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

    Attention

    Warning:

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

    End of attention

    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 in chapter 6 for more information.

    Example

    On 1 January 2003, Harold acquired 2000 Class A shares and 1000 Class B shares in a Hong Kong company. Each class of shares is a different group.

    The parcel of Class A shares had a value of $HK200,000 and the parcel of Class B shares had a value of $HK100,000. He worked out his FIF income under the deemed rate of return method as follows:

    Opening value x 8.79% x (number of days held/365)

    Class A shares:

    $HK200,000 x 8.79% x (181/365)

    FIF amount:

    $HK8,718

    Class B shares:

    $HK100,000 x 8.79% x (181/365)

    FIF amount:

    $HK4,359

    The FIF amounts for the groups are $HK10,414 and $HK5,207.

    The opening deemed value of the parcel of Class A shares for the following notional accounting period would be $HK210,414 and the opening deemed value of the parcel of Class B shares for the following notional accounting period would be $HK105,207.

    *8.79% = weighted average of two quarterly rates

    [(8.84 x 90/181) + 8.75 x 91/181)]

    Harold acquired 1000 Class C shares on 1 October 2002, 92 days into the FIF's notional accounting period, for $HK240,000. He applied the deemed rate of return method for the group constituted by the Class C shares as follows:

    Opening value x 8.85%** x (Number of days held/365)

    Class C shares:

    $HK240,000 x 8.85% x (273/365)

    FIF amount:

    $HK15,886

    Assume that the exchange rate is $A1.00 = $HK5.00. The FIF income for the three groups of A, B and C class shares is the sum of:

    Class A shares:

    $HK (8,718/5)

    $A1,744

    Class B shares:

    $HK (4,359/5)

    $A872

    Class C shares:

    $HK (15,886/5)

    $A3,177

    Total FIF income

     

    $A5,793

    Harold included $A7,001 in his assessable income. [section 529]

    **8.85% = weighted average of 3 quarterly rates
    [(96 x 92/273) + (8.84 x 90/181) + (8.75 x 91/273)]

    Last modified: 27 May 2005QC 17512