TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 NO. 51 OF 1986 TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 NO. 51 OF 1986 - TABLE OF PROVISIONS 1. Short title 2. Principal Act 3. 4. Income beneficially derived 5. Income, &c., to be expressed in Australian currency 6. Exemptions 7. Exemption of certain income derived in respect of approved overseas projects 8. 9. Certain film proceeds included in assessable income 10. Dividends 11. Repeal of section 45 12. Rebate on dividends 13. Rebate on dividends paid as part of dividend stripping operation 14. Losses and outgoings 15. Special depreciation on trading ships 16. Domestic losses of previous years 17. Interpretation 18. Additional period for making sufficient distribution 19. 20. Deductions in relation to calculated liabilities 21. Reduction in amounts of dividends to be taken into account for purposes of section 46 22. 23. Credits in respect of overseas tax paid on certain film income 24. Credits in respect of overseas tax paid on certain shipping income 25. Definitions 26. Amendment of determinations 27. Information for credit to be furnished within 3 years 28. Maximum credits 29. Amount of instalment of tax 30. Estimated income tax 31. Reduction of provisional tax 32. Application of amendments 33. Transitional provisions-trading stock 34. Transitional provisions-depreciation 35. Transitional provisions-losses 36. Principal Act 37. Interpretation 38. Repeal of sections 12 to 15 39. Application of amendments TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - LONG TITLE An Act relating to foreign tax credits TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 1 Short title (Assented to 24 June 1986) (Date of commencement 22 July 1986) 1. This Act shall be cited as the Taxation Laws Amendment (Foreign Tax Credits) Act 1986. (Minister's second reading speech made in- House of Representatives on 22 May 1986 Senate on 4 June 1986) TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 2 Principal Act 2. The Income Tax Assessment Act 1936*1* is in this Part referred to as the Principal Act. *1* No. 27, 1936, as amended. For previous amendments, see No. 88, 1936; No. 5, 1937; No. 46, 1938; No. 30, 1939; Nos. 17 and 65, 1940; Nos. 58 and 69, 1941; Nos. 22 and 50, 1942; No. 10, 1943; Nos. 3 and 28, 1944; Nos. 4 and 37, 1945; No. 6, 1946; Nos. 11 and 63, 1947; No. 44, 1948; No. 66, 1949; No. 48, 1950; No. 44, 1951; Nos. 4, 28 and 90, 1952; Nos. 1, 28, 45 and 81, 1953; No. 43, 1954; Nos. 18 and 62, 1955; Nos. 25, 30 and 101, 1956; Nos. 39 and 65, 1957; No. 55, 1958; Nos. 12, 70 and 85, 1959; Nos. 17, 18, 58 and 108, 1960; Nos. 17, 27 and 94, 1961; Nos. 39 and 98, 1962; Nos. 34 and 69, 1963; Nos. 46, 68, 110 and 115, 1964; Nos. 33, 103 and 143, 1965; Nos. 50 and 83, 1966; Nos. 19, 38, 76 and 85, 1967; Nos. 4, 60, 70, 87 and 148, 1968; Nos. 18, 93 and 101, 1969; No. 87, 1970; Nos. 6, 54 and 93, 1971; Nos. 5, 46, 47, 65 and 85, 1972; Nos. 51, 52, 53, 164 and 165, 1973; No. 216, 1973 (as amended by No. 20, 1974); Nos. 26 and 126, 1974; Nos. 80 and 117, 1975; Nos. 50, 53, 56, 98, 143, 165 and 205, 1976; Nos. 57, 126 and 127, 1977; Nos. 36, 57, 87, 90, 123, 171 and 172, 1978; Nos. 12, 19, 27, 43, 62, 146, 147 and 149, 1979; Nos. 19, 24, 57, 58, 124, 133, 134 and 159, 1980; Nos. 61, 92, 108, 109, 110, 111, 154 and 175, 1981; Nos. 29, 38, 39, 76, 80, 106 and 123, 1982; Nos. 14, 25, 39, 49, 51, 54 and 103, 1983; Nos. 14, 42, 47, 63, 76, 115, 124, 165 and 174, 1984; No. 123, 1984 (as amended by No. 65, 1985); Nos. 47, 49, 104, 123, 168 and 173, 1985; and Nos. 41, 46, 48 and 49, 1986. TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 3 3. After section 6A of the Principal Act the following sections are inserted: Foreign income and foreign tax "6AB. (1) A reference in this Act to foreign income is a reference to income derived from sources in a foreign country or foreign countries. "(2) A reference in this Act to foreign tax is a reference to tax imposed by a law of a foreign country, being- (a) tax upon income; (b) tax upon profits or gains, whether of an income or capital nature; (c) tax deemed, by virtue of section 160AFC, to have been paid in respect of a dividend; or (d) any other tax, being a tax that is subject to an agreement having the force of law under the Income Tax (International Agreements) Act 1953, but does not include a unitary tax. "(3) Where a taxpayer has derived an amount of foreign income and- (a) foreign tax has been paid in respect of that income- (i) by or through another person under an arrangement with the taxpayer or under the law relating to that tax; (ii) by a trust estate in which the taxpayer is a beneficiary; (iii) by a partnership in which the taxpayer is a partner; or (iv) by deduction; or (b) foreign tax in respect of that income is levied on, and paid by, the taxpayer's spouse, the taxpayer shall be deemed, for the purposes of this Act, to have been personally liable for, and to have paid, that foreign tax in respect of that income. "(4) Where- (a) a taxpayer has, as a beneficiary in a trust estate or by virtue of any other beneficial interest, derived an amount of foreign income (in this sub-section referred to as the 'derived amount') attributable to another amount of foreign income (in this sub-section referred to as the 'primary amount'); (b) in respect of the primary amount, foreign tax has been paid by any person (directly or by deduction); and (c) because of the payment of that tax, the derived amount is less than the amount that would otherwise have been the derived amount, the taxpayer shall be deemed, for the purposes of this Act, to have been personally liable for, and to have paid, in respect of the derived amount, an amount of foreign tax equal to the difference between the amounts referred to in paragraph (c). "(5) Where, under regulations made by virtue of section 160AFF, or under an agreement having the force of law under the Income Tax (International Agreements) Act 1953, an amount of foreign tax not actually paid is deemed to have been paid, that amount shall, for the purposes of this Act, be deemed to have been paid. "(6) In this section- 'law', in relation to a foreign country, means a law of that country, or of any part of, or place in, that country; 'unitary tax' means tax imposed by a law of a foreign country, being a law which, for the purposes of taxing income, profits or gains of a company derived from sources within that country, takes into account, or is entitled to take into account, income, losses, outgoings or assets of the company (or of a company that for the purposes of that law is treated as being associated with the company) derived, incurred or situated outside that country, but does not include tax imposed by that law if that law only takes those matters into account- (a) if such an associated company is a resident for the purposes of that law; or (b) for the purposes of granting any form of relief in relation to tax imposed on dividends received by one company from another company. Grossing-up of foreign income "6AC. (1) Where a resident taxpayer has derived an amount of foreign income and has paid an amount of foreign tax in respect of that income, the amount of foreign income shall, for the purposes of this Act, be taken to be the amount of that income before payment of that tax. "(2) Where a person is, by virtue of section 160AFC, deemed to have paid an amount of foreign tax in respect of a dividend, the dividend shall, for the purposes of this Act (other than that section), be deemed to be increased by the amount of that tax.