• Determining market value

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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.

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You determine market value by referring to the quoted market values for the FIF interests. Only quotations from an approved stock exchange will be accepted. See Appendix 1: Approved stock exchanges. [section 539]

If you have interests in certain FIFs that are not listed on an approved stock exchange, you may be able to use:

• a buy-back, offer or redemption price, or
• the price of an offer to purchase a particular FIF by an associate of that FIF.

The buy-back, offer or redemption price must be:

• publicly available
• offered to all persons having an interest of that class in the FIF
• worked out by reference to the market value of the assets of the company or trust, and
• of an amount that independent parties would accept. [subsection 539(3)]

Worksheet 1: Market value method will help you to understand the following examples.

Example: FIF income included in assessable income

The opening value of a FIF interest at 1 July was \$HK50,000 (C).

At the end of the notional accounting period, 30 June, the closing value of the interest was \$HK53,000 (A).

There were no brought forward losses or acquisitions or disposals during the notional accounting period (D).

On 30 April, during the notional accounting period, there was a distribution - interim dividend - of \$HK1,000 (B).

The FIF amount, as worked out in step 1 is:

[\$HK53,000 (A) + \$HK1,000 (B)] − [\$HK50,000 (C) − nil (D)] = \$HK4,000 (E)

This amount is converted to Australian currency, using the rate of exchange that applied at the end of the notional accounting period (30 June). If the exchange rate is \$A1.00 = \$HK5.00, the FIF income is \$A800 - that is, \$HK4,000 divided by five.

The distribution of \$HK1,000 = \$A200 and is assessable under section 44 of the ITAA 1936.

Applying subsection 530(1), the FIF income of \$A800 is reduced by the amount of the distribution of \$A200. Therefore, your assessable income would include \$A600 FIF income.

End of example

Example: Unapplied previous FIF loss

The opening value of a FIF interest was \$HK50,000 (C) and, at the end of the notional accounting period (30 June) the closing value of the interest was \$HK45,000 (A).

There were no brought forward losses or acquisitions, disposals (D) or distributions (B) during the accounting period.

The decrease in market value - that is, the FIF amount - would be:

[\$HK45,000 (A) + nil (B)] − [\$HK50,000 (C) − nil (D)] = \$HK5000 (E)

This FIF loss of \$HK5,000 may be used to reduce gross FIF income in later years.

End of example

Deemed rate of return method

You may use this method where you cannot apply the market value method and you do not elect to use the calculation method.

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

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 - 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, you cannot apply previous year FIF losses that you accumulated under either the calculation method or the market value method.