—an entitlement of a beneficiary to a share of the income or corpus of the trust, or an entitlement of a beneficiary to acquire such an entitlement.
402 Additional notional exempt income—unlisted or listed country CFC
(1) This section applies where the eligible CFC is a resident of either a listed country or an unlisted country at the end of the eligible period.
(2) Each of the following is notional exempt income of the eligible CFC in relation to the eligible period:
(a) income or other amounts derived by the eligible CFC in the eligible period that are included in the assessable income of the eligible CFC of any year of income for the purposes of this Act apart from this Part, other than amounts that are so included under section 143 (where the proviso to that section does not apply);
(b) so much of a frankable distribution, paid to the eligible CFC in the eligible period, as is either the franked part of the distribution, or the part of the distribution that has been franked with an exempting credit;
(e) a premium paid or credited to the eligible CFC in the eligible period, where, because of the application of subsection 148 (1) for the purposes of this Act apart from this Part, the premium is not, for those purposes, allowable as a deduction to the person referred to in subparagraph 148(1)(a)(i) and is not included in the assessable income of the eligible CFC.
(3) If:
(a) an attribution account entity makes an attribution account payment to the eligible CFC in the eligible period; and
(b) apart from this subsection, the whole or part of the attribution account payment would be included in the notional assessable income of the eligible CFC in relation to the eligible taxpayer for the eligible period; and
(c) on the making of the attribution account payment, an attribution debit arises for the attribution account entity in relation to the eligible taxpayer;
then so much (if any) of the whole or the part of the attribution account payment as does not exceed the grossed‑up amount of the attribution debit is notional exempt income of the eligible CFC for the eligible period.
(4) If:
(a) a FIF attribution account entity (within the meaning of former Part XI) makes a FIF attribution account payment (within the meaning of former Part XI) to the eligible CFC in the eligible period; and
(b) apart from this subsection, the whole or part of the FIF attribution account payment would be included in the notional assessable income of the eligible CFC in relation to the eligible taxpayer for the eligible period; and
(c) on the making of the FIF attribution account payment, a post FIF abolition debit arises under section 23AK for the FIF attribution account entity in relation to the eligible taxpayer;