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 4 Income beneficially derived 4. Section 6B of the Principal Act is amended by omitting sub-section (2) and substituting the following sub-sections: "(2) For the purposes of this Act, an amount of income derived by a person, being income other than interest income, shall be deemed to be income attributable to interest income- (a) if the person derived the amount of income by reason of being beneficially entitled to an amount representing interest income; or (b) if the person derived the amount of income as a beneficiary in a trust estate and the amount of income can be attributed, directly or indirectly, to interest income or to an amount that is deemed, by any application or successive applications of this sub-section, to be an amount of income attributable to interest income. "(2A) For the purposes of this Act, an amount of income derived by a person shall be deemed to be income derived from a particular source- (a) except where paragraph (b) applies- (i) if the person derived the amount of income by reason of being beneficially entitled to an amount that is derived from that source; or (ii) if the person derived the amount of income as a beneficiary in a trust estate and the amount of income can be attributed, directly or indirectly, to income derived from that source or to an amount that is deemed, by any other application or applications of this sub-section, to be an amount that is income derived from that source; or (b) if the income so derived is, by virtue of sub-section (1) or (2), attributable to a dividend or interest income derived from that source. "(2B) In sub-sections (2) and (2A), 'interest income' has the same meaning as in section 160AE.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 5 Income, &c., to be expressed in Australian currency 5. Section 20 of the Principal Act is amended by adding at the end the following sub-sections: "(2) Where an amount of income of a taxpayer is derived during the whole or part of a year of income from the carrying on of a business in a foreign country- (a) that amount of income shall be expressed in Australian currency at a rate equal to the average of the exchange rates applicable from time to time during the whole or that part of that year; and (b) any amount of foreign tax paid in respect of that foreign income shall be expressed in Australian currency at the exchange rate applicable at the time when the tax is paid. "(3) Where an amount of foreign income of a taxpayer is derived during a year of income (not being income to which sub-section (2) or (4) applies), that amount of foreign income, and any amount of foreign tax paid in respect of that foreign income, shall be expressed in Australian currency at the exchange rate applicable- (a) where the whole amount of that income is remitted to Australia in that year-on the day on which it is remitted; (b) where part of the amount of that income is remitted to Australia in that year-on the day on which it is remitted; or (c) in any other case-at the end of that year. "(4) Where an amount of income is derived by a taxpayer during the whole or part of a year of income as described in section 23AF or 23AG- (a) that amount of income shall be expressed in Australian currency at a rate equal to the average of the exchange rates applicable from time to time during the whole or that part of that year; and (b) any amount of foreign tax paid in respect of that foreign income shall be expressed in Australian currency at the rate applicable at the time when the tax is paid. "(5) For the purposes of sub-section (3), income shall be taken to be remitted to Australia at the time when it is received in Australia.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 6 Exemptions 6. Section 23 of the Principal Act is amended by omitting paragraphs (q) and (qa). TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 7 Exemption of certain income derived in respect of approved overseas projects 7. Section 23AF of the Principal Act is amended- (a) by omitting from paragraph (17) (a) "paragraph 23 (q) or (qa)" and substituting "section 23AG"; and (b) by inserting after sub-section (17) the following sub-sections: "(17A) Where the income of a person for a year of income consists of an amount that is exempt from tax under this section (in this section referred to as the 'exempt amount') and other income, the amount of tax (if any) payable in respect of the other income shall be ascertained in accordance with the formula- A-B where- A is the amount of tax (if any) that would be payable by the person in respect of income of the year of income if the exempt amount were not exempt income; B is so much of the amount of tax (if any) that would be payable by the person in respect of income of the year of income if- (a) the exempt amount were not exempt income; (b) the assessable income of the person for the year of income consisted solely of the exempt amount; and (c) allowable deductions were not made from that assessable income except to the extent that they were attributable to deriving the exempt amount, as does not exceed A. "(17B) For the purposes of sub-section (17A), allowable deductions, to the extent that they are attributable to deriving the exempt amount, shall not exceed in the aggregate an amount equal to the exempt amount.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 8 8. After section 23AF of the Principal Act the following section is inserted: Exemption of income earned in overseas employment "23AG. (1) Where a resident, being a natural person, has been engaged in foreign service for a continuous period of not less than 365 days, any foreign earnings derived by the person from that foreign service is exempt from tax. "(2) Where a resident, being a natural person, has been engaged in foreign service for a continuous period of less than 365 days but not less than 91 days, so much of any foreign earnings derived by the person from that foreign service as bears to those foreign earnings the same proportion as the number of days in that period bears to 365 is exempt from tax. "(3) An amount of foreign earnings derived in a foreign country is not exempt from tax under this section unless- (a) the amount is not exempt from income tax in that country; and (b) if there is a liability for payment of income tax in that country in respect of that amount-the Commissioner is satisfied that the tax has been or will be paid. "(4) Where the income of a person for a year of income consists of an amount that is exempt from tax under this section (in this section referred to as the 'exempt amount') and other income, the amount of tax (if any) payable in respect of the other income shall be ascertained in accordance with the formula- A - B where- A is the amount of tax (if any) that would be payable by the person in respect of income of the year of income if the exempt amount were not exempt income; B is so much of the amount of tax (if any) that would be payable by the person in respect of income of the year of income if- (a) the exempt amount were not exempt income; (b) the assessable income of the person for the year of income consisted solely of the exempt amount; and (c) allowable deductions were not made from that assessable income except to the extent that they were attributable to deriving the exempt amount, as does not exceed A. "(5) For the purposes of sub-section (4), allowable deductions, to the extent that they are attributable to deriving the exempt amount, shall not exceed in the aggregate an amount equal to the exempt amount. "(6) For the purposes of this section, a period during which a person is engaged in foreign service includes any period during which the person is, in accordance with the terms and conditions of that service- (a) absent on recreation leave, other than- (i) leave wholly or partly attributable to a period of service or employment other than that foreign service; (ii) long service leave, furlough, extended leave or leave of a similar kind (however described); or (iii) leave without pay or on reduced pay; or (b) absent from work because of accident or illness. "(7) In this section- 'employee' includes- (a) a person employed by a government or an authority of a government or by an international organisation; or (b) a member of a disciplined force; 'foreign earnings' means income consisting of earnings, salary, wages, commission, bonuses or allowances; 'foreign service' means service in a foreign country as the holder of an office or in the capacity of an employee.