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  • Chapter 4: Methods of FIF taxation

    You must work out the FIF or FLP income accruing to you separately for each FIF or FLP in which you hold an interest or interests.

    Use one of the following methods to decide the amount of FIF income accruing to you from a FIF company or trust during a notional accounting period:

    Where practical, taxpayers liable to pay tax under the FIF measures may use the market value method to work out the FIF income to include in their assessable income.

    Use the deemed rate of return method where you are unable to establish a market value for your FIF interest and you have not elected to use the calculation method.

    Alternatively, you may elect to use the calculation method if you have access to the financial accounts of the FIF and are able to determine your share of the FIF's calculated profit or calculated loss.

    If you use the calculation method for a FIF you must also elect the 12-month accounting period used by that FIF as its notional accounting period. [subsections 486(3) and 535(5)]

    There are two methods for determining the amount of FIF income that accrues from an interest in a FLP:

    • the deemed rate of return method, and
    • the cash surrender value method. [section 536]

    The method you adopt will depend on the access you have to information on the company or trust in which you hold an interest. You will need to satisfy certain conditions to elect to use the cash surrender value method.

    Part-year resident

    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

    If you are a resident of Australia for a part or parts of an income year in which a notional accounting period of a FIF or a FLP ended, the amount of FIF income assessable to you is worked out using the following formula:

    FIF income

    X

    Number of days of residence
    Total number of days

    FIF income means the amount of FIF income that accrued to you from the FIF or the FLP during the notional accounting period that was calculated using any one of the methods for working out FIF income.

    Number of days of residence means the number of days in the notional accounting period of the FIF or FLP that you were a resident of Australia.

    Total number of days means the total number of days in the notional accounting period. [paragraph 529(2)(b)]

    Value for the acquisition or disposal of an interest in a FIF or FLP

    In determining FIF income, if you acquire or dispose of interests in a FIF or a FLP for no consideration, or you are not dealing at arm's length and you acquire or dispose of FIF or FLP interests for inadequate or excessive consideration, you are taken to have received as consideration an amount equal to the market value of the interests. The valuation is to occur at the time of acquisition or disposal of the interests. [section 490]

    Last modified: 29 Jun 2010QC 22887