Commonwealth Numbered Acts

TAXATION LAWS AMENDMENT ACT (No. 3) 1994 No. 138 of 1994 - SECT 48

48. After section 128R of the Principal Act the following Subdivision is
inserted in Division 11A:
                    "Subdivision B-Foreign dividend accounts
Object

"128S. The object of this Subdivision is to make provision for the operation
of foreign dividend accounts for the purposes of the exemption from tax
provided by paragraph 128B(3)(gaa).

Amount of a dividend

"128SA. For the purposes of this Subdivision, in determining the amount of a
dividend paid to a resident company:

   (a)  subsection 6AC(2) (which increases the amount of a dividend by an
        amount of foreign underlying tax) is to be disregarded; and

   (b)  any foreign tax paid or payable by the company in respect of the
        dividend, where the company was or is personally liable for the tax,
        is to be deducted.

FDA surplus Conditions for surplus

"128T.(1) A 'foreign dividend account surplus' or 'FDA surplus' exists for a
resident company at a particular time if the company's total FDA credits
arising before that time exceed its total FDA debits arising before that time.

Amount of surplus

"(2) The amount of the surplus is equal to the amount of the excess.

FDA credit Conditions for credit

"128TA.(1) A 'foreign dividend account credit' or 'FDA credit' arises for a
resident company if:

   (a)  a dividend that is exempt from income tax to any extent under section
        23AJ is paid to the company on or after 1 July 1994; or

   (b)  a non-portfolio dividend (within the meaning of section 317) is paid
        to the company on or after 1 July 1994 and the company is, for the
        purposes of Division 18 (which deals with credits in respect of
        foreign tax), taken to have paid and to have been personally liable
        for foreign tax in respect of the dividend; or

   (c)  a dividend is paid to the company by another company that is related
        (within the meaning of subsection 51AE(16)) to it, where an FDA debit
        arises under paragraph 128TB(1)(a) for the other company in relation
        to the dividend.

Amount of credit

"(2) The amount of credit arising under subsection (1) is equal to:

   (a)  in a paragraph (1)(a) case-so much of the dividend as is exempt under
        section 23AJ; or

   (b)  in a paragraph (1)(b) case-the amount of the dividend, to the extent
        that it is not exempt from income tax under section 23AI or 23AK; or

   (c)  in a paragraph (1)(c) case-the amount of the FDA debit.

Timing of credit

"(3) The credit arises when the dividend is paid to the company.

FDA debit Conditions for debit

"128TB.(1) A 'foreign dividend account debit' or 'FDA debit' arises for a
resident company if:

   (a)  the company makes an FDA declaration under section 128TC in relation
        to dividends paid on a particular day; or

   (b)  on or after 1 July 1994, the company incurs expenditure that is not an
        allowable deduction of the company for any year of income, but that
        would be an allowable deduction to any extent if section 23AJ were
        disregarded; or

   (c)  on or after 1 July 1994, the company incurs expenditure that:

        (i)    is an allowable deduction of the company for a year of income;
               and

        (ii)   either relates exclusively to a dividend covered by paragraph
               128TA(1)(b) or (c) or may appropriately be related to such a
               dividend; or

   (d)  there is an Australian-taxable dividend amount for the company in
        relation to a year of income (see subsection (2)) ending on or after 1
        July 1994.

Meaning of "Australian-taxable dividend amount"

"(2) For the purposes of paragraph (1)(d), there is an 'Australian-taxable
dividend amount' in relation to a year of income for a company of an amount
worked out using the formula:
Co. tax (Grossed-up dividend - Dividend ) - Foreign tax
    rate   (    amount           deductions)     on dividends

Co. tax rate where:
'Co. tax rate' means the general company tax rate, within the meaning of
section 160APA, for the year of income;
'Grossed-up dividend amount' means the sum of the amount of:

   (a)  all dividends paid to the company in the year of income that are
        covered by paragraph 128TA(1)(b); and

   (b)  all amounts covered by the formula component Foreign tax on dividends;
'Dividend deductions' means the sum of the amounts of all FDA debits arising
under paragraph 128TB(1)(c) during the year of income in relation to dividends
paid to the company in the year of income that are covered by paragraph
128TA(1)(b);
'Foreign tax on dividends' means the total of all foreign tax that, for the
purposes of Division 18 (which deals with credits in respect of foreign tax),
the company is taken to have paid and to have been personally liable for, in
respect of dividends paid to the company in the year of income that are
covered by paragraph 128TA(1)(b).

