# Calculation method

Last updated 26 May 2005

### 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:

 Class A shares: \$HK200,000 × 8.79% × (181 ÷ 365) FIF amount: \$HK8,718 Class B shares: \$HK100,000 × 8.79% × (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.

Note: 8.79% = weighted average of two quarterly rates

[(8.84 × 90 ÷ 181) + 8.75 × 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:

 Class C shares: \$HK240,000 × 8.85% × (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]

Note: 8.85% = weighted average of 3 quarterly rates
[(96 × 92 ÷ 273) + (8.84 × 90 ÷ 181) + (8.75 × 91 ÷ 273)]

End of example

### Overview

To use the calculation method, you must work out the calculated profit or calculated loss of a FIF for a notional accounting period.

You will need access to detailed information about your FIF interest. The calculation method uses a simplified version of our taxation law to work out the profit of your FIF which is then attributed to you and included in your assessable income. The calculation method applies to foreign companies and foreign trusts. [sections 580 and 582]

If there is a calculated loss, you may carry your share forward and take it into account for subsequent notional accounting periods.

If there is a calculated profit, you must determine your share. Do this by multiplying the calculated profit of the FIF for the notional accounting period by your percentage interest in the FIF at the end of that period. Work out the calculated profit or loss in the currency of the FIF accounts and then convert the amount to Australian currency at the exchange rate that applies for the last day of the notional accounting period. Include the resulting amount in your assessable income for the income year in which the notional accounting period of the FIF ends. [sections 572, 558 and 559]