Deemed rate of return method

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This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

You may use this method where you cannot apply the market value method.

The following four steps will help you to complete Worksheet 2 Deemed rate of return method for FIFs.

Step 1 - Group your interests

Apply the deemed rate of return method separately to each group of interests. Determine the group or groups of interests you hold in a FIF at the end of the FIF's notional accounting period. [SECTION 544]

Meaning of a group of interests in a FIF

If you had only one interest in a FIF during the notional accounting period, that interest is a group. [SUBSECTION 544(2)]

Interests in a FIF that are of the same class-for example, two parcels of class A shares-and which you held during the same period, are treated as a group of interests. However, if interests are of different classes-for example, class A and B shares with different rights-you would treat each class as a separate group. Shares of the same class which are not held for the same period during the FIF's notional accounting period also form different groups. If you had two or more interests in a FIF that are not of the same group of interests, apply the deemed rate of return method separately to each group. [SUBSECTIONS 544(3), (4) and (5)]

Step 2 - Working out the opening value-box A

This step determines the opening value of your interest in the FIF at the beginning of the notional accounting period.

Opening value where the interests in a FIF were acquired during a notional accounting period

If you acquired the interests in a FIF during the notional accounting period, the opening value of the interests is the consideration you paid or gave for the acquisition. [SECTION 554]

Opening value where the deemed rate of return method applied in the previous year

Where you applied the deemed rate of return method to a group of FIFs in the immediately previous notional accounting period, work out the opening value of the FIF for the current period as follows:

• use the opening value of the group of FIFs at the beginning of the previous period
• add the FIF income for the previous notional accounting period
• take away any distributions made by the FIF in the previous notional accounting period. [SECTION 551]

Distributions include any amount paid or credited or property distributed to you by the FIF, either as income or capital. They include the issue to you of further interests in the FIF in lieu of your entitlement to a payment by the FIF.

Distributions do not include the issue to you of further interests where you do not pay consideration or forgo payment in exchange for those further interests. [SECTION 474]

Opening value where the market value method applied in the previous year

If the market value method applied in the immediately previous notional accounting period, the opening value for the current year is the market value of the interest in the FIF at the end of that period. [SECTION 553]

Opening value where the calculation method or an exemption applied in the previous year

Where the calculation method or an exemption from FIF taxation applied or the operative provision did not apply in the immediately previous notional accounting period, use one of the following methods to decide the opening value for the current period.

• Where the FIF interest was quoted on an approved stock exchange at any time during the immediately previous notional accounting period, use the quoted price for the latest day of that period as the opening value for the current period.
• If the FIF interest was not quoted on an approved stock exchange on the last day of the previous notional accounting period, begin with the original consideration paid and apply the deemed rate of return notionally to every notional accounting period, from the date of acquisition up to the immediately previous notional accounting period. This determines an opening value for the current period. [SECTION 552]

Previous year losses

When you switch to the deemed rate of return method, the legislation does not allow you to apply previous year FIF losses that you accumulated under either the calculation method or the market value method.

Step 3 - Working out the FIF amount-box C

Once the opening deemed value has been decided, the FIF amount-that is, the movement in the value of the FIF during the notional accounting period-is worked out by applying the following formula.

Opening value × deemed rate of return × (number of days held ÷ 365)

Opening value means the amount worked out in Step 2 above.

Deemed rate of return is the same interest rate as the 'basic statutory interest rate' plus 4% [section 555(2)].

The basic statutory interest rate is the monthly average yield of the 90-day bank accepted bill rate [section 214A of ITAA 1936 and section 8AAD(2) of TAA 1953].

The interest rate is published by the Reserve Bank of Australia every quarter. If 2 or more rates apply in the income year, use the weighted average of those rates.

Number of days held is the number of days in the notional accounting period in which you had the interests in the group.

Step 4 - Determining the amount of FIF income to include in assessable income

The final step in applying the deemed rate of return method is to convert the FIF amount to Australian currency. [SECTIONS 556 and 557]

Use the rate of exchange that applied at the end of the notional accounting period to convert the FIF amount worked out in step 3 for each group of interests to the corresponding amount in Australian currency. If there is only one group of interests, the FIF income will be the amount converted into Australian currency. If there is more than one group, the FIF income will be the total of the FIF amounts. [SECTION 556]

Include the FIF income in your assessable income subject to reduction by certain assessable distributions from the FIF. [SECTIONS 529 and 557] See Reduction of FIF income for distributed profits for more information.