background image
6.6. Excluded and Segregated Income

Provisions that applied prior to 1 July 2008 designed to quarantine foreign losses from domestic income or one foreign-source income type from another belonging to a different class have been abolished with effect from that date.

Apart from income derived by exempt bodies (e.g. credit unions, charities, educational or scientific institutions, or by agricultural, industrial, manufacturing, tourism and industrial societies), as well as specific types of tax-exempt Australian-source dividends, interest and royalty income derived by non-residents (see Sec. 8.2.), other notable types of exempt income derived by companies that are otherwise taxable on their income include the following:

  • the foreign branch profits of an Australian company;
  • the dividend and interest income of a foreign superannuation fund, which is exempt from tax on such income in its country of residence; and
  • a non-portfolio dividend received by an Australian resident company from a CFC.

Equity distribution received by an Australian corporate tax entity from a foreign company is not assessable and not exempt income, if the Australian entity receiving the distribution has at least a 10% participation interest in the foreign company. As per Tax Ruling (TR) 2017/3 issued by the ATO, in order to have a participation interest, an entity must be a registered member of the foreign company at the start of the day the distribution is made. Further, where a distribution is made under an off market share buy-back, the buy-back is deemed to be a dividend 'on the day the buy-back occurs', which is anytime on the day that the entities enter into the share buy-back contract.