Taxation Determination TD 2006/52
Date of effect: 30 June 2004





Appendix: 7. A dividend to which section 23AJ applies is not assessable income and is not exempt income. A 'FIF attribution account payment' (defined as including a dividend [3] ) under Part XI (Foreign Investment Funds) is not assessable income and is not exempt income to the extent that section 23AK applies to it. 8. Section 23AJ applies if: 9. Section 23AK applies if: 10. Prima facie, sections 23AJ and 23AK may both apply in respect of the same dividend if: 11. On its own, section 23AJ applies to the whole of the non-portfolio dividend, whilst section 23AK only applies to the non-portfolio dividend to the extent of the FIF attribution debit. 12. Broadly, the purpose of section 23AJ applying to a dividend is to exclude the non-portfolio dividend from the income tax base. 13. The purpose of section 23AK applying to a dividend is to prevent double taxation. This is in recognition of the fact that, in effect, the dividend has been paid out of profits that have previously been taxed in Australia under Part XI. In further recognition of this fact, the treatment of the dividend as non-assessable non-exempt income is disregarded to preserve entitlements to deductions and foreign income tax offsets. 14. In this regard, subsection 23AK(2) provides, in essence, that the fact that a FIF attribution account payment is non-assessable non-exempt income under section 23AK is to be disregarded for the purpose of determining allowable deductions under any other provision. [6] The intention of subsection 23AK(2) is to allow the taxpayer to obtain a deduction for a loss or outgoing that would otherwise be deductible (for example under section 8-1 of the ITAA 1997) but for the fact that the income is non-assessable non-exempt. There is no such provision within section 23AJ. 15. Subsection 770-10(2) of the ITAA 1997 provides that a resident taxpayer receiving a dividend that is non-assessable non-exempt income under either section 23AI or 23AK of the ITAA 1936 will be entitled to a non-refundable tax offset for the foreign income tax paid on the distribution. This permits a company, in certain circumstances, to claim a foreign income tax offset for foreign tax paid in respect of the dividend. Again, there is no equivalent provision for a dividend that is non-assessable non-exempt income under section 23AJ. 16. As sections 23AJ and 23AK may each produce different outcomes in the above respects, it needs to be determined to what extent each provision applies. 17. In Project Blue Sky Inc. and Others v. Australian Broadcasting Authority , [7] the majority of the High Court stated: 18. A construction under which section 23AK applies exclusively to the dividend to the extent a FIF attribution debit arises is wholly consistent with the structure of the Act when read in its entirety. Any other construction would negate the specifically intended consequences of section 23AK applying (see paragraphs 14 and 15). 19. For example, if both section 23AJ and section 23AK were to apply in respect of a dividend, subsection 23AK(2) would not operate to allow a deduction under section 8-1 of the ITAA 1997 for a loss or outgoing that is incurred in gaining or producing the section 23AK income. This is because the whole of the dividend would still be non-assessable non-exempt income under section 23AJ (see paragraph 8-1(2)(c) of the ITAA 1997). Similarly, if section 23AJ alone applied in respect of the dividend, deductions (other than those permitted under section 25-90 of the ITAA 1997) and foreign income tax offsets would not be available. 20. To read the Act in a manner which does not give section 23AK primary and exclusive operation to the extent of a FIF attribution debit would render ineffective the specific legislative treatment of dividend income representing profits previously attributed under Part XI. 21. Therefore, where sections 23AJ and 23AK appear to overlap (that is a payment of a non-portfolio dividend to a resident company giving rise to a FIF attribution debit), the better construction is that section 23AK applies exclusively to the extent of the FIF attribution debit and section 23AJ applies to any part of the dividend that exceeds the FIF attribution debit. 22. The consequences of this construction include the following: Previously issued as Draft TD 2006/D14


[ Note: This is a consolidated version of this document. Refer to the ATO Legal Database (http://law.ato.gov.au) to check its currency and to view the details of all changes.] | Ruling: 1. No. Section 23AJ of the Income Tax Assessment Act 1936 (ITAA 1936) [1] does not apply to a dividend to the extent that the dividend is 'non-assessable non-exempt income' [2] under section 23AK. | 2. Austco, an Australian resident company, owns 10% of Forco, a foreign investment fund. The remaining shareholding in Forco is held by unrelated foreign entities. As at 1 July 2008, there was a FIF attribution surplus of $10,000 in the FIF attribution account in relation to Austco. | 3. On 1 December 2008, Forco pays a dividend of $15,000 to Austco (Forco has not paid any other dividends to Austco). The dividend is a FIF attribution account payment. Since there is a FIF attribution surplus of $10,000 immediately before the payment, there is a FIF attribution debit of $10,000 on payment of the dividend. | 4. Section 23AK applies to the extent of $10,000 of the dividend. Section 23AJ applies to the remaining $5,000 of the dividend. | 5. The whole of the dividend is non-assessable non-exempt income for Austco. In addition, Austco: | Date of effect: 6. This Determination applies to dividends paid after 30 June 2004. However, the Determination does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Determination. | Commissioner of Taxation 6 September 2006 | The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined 'by reference to the language of the instrument viewed as a whole'. In Commissioner for Railways (NSW) v. Agalianos , [8] Dixon CJ pointed out that 'the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed'. Thus, the process of construction must always begin by examining the context of the provision that is being construed. A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. [9]


Related rulings: TD 2006/51
Legislative references: TAA 1953 ITAA 1936 23AI ITAA 1936 23AK ITAA 1936 23AK(2) ITAA 1936 23AJ ITAA 1936 128TA(1) ITAA 1936 Pt X ITAA 1936 317 ITAA 1936 336 ITAA 1936 Pt XI ITAA 1936 603(1)(a) ITAA 1936 604 ITAA 1936 606(1) ITAA 1997 6-23 ITAA 1997 8-1 ITAA 1997 8-1(2)(c) ITAA 1997 25-90 ITAA 1997 770-10 ITAA 1997 770-10(2) ITAA 1997 802-30 ITAA 1997 820-40(1)(a) Tax Laws Amendment (Loss Recoupment Rules and Other Measures) Act 2005 Sch 2 Pt 3
Case references: Project Blue Sky Inc and Others v. Australian Broadcasting Authority (1998) 194 CLR 355
Subject references: dividend income foreign attributable income foreign attribution credits foreign attribution debits foreign income foreign investment funds non-assessable non-exempt income non-portfolio foreign income