What Is Conduit Foreign Income Conduit Foreign Income (CFI) refers to foreign income that ultimately reaches a non-resident individual or entity through one or more Australian corporate tax entities acting as intermediaries.
Under ordinary circumstances, foreign income received by a non-resident is exempt from Australian taxation. However, when this income is distributed as an unfranked distribution through a corporate tax entity in Australia, it typically becomes subject to non-resident withholding tax.
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Taxation of CFI at the Australian Corporate Level
To address this taxation anomaly, specific rules have been established to allow CFI to pass through Australian corporate tax entities to non-resident investors without incurring taxation in Australia. To achieve this, it is essential that the Australian corporate tax entity discloses the unfranked income it receives as conduit foreign income and subsequently pays it out to investors, rather than retaining it within the entity.
When CFI is received by an interposed Australian corporate tax entity, that entity treats the received amount as “non-assessable non-exempt” (NANE) income. This categorization occurs when the income is disclosed as CFI, and the interposed entity distributes it to its investors under the same classification.
Tax Treatment of CFI for Australian Residents
For Australian resident investors, any CFI they receive is included as an unfranked dividend in their taxable income. Consequently, they are subject to taxation in the same manner as other unfranked dividends under the Australian tax system.