Start formula Distributable profit amount times start fraction CFC asset profit over Total asset profits end fraction end formula
where:
total asset profits is the sum of the profits that the eligible CFC would have made if all its assets were disposed of at the residency change time for their market values (ignoring disposals that would not result in a profit).
Increase in capital proceeds
(6) If all the eligible CFC’s assets were disposed of at the residency change time for their market values in the circumstances mentioned in subparagraph 457(2)(a)(ii):
(a) the distributable profits of the eligible CFC would be reduced by an amount (the distributable profit reduction amount); and
(b) the eligible CFC would have made a loss (the CFC asset loss) on the disposal of the CFC asset.
(7) The capital proceeds are increased by:
Start formula Distributable profit reduction amount times start fraction CFC asset profit over Total asset profits end fraction end formula
where:
total asset losses is the sum of the losses that the eligible CFC would have made if all its assets were disposed of at the residency change time for their market values (ignoring disposals that would not result in a loss).
423 Adjustment of capital proceeds where section 47A applies to rolled‑over assets
(1) For the purposes of applying this Act in calculating the attributable income of the eligible CFC, in relation to the eligible period in relation to the eligible taxpayer, the following provision has effect.
(2) The capital proceeds from a CGT event that happens in relation to a CGT asset of the eligible CFC during the eligible period are reduced if:
(a) either:
(i) because of Division 17 of former Part IIIA of this Act, that Part did not apply to the disposal of the asset to the eligible CFC by another CFC during the eligible period or an earlier statutory accounting period; or
(ii) there was a roll‑over under Division 122, 124 or 126 of the Income Tax Assessment Act 1997 (except under Subdivision 124‑J, 124‑K or 124‑L of that Act) for a CGT event (the earlier CGT event) that happened during that period in relation to the asset and involving the eligible CFC and another CFC; and
(b) the eligible taxpayer was an attributable taxpayer in relation to both CFC’s at the time of the disposal or the earlier CGT event; and
(c) the other CFC is taken, under section 47A of this Act, to have paid the eligible CFC a dividend in relation to the disposal or the earlier CGT event; and
(d) an amount is included in the attributable taxpayer’s assessable income in respect of the dividend under section 456 of this Act.
(3) The reduction is the lesser of:
(a) the amount of the dividend; and
(b) the amount of any capital gain that:
(i) apart from Division 17 of former Part IIIA of this Act, would have accrued to the other CFC in respect of the disposal if the consideration in respect of the disposal had been the market value of the asset at the time of the disposal; or
(ii) the other CFC would have made from the earlier CGT event apart from the roll‑over if the capital proceeds from that event had been the market value of the asset at the time of that event.
Subdivision D—Modifications relating to losses
425 Sometimes‑exempt income etc.
(1) Where an amount is not included in the eligible CFC’s notional assessable income for a statutory accounting period (being the eligible period or an earlier period) in relation to the eligible taxpayer because:
(a) the eligible CFC passes the active income test for the period in relation to the eligible taxpayer; or
(b) subsection 385 (4) applies;
then the amount is sometimes‑exempt income of the eligible CFC for the period in relation to the eligible taxpayer.
(2) Where an amount would, disregarding section 431, only be a notional allowable deduction of the eligible CFC for a statutory accounting period (being the eligible period or an earlier period) in relation to the eligible taxpayer if the eligible CFC’s sometimes‑exempt income for the period in relation to the eligible taxpayer were instead notional assessable income, then the amount is a sometimes‑exempt deduction of the eligible CFC for the period in relation to the eligible taxpayer.
(3) Where the eligible CFC’s sometimes‑exempt deductions for a statutory accounting period (being the eligible period or an earlier period) in relation to the eligible taxpayer exceed its sometimes‑exempt income for the period in relation to the taxpayer, the excess is a (sometimes‑exempt income) loss of the eligible CFC for the period in relation to the eligible taxpayer.
(4) Where an eligible CFC’s sometimes‑exempt income for a statutory accounting period (being the eligible period or an earlier period) in relation to the eligible taxpayer exceeds its sometimes‑exempt deductions for the period in relation to the taxpayer, the excess is a (sometimes‑exempt income) gain of the eligible CFC for the period in relation to the eligible taxpayer.
426 Creation of loss
For the purposes of this Subdivision, if:
(a) the amount of the eligible CFC’s notional allowable deductions (other than under section 431) for a statutory accounting period (being the eligible period or an earlier period) are applied as follows:
(i) they are applied first against any notional assessable income of the eligible CFC class for the period;
(ii) any excess is then applied against any (sometimes‑exempt income) gain for the period; and
(b) there is any amount remaining;
then the amount remaining is a loss of the eligible CFC for the period.
