Attribution of income to Australian tax residents

This article provides a brief overview of the accruals rules that Australia has enacted to combat the deferral of Australian tax on foreign source income.  The accruals rules will attribute income to Australian tax residents in relation to certain income derived by foreign entities, notwithstanding that the Australian resident may not have received a distribution.

The accruals rules include the controlled foreign company (‘CFC’) provisions, the transferor trust (‘TT’) provisions and the foreign investment fund (‘FIF’) provisions.

CFC

The CFC provisions require Australian resident taxpayers to include in their assessable income a share of income or gains derived by a foreign company which is controlled by Australian residents, even though those amounts are retained by the foreign company and have not been distributed to the Australian resident taxpayers.

TT

In general, provided certain conditions are met, the TT provisions attribute to Australian residents income derived by a non-resident trust estate to which the Australian resident has transferred property or services.  A transfer sufficient to trigger the TT provisions is broadly defined to cover all direct and indirect transfers of value (including property and services) to a trust, including a transfer which of itself creates the trust.

FIF

The FIF provisions are designed to complement the CFC provisions and TT provisions by targeting income sheltered in offshore companies and trusts in which Australian resident taxpayers do not have controlling interests.  For instance taxpayers with a foreign life assurance policy at any time in the income year will often be subject to the FIF provisions.

It is important for individuals taking up Australian residency to be aware of these rules so that they can properly satisfy their Australian taxation obligations.

The accruals rules are currently being reviewed by the Board of Taxation with a view to reducing their complexity while retaining the integrity of the Australian tax base.

This information has been prepared in good faith, is in the nature of general comment only, and neither purports, nor is intended, to be advice on any particular matter.  You should not act or rely upon any matter or information contained in or implied without taking appropriate professional advice which relates specifically to your particular circumstances.  The authors and consultants expressly disclaim all and any liability to any person (whether a reader or not) who acts or fails to act as a consequence of reliance upon the whole or any part of this information.