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 9 Certain film proceeds included in assessable income 9. Section 26AG of the Principal Act is amended by omitting sub-section (7). TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 10 Dividends 10. Section 44 of the Principal Act is amended by omitting sub-section (1A). TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 11 Repeal of section 45 11. Section 45 of the Principal Act is repealed. TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 12 Rebate on dividends 12. Section 46 of the Principal Act is amended by omitting sub-sections (1A) and (1) and substituting the following sub-section: "(1) In this section- 'dividend' means a dividend paid by a company that is a resident, but, except in paragraph (3) (a) or (b), does not include a dividend in relation to which section 46a applies; 'private company dividend', in relation to a shareholder that is a private company in relation to the year of income, means a dividend paid to the shareholder by another company, being a company that is a resident and is a private company in relation to the year of income of that other company in which the dividend was paid.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 13 Rebate on dividends paid as part of dividend stripping operation 13. Section 46A of the Principal Act is amended- (a) by omitting sub-section (1) and substituting the following sub-section: "(1) In this section- 'dividend' means a dividend paid by a company that is a resident, but, except in paragraph (6) (a) or (b), does not include a dividend unless the payment of the dividend arose out of, or was made in the course of, a transaction, operation, undertaking, scheme or arrangement that the Commissioner is satisfied was by way of dividend stripping; 'private company dividend', in relation to a shareholder that is a private company in relation to the year of income, means a dividend paid to the shareholder by another company, being a company that is a resident and is a private company in relation to the year of income of that other company in which the dividend was paid."; (b) by omitting from sub-section (2) "A dividend paid in respect of shares in a company (in this section referred to as the 'relevant company') shall not be taken to be a dividend in relation to which this section applies" and substituting "This section does not apply in relation to a dividend paid in respect of shares in a company (in this section referred to as the 'relevant company')"; and (c) by omitting sub-section (4). TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 14 Losses and outgoings 14. Section 51 of the Principal Act is amended by adding at the end the following sub-sections: "(6) Where the amount of a class of foreign income derived by a taxpayer in a year of income from a foreign source is exceeded by the sum of- (a) any deductions allowed or allowable from the assessable income of the taxpayer of the year of income that relate exclusively to income of that class derived from that source; and (b) so much of any other deductions allowed or allowable from that assessable income (other than apportionable deductions) as, in the opinion of the Commissioner, may appropriately be related to income of that class derived from that source, a deduction is not allowable under sub-section (1) in respect of the amount of the excess. "(7) In sub-section (6), 'class of income' and 'foreign source' have the same meanings as in section 160AFD.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 15 Special depreciation on trading ships 15. Section 57AM of the Principal Act is amended by omitting from sub-section (30) "paragraphs 23 (q) and (r)" and substituting "paragraph 23 (r)". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 16 Domestic losses of previous years 16. Section 80 of the Principal Act is amended- (a) by inserting in sub-section (2) "(2B)," after "sub-sections"; (b) by inserting after sub-section (2A) the following sub-sections: "(2B) The losses referred to in sub-section (2) shall not be allowable as a deduction from foreign income of a taxpayer except to the extent provided in an election under sub-section (2C). "(2C) A taxpayer who has derived foreign income in a year of income may elect that the whole or a specified part of the losses referred to in sub-section (2) shall be allowable as a deduction from the taxpayer's foreign income of that year. "(2D) An election referred to in sub-section (2C)- (a) shall be exercised by notice in writing to the Commissioner; and (b) shall be lodged with the Commissioner on or before the date of lodgment of the return of income of the taxpayer for the year of income to which the election relates or within such further period as the Commissioner allows."; and (c) by adding at the end the following sub-sections: "(8) For the purposes of sub-section (1), where the amount of a class of foreign income derived by a taxpayer in a year of income from a foreign source is exceeded by the sum of- (a) any deductions allowed or allowable from the assessable income of the taxpayer of the year of income that relate exclusively to income of that class derived from that source; and (b) so much of any other deductions allowed or allowable from that assessable income (other than apportionable deductions) as, in the opinion of the Commissioner, may appropriately be related to income of that class derived from that source, the amount of the excess shall be disregarded. "(9) In sub-section (8), 'class of income' and 'foreign source' have the same meanings as in section 160AFD.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 17 Interpretation 17. Section 103 of the Principal Act is amended by inserting "(including taxes deemed by section 160AFC to have been paid)" after "Australia" in sub-paragraph (b) (iii) of the definition of "the distributable income". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 18 Additional period for making sufficient distribution 18. Section 105AA of the Principal Act is amended- (a) by omitting from the end of paragraph (1) (b) "or"; and (b) by inserting after paragraph (1) (c) the following word and paragraph: "; or (d) after the prescribed time there is a determination of credit for a year of income or a determination of credit for a year of income is amended and as a result of the determination or amendment the distributable income of that year of income is greater than it would otherwise have been,". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 19 19. After section 112A of the Principal Act the following section is inserted: Exemption of certain foreign income "112B. The assessable income of a life assurance company shall not include so much of its foreign income as is not remitted to Australia.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 20 Deductions in relation to calculated liabilities 20. Section 115 of the Principal Act is amended- (a) by inserting in sub-section (2) "or 112B or both those sections" after "112A"; and (b) by omitting from sub-section (2) "that section" and substituting "those sections". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 21 Reduction in amounts of dividends to be taken into account for purposes of section 46 21. Section 116AA of the Principal Act is amended- (a) by inserting in sub-paragraph (1) (a) (i) "or dividends paid by a company that is not a resident" after "Division 9"; and (b) by inserting in sub-paragraph (1) (a) (ii) "or shares in a company that is not a resident" after "Division 9". