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LK 5: Companies’ credits carried forward
or “How companies can carry forward unused tax credits to future years”
You could also call this:

“How to use tax credits from previous years for foreign investments”

This law is about tax credits from a previous year. It applies when you have a credit from before the first year this law started affecting you. The credit must be for a company you control or have invested in that is based in another country.

You can choose not to carry forward this credit if you want. If you do carry it forward, the law explains how to convert it into a new type of credit for the current tax year.

The way your credit is converted depends on your situation. The law describes four different cases:

  1. If you’re not part of a group and have more income from the foreign company than from other sources.
  2. If you’re not part of a group and have more income from other sources than from the foreign company.
  3. If you’re part of a group and have more income from the foreign company than from other sources.
  4. If you’re part of a group and have more income from other sources than from the foreign company.

For each case, the law gives a method to calculate how much of your old credit can be converted and how much new credit you get. The calculations look at your income and tax liability to work this out.

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Next up: LK 6: Use of credits by group companies

or “How group companies can share foreign tax credits”
Next

Part L Tax credits and other credits
Tax credits relating to attributed controlled foreign company income

LK 5BCredits from tax year before first affected year

  1. This section applies for a person and a country (the jurisdiction) when the person has a credit (the available BE credit) that—

  2. relates to a tax year (the credit year) before the first tax year for which this section applies to the person; and
    1. relates to a CFC or FIF that is resident in the jurisdiction in the credit year; and
      1. is carried forward to a tax year (the conversion year) in which this section applies to the person.

        1. In this section, subsection (3) gives the person an option that an available BE credit for a jurisdiction not be carried forward and subsections (4) to (7) give, for whichever of the 4 possible alternative situations is relevant for the person,—

        2. the amount of the available BE credit (the converted BE credit) for the jurisdiction that is—
          1. treated as being converted into an amount referred to in paragraph (b) in the conversion year; and
            1. not available to the person to be carried forward as available BE credit for the jurisdiction and a later tax year:
            2. the amount (the equivalent tax credit) of a tax credit for the jurisdiction that, for the purposes of the rest of this subpart, is treated as arising on the last day of the conversion year.

              1. A person may choose by giving a notice in a form and at a time acceptable to the Commissioner that the available BE credit for a jurisdiction not be carried forward under this section.

              2. For a person who is not a resident group member and has jurisdictional BE income for the conversion year that is greater than zero and greater than the person's jurisdictional attributed income for the conversion year,—

              3. the person's converted BE credit in the conversion year is the lesser of—
                1. the amount that would be the person's income tax liability if the person's only assessable income were the person's jurisdictional BE income for the conversion year:
                  1. the person's available BE credit for the conversion year:
                  2. the person's equivalent tax credit in the conversion year is the lesser of—
                    1. the amount that would be the person's income tax liability if the person's only assessable income were the person's jurisdictional attributed income for the conversion year:
                      1. the amount calculated by dividing the person's available BE credit for the conversion year by the person's jurisdictional income ratio for the conversion year.

                      2. For a person who is not a resident group member and has jurisdictional attributed income for the conversion year that is greater than or equal to zero and greater than or equal to the person's jurisdictional BE income for the conversion year,—

                      3. the person's converted BE credit for the conversion year is the lesser of—
                        1. the person's available BE credit for the conversion year:
                          1. the amount that would be the person's income tax liability if the person's only assessable income were the person's jurisdictional attributed income for the conversion year:
                          2. the person's equivalent tax credit is equal to the person's converted BE credit for the conversion year.

                            1. For a person who is a resident group member for a wholly-owned group of companies and has jurisdictional BE income for the conversion year that is greater than zero and greater than the person's jurisdictional attributed income for the conversion year,—

                            2. the person's converted BE credit for the conversion year is the lesser of—
                              1. the person's available BE credit for the conversion year:
                                1. the amount that would be the person's income tax liability if the person's only assessable income were the greater of the person's jurisdictional BE income for the conversion year and the amount calculated by multiplying the group's jurisdictional income ratio for the conversion year by the person's jurisdictional attributed income for the conversion year:
                                2. the person's equivalent tax credit is the amount calculated by dividing the person's converted BE credit for the conversion year by the group's jurisdictional income ratio for the conversion year.

                                  1. For a person who is a resident group member and has jurisdictional attributed income for the conversion year that is greater than or equal to zero and greater than or equal to the person's jurisdictional BE income for the conversion year,—

                                  2. the person's converted BE credit for the conversion year is the lesser of—
                                    1. the person's available BE credit for the conversion year:
                                      1. the amount that would be the person's income tax liability if the person's only assessable income were the person's jurisdictional attributed income for the conversion year multiplied by the group's jurisdictional income ratio for the conversion year:
                                      2. the person's equivalent tax credit is equal to the amount calculated by dividing the person's converted tax credit for the conversion year by the group's jurisdictional income ratio for the conversion year.

                                        1. Repealed
                                        Notes
                                        • Section LK 5B: inserted (with effect on 30 June 2009), on , by section 342(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                        • Section LK 5B(1): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on , by section 79(1) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                        • Section LK 5B(2): replaced (with effect on 1 July 2009 and applying for income years beginning on or after that date), on , by section 79(2) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                        • Section LK 5B(8) heading: repealed (with effect on 1 July 2009 and applying for income years beginning on or after that date), on , pursuant to section 79(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                        • Section LK 5B(8): repealed (with effect on 1 July 2009 and applying for income years beginning on or after that date), on , by section 79(3) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                        • Section LK 5B list of defined terms branch equivalent income: repealed (with effect on 1 July 2009), on , by section 79(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                        • Section LK 5B list of defined terms branch equivalent loss: repealed (with effect on 1 July 2009), on , by section 79(4) of the Taxation (International Investment and Remedial Matters) Act 2012 (2012 No 34).
                                        • Section LK 5B list of defined terms notice: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).