427 Certain provisions to be disregarded
For the purposes of applying this Act and the Income Tax Assessment Act 1997 in calculating the attributable income of an eligible CFC, disregard the following:
(b) Division 36, section 165‑120 and Subdivisions 170‑A, 709‑D and 719‑I of the Income Tax Assessment Act 1997 (except for the purpose of a reference to any of those provisions in any other provision of this Act, as applied in accordance with this Division);
(ba) Subdivisions 165‑CC and 165‑CD of the Income Tax Assessment Act 1997.
428 Subdivision to apply as if there were always a requirement to calculate attributable income
For the purposes of applying this Subdivision in calculating the attributable income of the eligible CFC for the eligible period, it is to be assumed that, for any earlier statutory accounting period (when the eligible CFC existed) for which there was no requirement to calculate its attributable income in relation to the eligible taxpayer, there were such a requirement (except for the purpose of applying section 398).
429 Notional allowable deduction for (sometimes‑exempt income) loss
The amount of any (sometimes‑exempt income) loss of the eligible CFC for the eligible period class is a notional allowable deduction for the period from the notional assessable income of the eligible CFC.
431 Deduction etc. for previous period loss
(1) Where there are one or more losses of the eligible CFC of any statutory accounting period before the eligible period, the losses, to the extent they have not been previously taken into account under this section in respect of any such period, are to be taken into account in accordance with this section.
(2) The losses are to be taken into account as follows:
(a) they are to be applied first against any (sometimes‑exempt income) gain for the eligible period, to the extent that the gain has not already been applied under section 426 in determining whether there is a loss for the eligible period;
(b) any excess is then a notional allowable deduction for the eligible period, but only to the extent that the deduction does not exceed the amount of the notional assessable income for the period as reduced by notional allowable deductions other than under this section;
(c) where there are 2 or more losses, they are to be taken into account in the order in which they arose.
(3) A loss for a statutory accounting period is only to be taken into account under subsection (2) if the eligible CFC was a CFC at the end of that statutory accounting period and each following statutory accounting period before the eligible period.
(4) A loss for a statutory accounting period is to be taken into account under subsection (2) only if:
(a) where the eligible CFC is a resident of a listed country at the end of the eligible period:
(i) the eligible CFC is a resident of a listed country at the end of that statutory accounting period; and
(ii) if there are any statutory accounting periods (the intervening periods) occurring between that statutory accounting period and the eligible period—the eligible CFC was a resident of a listed country at the end of each of the intervening periods; or
(b) where the eligible CFC is a resident of an unlisted country at the end of the eligible period:
(i) the eligible CFC is a resident of an unlisted country at the end of that statutory accounting period; and
(ii) if there are any statutory accounting periods (also the intervening periods) occurring between that statutory accounting period and the eligible period—the eligible CFC was a resident of an unlisted country at the end of each of the intervening periods.
(4A) If:
(a) at the end of both the eligible period and of a prior statutory accounting period, the eligible CFC was a resident of the same country; and
(b) the country was either:
(i) a listed country at the end of the eligible period and an unlisted country at the end of that statutory accounting period; or
(ii) an unlisted country at the end of the eligible period and a listed country at the end of that statutory accounting period;
subsection (4) does not prevent a loss for that statutory accounting period, or an earlier statutory accounting period, from being taken into account under subsection (2).
(4B) If:
(a) the eligible CFC is a resident of an unlisted country at the end of the eligible period; and
(b) that country emerged from the dissolution of another country; and
(c) the other country was in existence at the end of a prior statutory accounting period; and
(d) at the end of that statutory accounting period, the CFC was a resident of the other country; and
(e) the other country was a listed country at the end of that statutory accounting period;
subsection (4) does not prevent a loss for that statutory accounting period, or an earlier statutory accounting period, from being taken into account under subsection (2).
(4D) If:
(a) as a result of the operation of subsection (4), a loss of a CFC for a statutory accounting period was not taken into account under subsection (2) in calculating the attributable income of the CFC for a later statutory accounting period (the second statutory accounting period); and
(b) the eligible period is later than the second statutory accounting period;
then, despite anything in subsection (4), (4A) or (4B), the loss is not to be taken into account under subsection (2) in calculating the attributable income of the CFC for the eligible period.
(5) A loss for a statutory accounting period is not to be taken into account under subsection (2) if, assuming that it were a tax loss (within the meaning of the Income Tax Assessment Act 1997) of the eligible CFC, it would not be taken into account or allowed as a deduction in relation to the eligible period.
