Losses of controlled foreign companies - transition

2012 legislation clarifies transitional provisions dealing with losses arising under the old international tax rules, and carried forward under the new rules.

Sections IQ 2B(1) and (2)

Transitional provisions dealing with losses arising under the old international tax rules, and carried forward under the new international tax rules, have been reworded to ensure the policy intent of these provisions is realised.

Subsections IQ 2B(1) and IQ 2B(2)

These provisions reduce carried-forward losses of controlled foreign companies (CFCs). This is because the losses arose at a time when all income was expected to be taxed, whereas only passive income is taxed under the new international tax rules.

CFC losses are "ring-fenced" by country, so that they may be used only to offset CFC income from the same country. References to "a CFC or FIF that is resident in a country" were intended to refer to this ring-fencing, but may have created doubt that the transitional provisions apply to carried-forward losses of CFCs that have been liquidated or migrated.

The provisions have been reworded to make clear that the transitional rule applies to all ring-fenced losses, as intended.

The changes apply to income years beginning on or after 1 July 2009.