Dividends which are subject to withholding tax or

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Dividends which are subject to withholding tax  or which are exempt from withholding tax  because they are franked are non-assessable  non-exempt income (s 128D) Dividends paid by non-resident companies to  non-resident shareholders may be assessable  to the extent they are paid out of profits derived  by the company  in  Australia (s 44(1)(b))
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Foundations of Taxation Law [¶23.5](d) © CCH Australia Limited Taxation of dividends (special rules for  Taxation of dividends (special rules for  non-resident carrying on a PE) non-resident carrying on a PE) Non-resident shareholders that carry on  business in Australia through a PE are  generally assessed on dividends paid by a  resident company if the dividends are  attributable to the PE and they are paid out of  profits derived by the company from sources  outside  Australia (s 44(1)(c)) Withholding tax does not apply to such  dividends (s 128B(3E))
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Foundations of Taxation Law Resident  Company Resident Shareholders Generally Divs - Assessable Franking Credits Available Non-Residents  Shareholders carrying on  PE in Australia and  Divs attributable to PE Generally Divs - Assessable Franking Credits Available Other Non-Resident Shareholders Generally Franked Divs: exempt Unfranked Divs: WHT Franking Credits  Not Available General treatment of dividends paid  General treatment of dividends paid  by resident companies by resident companies [¶23.5](e) © CCH Australia Limited
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Foundations of Taxation Law [¶23.6] © CCH Australia Limited Imputation system Imputation system Simplified imputation system contained in Part  3-6 ITAA97 Applies to all “corporate tax entities” (including  companies) Designed to prevent double taxation of  corporate profits Franking credits generally: Included in resident shareholder’s assessable  income (s 207-20(1)) Give rise to tax offsets for resident shareholders  (s 207-20(2))
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Foundations of Taxation Law [¶23.7](a) © CCH Australia Limited Franking distributions Franking distributions Franking involves a corporate tax entity  allocating tax it has paid to “frankable  distributions” Corporate tax entities are generally required to  maintain “franking accounts” Circumstances in which corporate tax entities  generate: Franking credits – set out in s 205-15 Franking debits – set out in s 205-30
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Foundations of Taxation Law [¶23.7](b) © CCH Australia Limited Main franking debit and credit entries Main franking debit and credit entries Franking Debits Payment of franked  distribution Receipt of tax refund Underfranking of  distribution Franking credits Payment of tax or  PAYG instalment Receipt of franked  distribution Liability to franking  deficit tax
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