• Step 3: Working out the FIF amount - box C

    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

    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 x deemed rate of return

    X

    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 the ITAA 1936 and section 8AAD(2) of the Taxation Administration Act 1953]

    The interest rate is published by the Reserve Bank of Australia every quarter. If two 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 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 $HK8,718 and $HK4,359.

    The opening deemed value of the parcel of Class A shares for the following notional accounting period would be $HK208,718 and the opening deemed value of the parcel of Class B shares for the following notional accounting period would be $HK104,359.

    * 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:

    $A1,744

    $A872

    Class C shares:

    $HK(15,886/5)

    $A3,177

    Total FIF income

     

    $A5,793

    Harold included $A5,793 in his assessable income. [section 529]

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

    Last modified: 21 Nov 2005QC 18001