Division 8—Active income test
Subdivision A—Basic conditions for passing the active income test
432 Active income test
(1) Subject to sections 437 and 453, for the purposes of this Part, a company is taken to pass the active income test in relation to a statutory accounting period if, and only if:
(a) the company was in existence at the end of the statutory accounting period; and
(b) there was no time during the statutory accounting period when the company was in existence when the company was neither a resident of a particular listed country nor of a particular unlisted country; and
(c) the company has kept accounts for the statutory accounting period and:
(i) the accounts are prepared in accordance with commercially accepted accounting principles; and
(ii) the accounts give a true and fair view of the financial position of the company; and
(d) the company has complied with the substantiation requirements set out in section 451 in relation to the statutory accounting period; and
(e) at all times during the statutory accounting period when the company was in existence and was a resident of a particular listed country, or of a particular unlisted country, the company carried on business in that country at or through a permanent establishment of the company in that country; and
(f) the tainted income ratio of the company for the statutory accounting period is less than 0.05.
(3) For the purposes of this section, if a company was dormant, within the meaning of Part VI of the Companies Act 1981, throughout a particular period (in this subsection called the dormant period) commencing on the day on which the company was incorporated, the company is to be taken not to have been in existence during the dormant period.
Subdivision B—Tainted income ratio
433 Tainted income ratio
(1) For the purposes of this Part, if a company is a resident of a particular listed country or a particular unlisted country at the end of a statutory accounting period, the tainted income ratio of the company for the statutory accounting period is calculated using the formula:
Start formula start fraction Gross tainted turnover over Gross turnover end fraction end formula
where:
Gross tainted turnover means the gross tainted turnover of the company of the statutory accounting period.
Gross turnover means the gross turnover of the company of the statutory accounting period.
(3) For the purposes of this Part, the tainted income ratio of a company for a statutory accounting period is taken to be less than 0.05 if both the numerator and the denominator in the applicable fraction are 0.
(4) For the purposes of this Part, the tainted income ratio of a company for a statutory accounting period is to be calculated in the currency in which the profit and loss accounts and the balance‑sheet of the company for the statutory accounting period are prepared.
434 Gross turnover
(1) Subject to section 437, for the purposes of this Part, the gross turnover of a company of a statutory accounting period is the sum of:
(a) the amount that is shown in the recognised accounts of the company for the statutory accounting period as the gross revenue derived by the company, but not including:
(i) amounts that are shown in those recognised accounts as amounts covered by section 436; or
(ii) amounts that are shown in those recognised accounts as revenue in respect of the disposal of assets (other than trading stock or commodity futures contracts, commodity forward contracts or rights or options in respect of such contracts); or
(iii) amounts that are shown in those recognised accounts as revenue from disposing of commodity futures contracts, commodity forward contracts or rights or options in respect of such contracts; or
(iv) amounts that are shown in those recognised accounts as revenue from currency exchange rate fluctuations; and
(b) the amount that is shown in the recognised accounts of the company for the statutory accounting period as the amount (if any) by which the sum of the gains derived by the company in the statutory accounting period in respect of the disposal of assets (other than trading stock or commodity futures contracts, commodity forward contracts or rights or options in respect of such contracts) exceeds the losses incurred by the company in the statutory accounting period in respect of the disposal of such assets, but not including amounts that are shown in those recognised accounts as amounts covered by section 436; and
(c) the amount that is shown in the recognised accounts of the company for the statutory accounting period as the amount (if any) by which the gains derived by the company in the statutory accounting period from disposing of commodity futures contracts, commodity forward contracts or rights or options in respect of such contracts exceeds the losses incurred by the company in the statutory accounting period from disposing of commodity futures contracts, commodity forward contracts or rights or options in respect of such contracts, but not including amounts that are shown in those recognised accounts as amounts covered by section 436; and
(d) the amount that is shown in the recognised accounts of the company for the statutory accounting period as the amount (if any) by which the sum of the gains derived by the company in the statutory accounting period from currency exchange rate fluctuations exceeds the losses incurred by the company in the statutory accounting period from currency exchange rate fluctuations, but not including amounts that are shown in those recognised accounts as amounts covered by section 436.
(1A) In working out the gross turnover of a company of a statutory accounting period, assume that the amounts shown in the company’s recognised accounts, as mentioned in paragraphs (1)(b) and (c), for that period had been worked out by also including:
(a) as gains derived by the company in that period—capital gains the company would have made; and
(b) as losses incurred by the company in that period—capital losses the company would have made;
in that period because of CGT event J1, if the assumptions in paragraphs 383(a) to (c) had applied.
Note 1: CGT event J1 is about companies ceasing to be related after a roll‑over.
Note 2: Basically, the effect of the assumptions in paragraphs 383(a) to (c) is that the company concerned is taken to be a taxpayer and a resident and CGT event J1 may therefore be taken to have happened.