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 22 22. Division 18 of Part III of the Principal Act is repealed and the following Division is inserted: "Division 18-Credits in respect of Foreign Tax Interpretation "160AE. (1) In this Division, unless the contrary intention appears- 'Australian company' means a company that is a resident of Australia; 'company' does not include a company in the capacity of a trustee; 'dividend' includes a part of a dividend; 'foreign company' means a company that is not a resident of Australia; 'law', in relation to a foreign country, means a law of that country, or of any part of, or place in, that country; 'profits' includes gains, whether of an income or capital nature, and, in relation to a company, means the amount of profits derived by the company, having regard to- (a) the accounts of the company; (b) any provisions of a law requiring the company to maintain statutory reserves; and (c) such other matters as may reasonably be regarded as relevant, that is available for distribution by the company or would be available for distribution but for the requirement to pay any foreign tax on those profits; 'relief', in relation to foreign tax, means relief in the nature of a credit, rebate, remission or deduction; 'underlying tax', in relation to a dividend paid by a company, means tax payable by the company on the profits out of which the dividend is paid; 'undistributed amount', in relation to a private company, means the amount that is the undistributed amount in relation to the company under Division 7. "(2) Where an amount is included in the assessable income of a taxpayer of a year of income, being an amount consisting of profits derived from sources in a foreign country, being profits of a capital nature in respect of which foreign tax is payable, the amount so included shall, for the purposes of this Division, be deemed to be income derived by the taxpayer in the year of income from sources in that country. "(3) In this Division, 'interest income', in relation to a person, means income consisting of interest, or a payment in the nature of interest, in respect of- (a) money lent, advanced or deposited; (b) credit given; or (c) any other form of debt or liability, whether security is given or not, other than- (d) interest derived by the person from a transaction directly related to the active conduct of a trade or business; (e) interest derived by the person from carrying on a banking business or any other business whose income is principally derived from the lending of money; or (f) interest received by the person during a year of income from a company, where- (i) at any time during the year of income, the company was related to the person or would have been related to the person if the person were an Australian company; and (ii) during the year of income or the preceding year of income, the company has not derived an amount of interest income exceeding 10% of the total profits derived by the company during the same year. Credits in respect of foreign tax "160AF. (1) Where- (a) the assessable income of a year of income of a resident taxpayer includes foreign income; and (b) the taxpayer has paid foreign tax in respect of the foreign income, being tax for which the taxpayer was personally liable, the taxpayer is, subject to this Act, entitled to a credit of- (c) the amount of that foreign tax, reduced in accordance with any relief available to the taxpayer under the law relating to that tax; or (d) the amount of Australian tax payable in respect of the foreign income, whichever is the less. "(2) Where foreign tax has been deducted from the income of a taxpayer derived from sources in a foreign country and the taxpayer could have elected, under the law of that country, to have the taxpayer's liability to tax in that country determined on an assessment basis, the taxpayer shall be treated, for the purposes of paragraph (1) (c), as being entitled to relief of foreign tax in respect of the foreign income equal to the amount (if any) by which the liability to tax on that income would have been reduced if the liability had been so determined. "(3) For the purposes of sub-section (1), the amount of Australian tax payable in respect of foreign income by a taxpayer in a year of income is, subject to the succeeding provisions of this section, an amount ascertained by- (a) applying the average rate of Australian tax of the taxpayer of the year of income to the adjusted net foreign income of the taxpayer of the year of income; and (b) deducting from the resulting amount the sum of any rebate (other than a rebate under an Act fixing the rates of income tax, or under an Act imposing income tax, for the year of tax) to which the taxpayer is entitled in the taxpayer's assessment in respect of income derived in the year of income and which relates exclusively to so much of that income as is foreign income. "(4) Where additional tax under Division 7 has been paid, or is payable, by a private company upon the undistributed amount of the company of the year of income, the amount of Australian tax payable in respect of foreign income by the company in the year of income is, for the purposes of sub-section (1), the sum of- (a) the amount ascertained in accordance with the preceding provisions of this section as being the amount of Australian tax so payable; and (b) the amount ascertained by applying the rate of the additional tax to an amount that bears to the adjusted net foreign income of the company of the year of income the same proportion as that undistributed amount bears to the company's taxable income of the year of income. "(5) Where- (a) a person has paid or is liable to pay further tax assessed under section 94 in respect of income derived in the year of income; or (b) a trustee of a trust estate has paid or is liable to pay tax assessed under section 102 in respect of income derived in the year of income, the amount of Australian tax payable in respect of the foreign income of the person or trustee of the year of income is, for the purposes of this section, such amount as the Commissioner determines, being so much of the amount of tax (in this section referred to as the 'relevant amount') paid or payable by the person or trustee in respect of income of the year of income as, in the opinion of the Commissioner, is reasonably attributable to the foreign income. "(6) For the purposes of this Division, where, during a year of income, a taxpayer derives foreign income of which- (a) part is exempt under section 23AG; and (b) part is included in the taxpayer's assessable income of the year of income, the amount of foreign tax that would, but for this sub-section, be taken to be paid by the taxpayer in respect of that foreign income shall be reduced by the sum that bears to that amount the same proportion that the exempt part of that foreign income bears to the whole of that foreign income. "(7) Notwithstanding the preceding provisions of this section, where the foreign income derived by a taxpayer in a year of income consists of income that is interest income and of other income, this section does not apply in relation to the taxpayer in relation to the foreign income as a whole but, instead, applies in relation to the taxpayer separately in relation to the interest income and in relation to the other income, and, for the purposes of this section as so applying in relation to the interest income or in relation to the other income, the interest income, or the other income, as the case may be, shall be treated as the whole of the foreign income. "(8) In this section- 'adjusted net foreign income', in relation to a taxpayer, means- (a) where the net foreign income of the taxpayer of the year of income exceeds the sum of the taxpayer's taxable income of the year of income and the apportionable deductions-an amount equal to that taxable