Amount of debit

"(3) The amount of the debit arising under subsection (1) is:

   (a)  in a paragraph (1)(a) case-the sum of the FDA declaration amounts for
        all of the dividends to which the declaration relates; or

   (b)  in a paragraph (1)(b) case-so much of the expenditure as would be an
        allowable deduction if section 23AJ were disregarded; or

   (c)  in a paragraph (1)(c) case:

        (i)    if the dividend mentioned in that paragraph is covered by
               paragraph 128TA(1)(b)-the amount of the expenditure; or

        (ii)   if the dividend mentioned in that paragraph is covered by
               paragraph 128TA(1)(c)-the amount worked out using the formula:
Amount of expenditure  X   Amount of FDA debit mentioned in paragraph

128TA(1)(c)
Amount of dividend
; or

   (d)  in a paragraph (1)(d) case-the same as the Australian-taxable dividend
        amount.

Timing of debit

"(4) The debit arises:

   (a)  in a paragraph (1)(a) case-immediately after the beginning of the day
        on which the dividends, to which the FDA declaration relates, are
        paid; or

   (b)  in a paragraph (1)(b) or (c) case-when the expenditure is incurred; or

   (c)  in a paragraph (1)(d) case-at the end of the year of income.

FDA declaration, FDA declaration percentage and FDA declaration amount
Declaration to specify a percentage for all dividends

"128TC.(1) If there is an FDA surplus for a resident company on the day on
which it pays one or more dividends, the company may, before it pays the
dividends, make a written declaration (a 'foreign dividend account
declaration' or 'FDA declaration') specifying a percentage (the 'foreign
dividend account declaration percentage' or 'FDA declaration percentage') in
relation to all of the dividends concerned.

Limit on percentage that may be specified

"(2) The FDA declaration percentage must be such that the amount worked out
using the following formula is not greater than the FDA surplus at the
beginning of the day:
  FDA          Total             Maximum           Total calculation

declaration    non-resident  +   non-resident  X   value for dividend

percentage     dividends         dividend          purposes of other

                                 percentage        shares
where:
'Total non-resident dividends' means the sum of all dividends paid on the day
by the company to non-resident shareholders or companies that are related
(within the meaning of subsection 51AE(16));
'Maximum non-resident dividend percentage' means the highest percentage, for
any share in respect of which a dividend was paid on the day to a non-resident
shareholder or to a company that is related (within the meaning of subsection
51AE(16)), worked out using the formula:
Amount of the dividend
                                                  X    100%

Calculation value for dividend purposes
of the share (see subsection (3))
'Total calculation value for dividend purposes of other shares' means the sum
of the calculation value for dividend purposes (see subsection (3)) of all
shares in the company existing on the day, other than those on which a
dividend was paid on the day to a non-resident shareholder or to a company
that is related (within the meaning of subsection 51AE(16)).

Meaning of "calculation value for dividend purposes"

"(3) In subsection (2), 'calculation value for dividend purposes' means:

   (a)  in relation to a preference share-the amount (for example in the case
        of a redeemable preference share, the sum of the paid-up value of the
        share, any premium paid on the share and any other amount payable on a
        redemption of the share) that, under the terms on which the preference
        share was issued, is, for the purpose of working out the amount of a
        dividend to be paid on the share, to be multiplied by the rate of the
        dividend; or

   (b)  in relation to any other share-the nominal value of the share.

FDA declaration amount

"(4) The 'foreign dividend account declaration amount' or 'FDA declaration
amount' for a particular dividend paid on the day is the product of the FDA
declaration percentage and the amount of the dividend.

