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. 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 (ie 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.
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.
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