Commonwealth Consolidated Acts Commonwealth Consolidated ActsEntity is a taxpayer in respect of its own income or profits
(1) An entity is a liable entity , in a country, in respect of its income or profits if:
(a) for Australia:
(i) * tax is imposed on the entity in respect of all or part of its income or profits for an income year; or
(ii) the entity is a * public trading trust (including a trust that makes a choice under section 703 - 50 (Choice to consolidate a consolidatable group)); or
(iii) the entity is an entity to which Division 295 (about superannuation entities) applies; and
(b) for a foreign country-- * foreign income tax (except a tax covered by subsection 832 - 130(7)) is imposed under the law of the foreign country:
(i) on the entity in respect of all or part of its income or profits for a * foreign tax period; or
(ii) on the income or profits of the entity in a way that corresponds to the way that foreign income tax is imposed under the law of that country on the income or profits of a company (regardless whether the foreign income tax is actually imposed on that entity, or another entity).
Note 1: The entity, and its income or profits, are generally identified disregarding tax provisions: see section 832 - 30.
Note 2: An example is an entity that is a company (and is not a subsidiary member of a consolidated group or MEC group). In Australia, a company is the liable entity in respect of its income or profits.
Entity is a taxpayer in respect of another entity's income or profits
(2) An entity is a liable entity , in a country, in respect of the income or profits of another entity (the test entity ) if:
(a) for Australia-- * tax is imposed on the entity in respect of all or part of the income or profits of the test entity for an income year; and
(b) for a foreign country-- * foreign income tax (except a tax covered by subsection 832 - 130(7)) is imposed under the law of the foreign country on the entity in respect of all or part of the income or profits of the test entity for a * foreign tax period.
Note 1: The test entity, and its income or 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).