Exemption for complying superannuation entities, certain assets of life insurance companies and certain fixed trusts [Division 11A]
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Complying superannuation entities
If you are the trustee of a complying superannuation entity, you are exempt from taxation under the FIF rules. Complying superannuation entities include complying superannuation funds, complying approved deposit funds (ADFs) and pooled superannuation trusts (PSTs) which take their meaning from the Superannuation Industry (Supervision) Act 1993.
If you are a superannuation entity that becomes non-complying, the exemption will not be available for each year that you are non-complying. Whether you are non-complying is to be determined in accordance with the Superannuation Industry (Supervision) Act 1993.
Virtual PST assets or segregated exempt assets of life insurance companies
If you have an interest in a FIF that is a virtual PST asset or a segregated exempt asset of a life insurance company, you are exempt from taxation under the FIF rules for that interest. Broadly, virtual PST assets are assets that support the complying superannuation business of life insurance companies. Income derived on virtual PST assets is concessionally taxed. Segregated exempt assets are assets that support the immediate annuity and current pension business of life insurance companies. Income derived on those assets is not taxed. [paragraph 519A(a) and subsection 519B(1)]
If you are the trustee of a fixed trust where all the fixed entitlements to shares of the income and capital of the trust at the end of the income year are held by trustees of complying superannuation entities, virtual PST assets or segregated exempt assets of life insurance companies, you are exempt from taxation under the FIF rules. This exemption may also apply to a chain of fixed trusts. [paragraph 519B(3)(a)]
The purpose of this exemption is to ensure that if complying superannuation entities pool their investments through a fixed trust, the investment will not be subject to the FIF rules.
There is a limited concession that allows the FIF exemption to continue to apply to the trust if a complying superannuation entity becomes non-complying. If a complying superannuation entity becomes non-complying, the FIF exemption may continue to be available to the trust provided:
- the non-complying superannuation entity was a complying superannuation entity when it became a beneficiary of the trust, and
- the entitlements of all non-complying superannuation entities are not more than 5% of the market value of the trust.
In relation to the first point, it does not matter if a complying superannuation entity is later notified that it was non-complying for the year in which it became a beneficiary of the trust.
In relation to the second point, if the interests of the beneficiaries that are non-complying superannuation entities exceed the 5% threshold, the exemption will not apply to the trust in each year that the threshold is exceeded. In these circumstances, all beneficiaries (including complying and non-complying superannuation entities) will effectively become liable to tax on any FIF income of the trust. [paragraphs 519B(4) (a) and (c)]
Will this exemption apply to a chain of trusts?
This exemption can apply to a chain of fixed trusts. A fixed trust whose only beneficiary is a fixed trust that qualifies for the FIF exemption will also qualify for the FIF exemption. A fixed trust whose beneficiaries comprise fixed trusts that qualify for the FIF exemption, complying superannuation entities (and potentially non-complying superannuation entities entitled to not more than 5% of the assets of the fixed trust), virtual PST assets and segregated exempted assets will also qualify for the exemption.
This exemption applies only to assessments for income years beginning on or after 1 July 2003.
Last modified: 01 Jul 2006QC 18507