Document ID: chunk:federal_register_of_legislation:C2025C00029:section:5:p23
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 5 (pt 23/38)
Character Range: 7435832–7438373

profits, are generally identified disregarding tax provisions: see section 832‑30.
Note 2: An example is a test entity that is a partnership. In Australia, each partner in the partnership is a liable entity in respect of the income or profits of the partnership.
 (2A) However, an entity is not a liable entity in a country in respect of the income or profits of a test entity under subsection (2) if the test entity is the liable entity in that country in respect of the income or profits as a result of the operation of subparagraph (1)(a)(ii), (a)(iii) or (b)(ii).
 (3) To avoid doubt, the following outcomes may arise under subsection (2) in a country:
 (a) there may be one or more *liable entities in respect of the income or profits of a test entity;
 (b) there may be one or more interposed entities between the test entity and an entity that is a liable entity in respect of the income or profits of the test entity.

Entity not required to be actually liable to pay tax or foreign income tax
 (4) To avoid doubt, an entity may be a *liable entity in respect of its own, or another entity's, income or profits in a country even if any of the following situations exist:
 (a) there are no actual income or profits;
 (b) there are income or profits, but no part of the income or profits is:
 (i) for Australia—*subject to Australian income tax; or
 (ii) for a foreign country—*subject to foreign income tax in that foreign country;
 (c) the entity is not actually liable to pay an amount of *tax or *foreign income tax.
Note: In determining whether an entity is a liable entity in such a situation, assume that income or profits within the tax base of the country exist.

Effect of CFC regimes
 (5) An entity is not a liable entity in respect of income or profits of another entity (the test entity) merely because all or part of the income or profits of the test entity are:
 (a) included under section 456 or 457 of the Income Tax Assessment Act 1936 in the assessable income of the other entity; or
 (b) included under a corresponding provision of a law of a foreign country in working out the tax base of the other entity (including a tax base of nil, or a negative amount).

832‑330  Neutralising amount
 (1) The neutralising amount for a *hybrid payer mismatch is the amount of the *hybrid mismatch from subsection 832‑310(2), reduced (but not below nil) by the amount of any *dual inclusion income that is available to be applied in working out the neutralising amount.

Australian deduction—inclusions must be in Australia and