Insert:

; and (c) if the shareholder is a non-resident carrying on business in Australia at or through a permanent establishment of the shareholder in Australia, and the company is a resident:
(i) dividends (other than non-share dividends) that are paid to the shareholder by the company and are attributable to the permanent establishment, to the extent to which they are paid out of profits derived by the company from sources outside Australia; and
(ii) non-share dividends that are paid to the shareholder by the company and are attributable to the permanent establishment, to the extent to which they are derived from sources outside Australia.

Add:

(7)

In this section:

Insert:

(21A)

For the purposes of subsection 44(1), a non-unit dividend paid by the trustee of a prescribed trust estate out of corpus of the trust estate is taken, to the extent to which the non-unit dividend is attributable to a source outside Australia, to be derived from a source outside Australia.

Insert:

(22A)

For the purposes of subsection 44(1), a non-unit dividend paid by the trustee of a prescribed trust estate out of corpus of the trust estate is taken, to the extent to which the non-unit dividend is attributable to a source outside Australia, to be derived from a source outside Australia.

Omit "and (3D),", substitute ", (3D) and (3E),".

Insert:

(3E)

This section does not apply to income that consists of a dividend that:

(a) is paid to a person who is a non-resident carrying on business in Australia at or through a permanent establishment of the person in Australia; and
(b) is attributable to the permanent establishment; and
(c) is not paid to the person in the person's capacity as trustee.

Note: This subsection not only ensures that this section does not apply to that income to make withholding tax payable on it, but also (as a result) ensures that none of that income is non-assessable non-exempt income under section 128D. Subsection 44(1) makes that income assessable income.

(3F)

In subsection (3E):

Insert:

(1DA)

A ^* tax offset is not subject to the refundable tax offset rules if:

(a) an entity is entitled to the tax offset under Division 207 because a ^* franked distribution is made, or ^* flows indirectly, to the entity; and
(b) the entity is a foreign resident and carries on business in Australia at or through a permanent establishment of the entity in Australia, being a permanent establishment within the meaning of:
(i) a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936 ) that relates to a foreign country and affects the entity; or
(ii) subsection 6(1) of that Act, if there is no such agreement; and
(c) the distribution is attributable to the permanent establishment.

Repeal the paragraph, substitute:

(b) when the dividend is paid, either you are an Australian resident or you are an individual who is a foreign resident and carries on business in Australia at or through your permanent establishment in Australia, being a permanent establishment within the meaning of:
(i) a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936 ) that relates to a foreign country and affects the individual; or
(ii) subsection 6(1) of that Act, if there is no such agreement; and
(ba) if, when the dividend is paid, you are an individual who is a foreign resident and has in Australia such a permanent establishment—the dividend is attributable to the permanent establishment; and

Before "An entity", insert "(1)".

Add:

(2)

An entity that receives a ^* distribution also satisfies the residency requirement at the time the distribution is made if the entity at that time:

(a) is a company or an individual; and
(b) is a foreign resident; and
(c) carries on business in Australia at or through a permanent establishment of the entity in Australia, being a permanent establishment within the meaning of:
(i) a double tax agreement (as defined in Part X of the Income Tax Assessment Act 1936 ) that relates to a foreign country and affects the entity; or
(ii) subsection 6(1) of that Act, if there is no such agreement;

and the distribution is attributable to the permanent establishment.