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LK 5B: Credits from tax year before first affected year
or “How to use tax credits from previous years for foreign investments”
You could also call this:

“How group companies can share foreign tax credits”

You can share tax credits with other companies in your group. Here’s how it works:

If your company has a tax credit because it owns part of a foreign company, you can give some of that credit to another company in your group. This is only for credits that aren’t quarantined.

You can choose to share the credit with another company in your group for the same tax year. But there are some rules you need to follow.

The amount you share can’t be more than what the other company would owe in tax if its only income came from the same country as the foreign company that gave you the credit.

To share the credit, you need to pretend that the rules for sharing tax losses between companies apply to sharing tax credits instead. This means you have to imagine:

  • Your group is a group where one company owns all the others
  • The tax credit is like a tax loss
  • Using the credit to pay tax is like using a loss to reduce income
  • The company getting the credit is like the company that had the foreign income
  • The tax the receiving company owes is like the income of the foreign company

You also need to follow the rules about tax credits instead of the rules about using tax losses.

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Next up: LK 7: Taxable distributions and NRWT rules

or “Rules for tax credits on distributions from foreign companies you partly own”
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Part L Tax credits and other credits
Tax credits relating to attributed controlled foreign company income

LK 6Use of credits by group companies

  1. This section applies when a company (company A) in a group of companies has a tax credit under section LK 1 in relation to an income interest in a CFC (company B) of an amount other than a quarantined amount.

  2. Company A may choose to make the amount of the tax credit available to another company (company C) that is part of the group of companies for the tax year in which the credit is available to the company if the requirements of subsections (3) and (4) are met.

  3. The amount of the credit must not be more than the amount that would be company C’s income tax liability if that company’s only assessable income were the attributed CFC income derived in the corresponding income year from a CFC resident in the same country in which company B was resident in the accounting period in which the income tax giving rise to the credit was paid or payable.

  4. Company A may make an amount of a tax credit available to company C to use only if the amount would be able to be used under subpart IC (Grouping tax losses), reading the subpart by substituting—

  5. a wholly-owned group of companies for a group of companies:
    1. a credit of company A for a tax loss component of the loss company:
      1. the use of the credit to satisfy an income tax liability for the use of a tax loss component to reduce net income, in both subpart IC and section GB 4 (Arrangements for grouping tax losses: companies):
        1. company C for the company B:
          1. the income tax liability of company C for the net income of company B:
            1. sections LK 1 to LK 5 for sections IA 3 to IA 5 (which relate to the use of tax losses generally).

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