Where FDA surplus exceeded by declaration

"(5) If the company, in purporting to make an FDA declaration, incorrectly
specifies a percentage such that the amount in the formula in subsection (2)
exceeds the FDA surplus at the beginning of the day, the declaration is
nevertheless valid, but (subject to subsection 128TE(1)) has effect, and is
taken always to have had effect, for all purposes as if the percentage
required for the amounts in the formula to equal the FDA surplus had been
specified instead of the percentage actually specified.

Dividend statement Content of statement

"128TD.(1) If a company makes an FDA declaration in relation to one or more
dividends, it must, before or at the time of payment of any of the dividends
to a shareholder, give to the shareholder a statement in accordance with this
subsection:

   (a)  if the FDA declaration percentage in the FDA declaration is 100%-to
        the effect that, if the dividend is derived by a non-resident, the
        non-resident is, because of paragraph 128B(3)(gaa), not liable to pay
        withholding tax on the dividend; or

   (b)  in any other case-that specifies:

        (i)    the amount of the dividend on which, because of paragraph
               128B(3)(gaa), a non-resident who derives the dividend is not
               liable to pay withholding tax; and

        (ii)   the amount of the dividend to which neither paragraph
               128B(3)(ga) nor (gaa) applies so as to remove any liability to
               withholding tax of a non-resident who derives the dividend; and

        (iii)  any amount deducted from the dividend under section 221YL.

Inclusion in section 160AQH

"(2) The statement may be included in any statement that the company is
required by section 160AQH to give to the shareholder.

Form of statement

"(3) If it is so included, the statement must be in the approved form required
by section 160AQH. If it is not so included, the statement must be in a form
approved in writing by the Commissioner for the purposes of this section.

Other information

"(4) If either form requires other information relating to the dividend or any
matter relevant to the operation of this Division, the statement must set out
that information. Penalty for setting out incorrect amounts in dividend
statement

Additional tax by way of penalty

"128TE.(1) Subject to subsection (2), if a company, purportedly under section
128TD, gives a shareholder a statement (whether or not included in a statement
purportedly given under section 160AQH) that, disregarding subsection
128TC(5), is reasonably likely to cause the belief that:

   (a)  no withholding tax is liable to be paid on a dividend, where
        withholding tax is actually liable to be paid; or

   (b)  an amount of withholding tax is liable to be paid on a dividend, where
        (taking into account subsection 128TC(5)) that amount is less than is
        actually liable to be paid; the company is liable to pay, by way of
        penalty, additional tax equal to the amount of the withholding tax, or
        the shortfall in the amount of the withholding tax, as the case
        requires.

Avoidance of double tax where Part IIIAA penalty

"(2) If:

   (a)  either:

        (i)    the company includes the statement in a statement that the
               company purportedly gives under section 160AQH; or

        (ii)   the company gives the shareholder a separate statement in
               relation to the dividend purportedly under section 160AQH; and

   (b)  the company becomes liable to pay additional tax under section 160ARY
        in respect of the statement purportedly given under section 160AQH;
        then subsection (1) of this section applies as if the amount specified
        in accordance with subparagraph 128TD(1)(b)(ii) in the statement
        purportedly given under section 128TD were the amount of the dividend
        reduced by the sum of:

   (c)  the amount specified in accordance with subparagraph 128TD(1)(b)(i);
        and

   (d)  so much of the dividend as has been franked in accordance with section
        160AQF.

Assessment

"(3) The Commissioner must make an assessment of the additional tax payable
under subsection (1).

Notice of assessment

"(4) This Act does not prevent notice of the assessment being incorporated in
a notice of any other assessment made in respect of the company under this
Act.

Collection and recovery

"(5) In sections 170, 172, 174, 204, 206, 207, 207A, 208, 209, 214, 215, 218,
254, 258 and 259, but not in any other section of this Act, 'income tax' or
'tax' includes additional tax payable under subsection (1).

Company to keep records

"128TF. Section 262A applies for the purposes of this Subdivision as if:

   (a)  a reference to a person carrying on a business were a reference to a
        company; and

   (b)  a reference to income and expenditure were a reference to matters
        relevant to ascertaining whether there is an FDA surplus.".