Item 23 - Other assessable foreign source income (Trust Returns)

A trust MUST complete a losses schedule if it:

Has a foreign loss component of tax losses deducted in the 2017-18 income year or carried forward to later income years
Has an interest in a controlled foreign company (CFC) that has current year losses greater than $100,000
Has an interest in a CFC which has CFC losses carried forward to later income years greater than $100,000.

If the trust received assessable dividends directly or indirectly from a New Zealand franking company, the dividends (including any supplementary dividends) must be declared as assessable foreign income even if dividend withholding tax was deducted in New Zealand. The trust can claim a Foreign income tax offset for any New Zealand dividend withholding tax paid on the dividend. Refer to the Foreign income return form guide (NAT 1840) to work out whether the dividend is assessable income.

If the dividend from a New Zealand company is assessable income, then the amount of the Australian franking credit attached to the dividend is also assessable income. Subject to satisfying certain qualifying criteria, the beneficiaries or trustee may be entitled to a share of the benefit of Australian franking credit attached to the franked dividend. Refer to Appendix 1 in the ATO Trust return instructions.

- The dividend may also include an amount of New Zealand imputation credits. Australian residents cannot claim any amounts of New Zealand imputation credits.
- All dividend income, deductions and foreign tax paid must be converted into Australian dollars. The amount of Australian franking credits should already be expressed in Australian dollars.

Label B - Gross foreign source income

Show at label B the gross amount of assessable income derived from foreign sources, including amounts distributed from other partnerships and trusts as well as New Zealand dividends and supplementary dividends. Include any foreign tax paid on that income.

Do not include:
- any income which is exempt from tax in Australia or treated as non-assessable non-exempt income under sections 23AI and 23AK of the ITAA 1936.
- any amount of New Zealand imputation credits
- any amount of Australian franking credits attached to dividends from a New Zealand franking company. Show these amounts at label D-Australian franking credits from a New Zealand company.
- income already shown at item 22 Attributed foreign income
- any foreign source capital gains or capital losses.

Include foreign source capital gains or capital losses when calculating the amount at item 21 Net Capital Gain.

In referring to 'foreign source capital gains' an Australian resident trust makes a capital gain if a CGT event happens to any of their worldwide CGT assets. In general, a trust that is not an Australian resident makes a capital gain if its CGT asset has the necessary connection with Australia just before the CGT event happens.

If what you show at label B includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA). This may include assessable TOFA gains from unrealised movements in the value of financial arrangements.

Label V - Net foreign source income (other than shown at item 22)

Show at label V the net income derived from foreign sources.

If what you show at label V includes an amount which is brought to account under the TOFA rules, also complete item 31 Taxation of financial arrangements (TOFA).

The amount at label V is the gross amount included at label B, less any deductions allowable to the trust against that income. Debt deductions (such as interest and borrowing costs) that relate to assessable foreign source income and that are NOT attributable to an overseas permanent establishment of the taxpayer are not applied against assessable foreign source income for calculating net foreign income or identifying a foreign loss. Do NOT claim these amounts here - include them at item 18 Other deductions.

If the amount at label V is negative, precede the amount with a negative.

Label Z - Foreign income tax offsets

Show at label Z the amount of any Foreign income tax offset claimed against foreign source income.

Trusts should also show offsets for tax paid for foreign sourced gains of a capital nature.

If foreign income tax has actually been paid by the trust, then the beneficiaries may be able to claim a foreign income tax offset in their individual income tax returns.

Example

The S trust estate derives rental income from commercial property investments in a foreign country, on which the trustee pays foreign income tax. Samantha, an Australian resident, is the sole beneficiary of the S trust estate and is presently entitled to all its income. As such, she is assessed on the whole of the trust's net income. Although Samantha hasn't directly paid the foreign income tax, she is deemed to have paid it.

Use the Foreign Income worksheet (for) to record transactions and have the calculator calculate foreign income tax offset limit and the allowable foreign income tax offset.

To review the methodology for calculating the Australian tax payable on the taxable income including the foreign income and excluding the foreign, refer to the Guide to foreign income tax offset rules (NAT 72923) on the ATO website.

Label D - Australian franking credits from a New Zealand company

Show at label D the amount of Australian franking credits that are included in the net income of the trust because of franked dividends received from a New Zealand franking company directly or indirectly through another trust.

The amount shown at label D is not necessarily the total amount that can be claimed by the trustee or each beneficiary.

CCH References

4-490 Trans-Tasman triangular imputation rules

21-670 Foreign tax offsets: Introduction

21-680 Entitlement to foreign income tax offset

21-710 Amount of foreign income tax offset

21-760 Treatment of excess foreign tax

23-000 Taxation of financial arrangements - TOFA