Conduit foreign income (CFI) is foreign income that is ultimately received by a non-resident through one or more interposed Australian corporate tax entities.
Foreign income paid to a non-resident is ordinarily exempt from Australian tax. However, when paid as an unfranked distribution through a corporate tax entity, such a payment would usually be subject to non-resident withholding tax.
To rectify this anomaly, special rules allow CFI to flow through Australian corporate tax entities to non-resident investors without being taxed in Australia. In order for this to happen, the amount of unfranked income received by the Australian corporate tax entity must be disclosed as conduit foreign income and it must be paid to investors (i.e. not retained by the Australian corporate tax entity).
Where CFI is received by an interposed Australian corporate tax entity, that entity will treat the amount received as non-assessable non-exempt (NANE) income. This will be the case where the amount is disclosed as CFI and the interposed entity passes that income on to its investors as such income.
Any Australian corporate tax entity may pay CFI, which includes:
- a company
- a corporate limited partnership
- a corporate unit trust
- a public unit trust.
Investors through our platform may receive CFI from an ordinary share, a listed trust or an unlisted managed fund.
An Australian resident investor will include any CFI they receive as an unfranked dividend and be subject to tax in the same manner as other unfranked dividends.
CFI is treated as NANE income in the hands of a non-resident.
As CFI is classified as NANE, it does not apply to reduce any Australian tax losses that a non-resident may have incurred.
No – An unfranked dividend that is declared to be CFI is exempt from dividend withholding tax (WHT) when paid to a non-resident.
CFI will be separately reported in the Tax Report – Detailed and as Australian unfranked dividend income in the Tax Report - Summary.
For non-resident investors, WHT will not be deducted in respect of any CFI distributed to them.