09 May 06 Consistent tax treatment of foreign dividendsThe Government will ensure that there is consistent tax treatment of foreign dividends received by Australian companies, whether the dividends are received directly or indirectly through a controlled foreign company (CFC). This measure will have effect from the date of Royal Assent of the enabling legislation.
Recent changes to the tax law made all foreign dividends paid to Australian companies with significant ownership levels (that is, non-portfolio dividends) not assessable. While this treatment is intended to be restricted to non-portfolio dividends, the current law allows portfolio dividends to be treated in the same way where they are derived indirectly through a CFC.
The Government will remove this inconsistency, together with making some consequential amendments to the definition of non-portfolio dividend, including aligning it with economic ownership concepts.
See Budget Paper No 2, p 22