income; (b) where sub-section (7) applies, and the amount that, but for that sub-section, would be the net foreign income of the taxpayer of the year of income exceeds the sum of the taxpayer's taxable income of the year of income and the apportionable deductions-the amount that bears to the net foreign income of the taxpayer of the year of income the same proportion as the taxpayer's taxable income bears to the amount first referred to in this paragraph; (c) in any other case-the amount that bears to the net foreign income of the taxpayer of the year of income the same proportion as the taxpayer's taxable income of the year of income bears to the sum of that taxable income and the apportionable deductions; 'average rate of Australian tax', in relation to a taxpayer, means an amount per dollar ascertained by dividing the amount of income tax that would be assessed under this Act in respect of the taxpayer's taxable income of the year of income if- (a) the taxpayer was not entitled to any rebate of tax (other than a rebate under sub-section 23AB (7), section 79A or 79B or Subdivision A of Division 17 of Part III, or under an Act imposing income tax for the year of tax) or credit against the taxpayer's liability for tax; and (b) the taxpayer was not liable to pay additional tax under Division 7, by a number equal to the number of whole dollars in that taxable income; 'net foreign income', in relation to a taxpayer, means an amount equal to so much of the taxpayer's assessable income of the year of income as is foreign income, reduced by- (a) any deductions allowed or allowable from that assessable income that relate exclusively to that foreign income; (b) any amount the subject of an election made by the taxpayer under sub-section 80 (2C) in relation to the year of income; and (c) so much of any other deductions allowed or allowable from that assessable income (other than apportionable deductions) as, in the opinion of the Commissioner, may appropriately be related to that foreign income. Certain dividends deemed to be interest income "160AFA. (1) Where, during the first accounting period of a foreign company that ends after 30 June 1987 or any subsequent accounting period (in this section referred to as the 'relevant period') the company derives net interest income amounting to at least 10% of its total profits derived during that period, the succeeding provisions of this section apply in relation to the foreign company. "(2) For the purposes of this section, the foreign company shall be deemed to have, during a period consisting of the relevant period and subsequent accounting periods, an interest pool consisting of the sum of any amounts of net interest income derived during the first-mentioned period reduced by the sum of any amounts deemed to be interest income by virtue of sub-section (3). "(3) Where- (a) in the year of income commencing on 1 July 1987 or a subsequent year of income, a dividend is paid by the foreign company to a taxpayer; and (b) at any time in that year of income, the foreign company is related to the taxpayer or would be related to the taxpayer if the taxpayer were an Australian company, then, for the purposes of this Division, so much of that dividend as does not exceed the amount then standing in the interest pool of the foreign company shall be deemed to be interest income derived by the taxpayer in that year of income and not to be a dividend. "(4) In this section, 'net interest income', in relation to a foreign company, in relation to an accounting period, means the interest income derived by the company in that period, reduced by- (a) any deductions allowed or allowable under any law from the income of the company derived in that period that relate exclusively to that interest income; and (b) so much of any other deductions allowed or allowable under any law from the income of the company so derived as, in the opinion of the Commissioner, may appropriately be related to that interest income. Related foreign companies "160AFB. (1) Where one or more of the following paragraphs apply: (a) an Australian company has a voting interest in a foreign company amounting to at least 10% of the voting power of the foreign company; (b) that foreign company has a voting interest in another foreign company amounting to at least 10% of the voting power of that other foreign company; (c) that other foreign company is similarly connected with a further foreign company, or a succession of further similarly connected foreign companies, each of those companies is, for the purposes of this section, a member of a group of companies. "(2) Where an Australian company- (a) is a member of a group of companies; and (b) has (either directly or through one or more companies, whether members of the group or not) a voting interest amounting to at least 5% of the voting power of a foreign company that is a member of the group, the foreign company is, for the purposes of this Division, related to the Australian company. "(3) For the purposes of paragraph (2) (b), where a company has a voting interest in a second company that has a voting interest in a third company (including a voting interest held by the second company by virtue of any other application or applications of this sub-section), the first company shall be deemed to have a voting interest in the third company (in addition to any other voting interest) of an amount ascertained in accordance with the formula- AB ______ C where- A is the amount of the voting interest of the first company in the second company; B is the amount of the voting interest of the second company in the third company; and C is the amount of the voting power of the second company. "(4) For the purposes of this section, a company shall be taken to have a voting interest in another company if- (a) the first-mentioned company is the beneficial owner of shares in the other company that carry the right to exercise any of the voting power in the other company; and (b) there is no arrangement in force at the relevant time by virtue of which any person is in a position, or may become in a position, to affect that right, and the extent of the voting interest shall be taken to be the total number of votes that, by virtue of that right, can be cast on a poll at, or arising out of, a general meeting of the other company as regards all questions that could be submitted to such a poll. "(5) For the purposes of paragraph (4) (b), a person shall be taken to be in a position to affect a right of a company if that person has a right, power or option (whether by virtue of any provision in the constituent document of any company or by virtue of any agreement or instrument or otherwise) to acquire that right or do an act or thing that would prevent the first-mentioned company from exercising that right or receiving any benefits accruing by reason of that right. "(6) For the purposes of this section, the voting power in a company is the maximum number of votes that can be cast on a poll at, or arising out of, a general meeting of a company as regards all questions that can be submitted to such a poll. "(7) In this section, 'arrangement' includes- (a) any agreement, arrangement, understanding, promise or undertaking, whether expressed or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. Foreign underlying tax "160AFC. (1) Where one or more of the following paragraphs apply: (a) at a particular time, a taxpayer, being an Australian company, has received a dividend from a foreign company that was, at that time, related to the Australian company; (b) at any earlier time, that foreign company has received a dividend from another foreign company that was, at that time, related to the Australian company; (c) at any earlier time or times, that other foreign company was similarly connected with a further foreign company, or a succession of further similarly connected foreign