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Chapter 4: Methods of FIF taxation

Last updated 7 June 2005

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:

  • market value method
  • deemed rate of return method
  • calculation method.

It is expected that the majority of taxpayers who will be liable to tax under the FIF measures will use the market value method to work out the FIF income to include in their assessable income. You would use the deemed rate of return method only where you are unable to establish a market value for your FIF interest and you have not elected to use the calculation method. You may 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.

The method you adopt will depend upon the access you have to information on the company or trust in which you hold an interest.

Part-year resident

Where 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 FLP ended, then the amount of FIF income assessable to you is worked out using the following formula:

FIF income × (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 FLP during the notional accounting period under one of the methods of 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 FLP for no consideration or inadequate or excessive consideration, you must value the interests at market value. The valuation is to occur at the time of acquisition or disposal of the interests. [SECTION 490]