companies, through the receipt, in each case, of a dividend by one company from the next company, both companies being at the relevant time related to the Australian company, then, for the purposes of this section- (d) in relation to the payment of that dividend or those dividends, as the case may be, each of those companies shall be taken to be a member of a dividend series; (e) in relation to the payment of each dividend, the company that received the dividend shall be taken to be the receiving company and the company that paid the dividend shall be taken to be the paying company, and those companies shall be taken to be a pair of companies; (f) the taxpayer shall be taken to be higher or highest, as the case may be, in a dividend series and the other member or members of the series shall be taken to be lower, or successively lower, as the case may be; and (g) the same company may be a member of 2 or more dividend series. "(2) Where- (a) there is only one pair of companies in a dividend series; and (b) the paying company has paid an amount of underlying tax out of the profits out of which the dividend has been paid, the receiving company shall, for the purposes of this Division, be deemed to have paid, and to have been personally liable for, in respect of the dividend (in addition to any other amount of foreign tax), in the year of income in which the dividend was received, an amount of foreign tax ascertained in accordance with the formula- AB _____ C where- A is the amount of the dividend; B is the amount of the underlying tax; and C is the number of whole dollars in the amount by which the profits out of which the dividend has been paid exceeds B. "(3) Where there are 2 or more pairs of companies in a dividend series, sub-section (4) applies successively in relation to each pair, commencing with the lower or lowest pair in the series. "(4) The receiving company shall, for the purposes of this Division, be deemed to have paid, and to have been personally liable for, in respect of the dividend (in addition to any other amount of foreign tax) an amount of foreign tax ascertained in accordance with the formula- A(B+C) ________ D where- A is the amount of the dividend; B is the amount (if any) of underlying tax paid by the paying company out of the profits out of which the dividend has been paid; C is the amount (if any) of underlying tax deemed to have been paid by the paying company by any other application or applications of this sub-section in relation to the dividend series; and D is the number of whole dollars in the amount by which the profits out of which the dividend has been paid exceeds B. "(5) Where the Australian company is the receiving company, the foreign tax deemed by virtue of sub-section (4) to have been paid by that company in respect of the dividend shall be deemed to have been paid in the year of income in which the dividend was received. "(6) For the purposes of this section, a dividend paid by a foreign company related to an Australian company shall be taken to be paid out of the profits of the company as follows: (a) the dividend shall be taken to be paid out of the profits accumulated during the first accounting period commencing after 30 June 1987 and subsequent accounting periods; (b) if the total dividend exceeds the profits referred to in paragraph (a), the excess shall be taken to be paid out of the profits of the accounting period next preceding the first accounting period referred to in that paragraph; (c) if the total dividend exceeds the sum of the profits referred to in paragraphs (a) and (b), the excess shall be taken to be paid out of the profits of the next preceding accounting period, and so on. "(7) For the purposes of the application of sub-section (6) in relation to a dividend paid by a company- (a) profits distributed by the company before the date of the declaration of the dividend; and (b) profits taken into account for the purposes of the application of that sub-section in relation to a previous dividend paid by the company, shall be disregarded. "(8) A reference in this section to an amount of underlying tax paid by a company is a reference to that amount as reduced in accordance with any relief available to the company in respect of that tax under the law relating to that tax. "(9) For the purposes of this section, the amount of a dividend paid by a company shall be deemed to be increased by the sum of any amount of foreign tax deducted from that dividend. "(10) In this section, 'accounting period', in relation to a foreign company, means an accounting period used by the company for the purposes of a law imposing underlying tax on the company, being a law that defines the company as a resident for the purposes of that law. Losses of previous years "160AFD. (1) Where a resident taxpayer has incurred one or more overall foreign losses in respect of a class of income derived from a foreign source in any of the 7 years of income next preceding a particular year of income (in this sub-section referred to as the 'relevant year of income'), the amount that, but for this section, would, for the purposes of this Division, be the taxpayer's income of that class of the relevant year of income derived from that source (in this sub-section referred to as the 'basic amount') shall, for the purposes of this Act, be deemed to be reduced by an amount not exceeding the lesser of- (a) the amount of the loss, or the total of the amounts of the losses, reduced by the amount, or the total of the amounts, if any, by which the taxpayer's income of that class derived from that source has been reduced by any previous application or applications of this sub-section; or (b) the basic amount. "(2) Where, by virtue of sub-section (1), a taxpayer's income of a particular class of a year of income derived from a foreign source is reduced by 2 or more losses, the losses shall be taken into account in the order in which they were incurred. "(3) Where a taxpayer's income of a particular class of a year of income derived from a foreign source is reduced by virtue of sub-section (1), the amount of foreign tax paid by the taxpayer in respect of the taxpayer's income of that class of the year of income derived from that source shall, for the purposes of this Act, be calculated as if the amount of that income were the amount as so reduced. "(4) This section has effect whether or not the law of the foreign country concerned allows the income of a taxpayer of a particular year to be reduced because of losses incurred in previous years. "(5) For the purposes of sub-section (1), a taxpayer shall be taken to have incurred an overall foreign loss in respect of a class of income derived from a foreign source in a year of income of an amount equal to the amount (if any) by which the sum of- (a) any deductions allowed or allowable from the assessable income of the taxpayer of the year of income that relate exclusively to the taxpayer's income of that class of the year of income derived from that source; and (b) so much of any other deductions allowed or allowable from that assessable income (other than apportionable deductions) as, in the opinion of the Commissioner, may appropriately be related to the taxpayer's income of that class of the year of income derived from that source, exceeds the amount of the taxpayer's income of that class of the year of income derived from that source. "(6) For the purposes of this section- (a) interest income constitutes a single class of income; and (b) all other income constitutes a single class of income. "(7) In this section- 'foreign source', in relation to a taxpayer, means- (a) a business carried on by the taxpayer at or through a permanent establishment in a foreign country; or (b) any other business, commercial or investment activity carried on by the taxpayer in a foreign country. Transfer of excess credit within company group "160AFE. (1) Where- (a) a company (in this section referred to as the 'credit company') has an excess credit in relation to a class of income in respect of a year of income; (b) section 160AF applies in relation to that class of income of a company (in this section referred to as the 'income company') that is a group company in relation to the credit company in relation to the year of income; and (c) the credit company and the income company give the Commissioner, on or before the date of lodgment of the return of income of the income company for the year of income or within such further time as the Commissioner allows, a notice in writing signed by the public officer of each of those companies stating that the whole or a specified part of the excess credit should be transferred to the income company in the year of income, section 160AF applies in relation to that class of income of the income company in relation to the year of income as if the amount ascertained under paragraph (1) (c) of that section were increased by the whole, or that part, as the case may be, of the excess credit. "(2) For the purposes of this section, a company shall be taken to be a group company in relation to another company in relation to a year of income if- (a) one of the companies was a subsidiary of the other company; or (b) each of the companies was a subsidiary of the same company, during the whole of the year of income or, if either or both of those companies was not or were not in existence during part of the year of income, during that part of the year of income during which both companies were in existence. "(3) For the purposes of this section, a company (in this sub-section referred to as the 'subsidiary company') shall be taken to be the subsidiary of another company (in this sub-section referred to as the 'holding company') during a period (in this sub-section referred to as the 'relevant period'), being the whole or a part of a year of income, if- (a) at all times during the relevant period, all the shares in the subsidiary company are beneficially owned by- (i) the holding company; (ii) a company that is, or 2 or more companies each of which is, a subsidiary of the holding company; or (iii) the holding company and a company that is, or 2 or more companies each of which is, a subsidiary of the holding company; and (b) there is no arrangement in force during any part of the relevant period by virtue of which any person is in a position, or will become in a position after the relevant period, to affect rights of the holding company or of a subsidiary of the holding company in relation to the subsidiary company. "(4) For the purposes of this section, where a company is a subsidiary of another company (including a company that is such a subsidiary by virtue of another application or other applications of this sub-section), every company that is a subsidiary of the first-mentioned company shall be taken to be a subsidiary of that other company. "(5) For the purposes of sub-section (3), a person shall be taken to be in a position during a year of income, or a part of a year of income, to affect any rights of a company in relation to another company if, during the year of income, or that part of the year of income, that person has a right, power or option (whether by virtue of any provision in the constituent document of either of those companies or by virtue of any agreement or instrument or otherwise) to acquire those rights or do an act or thing that would prevent the first-mentioned company from exercising those rights for its own benefit or receiving any benefits accruing by reason of those rights. "(6) For the purposes of this section, a company shall be taken to be in existence if it has been incorporated and has not been dissolved. "(7) For the purposes of this section, where- (a) section 160AF applies in relation to a class of income of a company in relation to a year of income; and (b) in that application, the amount ascertained under paragraph (1) (c) of that section exceeds the amount ascertained under paragraph (1) (d) of that section, so much of the amount of the excess as has not been applied under this section is, for the purposes of this section, an excess credit in relation to that class of income of the company in respect of the year of income. "(8) For the purposes of this section- (a) interest income constitutes a single class of income; and (b) all other income constitutes a single class of income. "(9) In sub-section (3), 'arrangement' includes- (a) any agreement, arrangement, understanding, promise or undertaking, whether expressed or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and (b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise. "(10) In this section, 'company' means an Australian company. Tax-sparing "160AFF. (1) For the purposes of providing incentives to residents of Australia to invest in a particular foreign country, the regulations may provide that section 6AC and this Division apply in relation to income derived from sources in that country subject to such modifications as are specified in the regulations. "(2) Regulations made by virtue of this section in relation to a particular country shall be reviewed by the Minister at the end of each consecutive period of 5 years after their commencement. "(3) In this section, 'modifications' includes additions, omissions and substitutions. "(4) Regulations made by virtue of this section after 1 July 1987 may be expressed to take effect from a day earlier than the day on which they are made, but shall not be expressed to take effect from a day earlier than 1 July 1987.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 23 Credits in respect of overseas tax paid on certain film income 23. Section 160AGA of the Principal Act is amended- (a) by omitting from paragraph (1) (b) "23 (q) or"; (b) by omitting from paragraph (1) (b) "sub-sections 26AG (7) and (8)" and substituting "sub-section 26AG (8)"; and (c) by omitting sub-section (4) and substituting the following sub-section: "(4) For the purposes of sub-section (3), the Australian tax in respect of the eligible amount or a part of the eligible amount is the amount of Australian tax that would be ascertained for the purposes of section 160AF if that section applied and the eligible amount or that part of the eligible amount were the taxpayer's foreign income for the purposes of that section.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 24 Credits in respect of overseas tax paid on certain shipping income 24. Section 160AGB of the Principal Act is amended- (a) by omitting from paragraph (1) (b) "23 (q) or (r)" and substituting "23 (r)"; and (b) by omitting sub-section (4) and substituting the following sub-section: "(4) For the purposes of sub-section (3), the Australian tax in respect of the eligible amount is the amount of Australian tax that would be ascertained for the purposes of section 160AF if that section applied and the eligible amount were the taxpayer's foreign income for the purposes of that section.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 25 Definitions 25. Section 160AH of the Principal Act is amended by omitting the definition of "non-Australian tax". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 26 Amendment of determinations 26. Section 160AK of the Principal Act is amended by omitting "non-Australian" (wherever occurring) and substituting "foreign". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 27 Information for credit to be furnished within 3 years 27. Section 160AM of the Principal Act is amended by omitting "non-Australian" and substituting "foreign". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 28 Maximum credits 28. Section 160ao of the Principal Act is amended by omitting sub-section (1). TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 29 Amount of instalment of tax 29. Section 221AE of the Principal Act is amended by omitting from sub-section (3) "section 45,". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 30 Estimated income tax 30. Section 221AG of the Principal Act is amended by omitting from sub-section (8) "section 45,". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 31 Reduction of provisional tax 31. Section 221YDC of the Principal Act is amended by omitting from sub-section (1) "section 45,". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 32 Application of amendments 32. The amendments made by this Part apply to assessments in respect of income of the year of income commencing on 1 July 1987 and in respect of income of all subsequent years of income. TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 33 Transitional provisions-trading stock 33. (1) This section applies to trading stock on hand at the commencement of the first taxable year if- (a) the trading stock consists of the whole or part of a business carried on in a foreign country; and (b) the income derived from the business in that year would be exempt income but for the amendments made by this Part. (2) For the purposes of section 28 of the Principal Act, the value to be taken into account at the beginning of the first taxable year in respect of trading stock to which this section applies shall be, at the option of the taxpayer- (a) in the case of trading stock not being live-stock-its cost price, its market selling value or the price at which it can be replaced; or (b) in the case of trading stock being live-stock-its cost price or its market selling value. (3) An option under sub-section (2) shall be exercised by notice in writing lodged with the Commissioner before 1 September 1987 or such later date as the Commissioner allows. (4) If the taxpayer does not exercise an option in relation to particular trading stock within the time and in the manner specified in sub-section (3), the value to be taken into account in accordance with sub-section (2) in relation to that trading stock shall be the cost price. (5) Notwithstanding section 33 of the Principal Act, a taxpayer who has exercised an option under sub-section (2) may, in respect of trading stock on hand at the end of the first taxable year (including trading stock other than trading stock to which this section applies) exercise- (a) in the case of trading stock not being live-stock-a further option under section 31 of that Act; and (b) in the case of trading stock being live-stock-a further option under section 32 of that Act. (6) Where a taxpayer, in pursuance of sub-section (5), adopts cost price as the basis of valuation in relation to any trading stock, the cost price of so much of that trading stock as is trading stock to which this section applies shall be deemed to be the value at which that trading stock was taken into account in accordance with sub-section (2). (7) In this section, "first taxable year" means the year of income commencing on 1 July 1987. TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 34 Transitional provisions-depreciation 34. (1) This section applies to property in respect of which depreciation is allowable to a taxpayer under section 54 of the Principal Act, being property which, on 1 July 1987, is owned by the taxpayer and used, or installed ready for use, by the taxpayer for the purpose of producing income that would be exempt income but for the amendments made by this Part. (2) For the purposes of the provisions of the Principal Act relating to depreciation, the cost of a unit of property to which this section applies shall be deemed to be the amount that would have been the depreciated value, ascertained in accordance with section 62 of that Act, of that unit on 1 July 1987 if the unit had, during the whole of the period from the time of its acquisition by the taxpayer to that date, been used by the taxpayer wholly for the purpose of producing assessable income and depreciation had been allowed to the taxpayer, during that period, by way of a percentage of the depreciated value of the unit at the beginning of each year of income. TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 35 Transitional provisions-losses 35. (1) Where- (a) in one or more years of income before the first taxable year, a taxpayer has incurred one or more overall foreign losses in respect of a class of income derived from a foreign source; and (b) in one or more years of income before the first taxable year and after the earliest year in which a loss was so incurred, the taxpayer has derived one or more overall profits in respect of income of that class derived from that source, the amount of the loss, or the total amounts of the losses, that would, but for this section, be taken into account in respect of income of that class derived by the taxpayer from that source for the purposes of section 160afd of the Principal Act as amended by this Part shall be reduced by the amount of the profit, or the total amount of the profits. (2) For the purposes of sub-section (1), a taxpayer shall be taken to have derived an overall profit in respect of a class of income derived from a foreign source in a year of income of an amount equal to the amount (if any) by which the taxpayer's income of that class of the year of income derived from that source exceeds the sum of- (a) any deductions allowed or allowable from the assessable income of the taxpayer of the year of income that relate exclusively to the taxpayer's income of that class of the year of income derived from that source; and (b) so much of any other deductions allowed or allowable from that assessable income (other than apportionable deductions) as, in the opinion of the Commissioner, may appropriately be related to the taxpayer's income of that class of the year of income derived from that source. (3) In this section, "class of income", "foreign source" and "overall foreign loss" have the same meanings as in section 160AFD of the Principal Act. (4) In this section, "first taxable year" means the year of income commencing on 1 July 1987. TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 36 Principal Act 36. The Income Tax (International Agreements) Act 1953*2* is in this Part referred to as the Principal Act. *2* No. 82, 1953, as amended. For previous amendments, see No. 25, 1958; No. 88, 1959; Nos. 19 and 29, 1960; No. 71, 1963; No. 112, 1964; No. 105, 1965; No. 17, 1966; Nos. 39 and 86, 1967; No. 3, 1968; No. 24, 1969; No. 48, 1972; Nos. 11 and 216, 1973; No. 129, 1974; No. 119, 1975; Nos. 52, 55 and 143, 1976; No. 134, 1977; No. 87, 1978; Nos. 23 and 127, 1980; Nos. 28, 110, 143 and 154, 1981; Nos. 51 and 57, 1983; Nos. 123 and 125, 1984; and Nos. 168 and 173, 1985; and No. 46, 1986. TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 37 Interpretation 37. Section 3 of the Principal Act is amended by omitting sub-sections (5) and (6) and substituting the following sub-section: "(5) For the purposes of this Act- (a) all income that is interest income within the meaning of section 160AE of the Assessment Act constitutes a single class of income; (b) all income not being interest income within that meaning constitutes a single class of income; and (c) an amount of income that is deemed, for the purposes of any provision of this Act or of the Assessment Act, to be attributable to any other income, being income of a particular class, shall be deemed to be income of that class.". TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 38 Repeal of sections 12 to 15 38. Sections 12 to 15 (inclusive) of the Principal Act are repealed. TAXATION LAWS AMENDMENT (FOREIGN TAX CREDITS) ACT 1986 No. 51 of 1986 - SECT 39 Application of amendments 39. The amendments made by this Part apply to assessments in respect of income of the year of income commencing on 1 July 1987 and in respect of income of all subsequent years of income.