• AMIT trustee taxation

    Generally, the trustee of an AMIT will be taxed in any circumstance where the income of the trust is not taxed at member level. This is to ensure that all income of the trust is appropriately taxed.

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    Shortfall taxation – income character shortfall

    The trustee of an AMIT is liable to pay tax if a member's determined member component of an assessable income character falls short of the member component of that character. The amount of the shortfall will not be included in the member's assessable income; therefore the trustee will be liable to pay the tax to ensure the amount is appropriately taxed.

    Similarly, if the sum of all determined member components of an assessable income character falls short of the determined trust component of that character for the income year, the trustee will be liable to pay tax on the shortfall. The amount liable to tax is reduced by any rounding adjustment deficit and any member-specific shortfall already taxed as discussed above.

    Shortfalls can occur where the taxable income of the AMIT for an income year is not fully attributed to members or where amounts are attributed in a way that is not consistent with the attribution principles.

    In these circumstances, the trustee is liable to pay tax on the amount of the shortfall at the top marginal tax rate for a resident individual (including the Medicare levy and any temporary Budget repair levies).

    If the member component or the determined member component is of a character that is a discount capital gain, then for the purposes of working out the amount that the trustee is liable to pay income tax on, the amount of the component is doubled. This ensures that the trustee is liable to pay income tax on the component as though it were not a discount capital gain.

    If the discrepancy is from mistakes made in the calculation of determined trust components in one year, it can be fixed in the year the mistakes are discovered without the need to amend previous tax returns, using the overs and unders regime. The opportunity to correct mistakes using the unders and overs regime is subject to a limited discovery period, which is generally four years after the determined trust component for the base year was documented. A mistake that understates an amount of assessable income is an 'under'.

    The trustee would not be liable for shortfall taxation where a mistake that creates an under is corrected in the discovery year, unless the trustee fails to recognise all or part of an under in the year it should have been discovered.

    Shortfall taxation will not apply to rounding adjustment deficits.

    See also:

    Excess in determined member component of a tax offset

    The trustee of an AMIT is liable to pay tax if, for a particular income year, the determined member component of a tax offset character exceeds the member component of that character.

    In these circumstances, the trustee is liable to pay tax on the amount of the excess at a rate of 100%.

    If an excess amount of tax offset is attributed to a member, the amount of the excess tax offset will be applied by the member to reduce the amount of tax that they must pay (and may give rise to a refundable tax offset). Therefore, to ensure that tax revenue is not disadvantaged, the trustee is liable to pay tax on the amount of the excess in these circumstances.

    See also:

    Unders of assessable income not properly carried forward

    The trustee of an AMIT is liable to pay tax if the AMIT has:

    • an under of a particular assessable income character for an earlier income year, worked out on the basis of the trustee's knowledge at the discovery time, and
    • the amount of the under falls short of what it would have been if it had been worked out on the basis of what the trustee should have known at that time.

    The trustee is liable to pay tax on the amount of the shortfall reduced to the extent that the under for the base year is taken into account in a later income year.

    In these circumstances, the trustee is liable to pay tax on the amount of the shortfall at the top marginal tax rate for a resident individual (including the Medicare levy and any temporary Budget repair levies).

    The trustee of an AMIT could be assessed on an under of assessable income of a particular character that is not properly carried forward because, for example, the trustee and the ATO disagree on the interpretation of a provision in the income tax law. If the trustee of an AMIT disagrees with the assessment, they may object to the assessment.

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    Overs of a tax offset not properly carried forward

    The trustee of an AMIT is liable to pay tax if the AMIT has:

    • an over of a tax offset character for an earlier income year (the base year), worked out on the basis of the trustee's knowledge at the discovery time, and
    • the amount of the over falls short of what it would have been if it had been worked out on the basis of what the trustee should have known at that time.

    The trustee is liable to pay tax on the amount of the shortfall reduced to the extent that the over for the base year is taken into account in a later income year. The trustee is liable to pay tax on the amount of the excess at a rate of 100%.

    As an over of a tax offset results in a member's tax liability being reduced by an equivalent amount, or potentially a refund of any excess tax offset, the amount of tax that the trustee is liable to pay is equal to the amount of that over of the tax offset.

    The trustee of an AMIT could be assessed on an over of a tax offset not properly carried forward because, for example, the trustee and the ATO disagree on the interpretation of a provision in the income tax law. If the trustee of an AMIT disagrees with the assessment, they may object to the assessment.

    See also:

    AMITs that are not withholding MITs

    The trustee of an AMIT that is not a withholding MIT is liable to pay income tax if a member is a foreign resident at the end of the income year, and has been attributed assessable income for the income year.

    If the foreign-resident member is not a beneficiary in the capacity of a trustee of another trust, the AMIT is liable to pay income tax on the determined member component to the extent that the component is:

    • attributable to a period when the member is an Australian resident, or
    • attributable to a period when the member is a foreign resident and is income from an Australian source.

    In these circumstances, the rate of tax payable by the trustee on the relevant determined member component is:

    • if the member is not a company, the marginal tax rates that apply to a foreign resident individual (including any temporary Budget repair levies), or
    • if the member is a company, the standard corporate tax rate (which is currently 30%).

    If the foreign-resident member is a beneficiary in the capacity of a trustee of another trust, the AMIT is liable to pay income tax on the determined member component to the extent that the component is attributable to sources in Australia. The rate of tax payable by the AMIT trustee in these circumstances is the maximum marginal tax rate (including any temporary Budget repair levies) that applies to a foreign resident individual.

    A determined member component that is a capital gain (or a discount capital gain) from a CGT asset that is not taxable Australian property is not taken to be attributable to sources in Australia and not subject to trustee taxation. If the determined member component is a discount capital gain, then the amount is doubled for the purposes of working out the amount the trustee is liable to pay income tax on. This ensures that the trustee is liable to pay income tax on the component as though it were not a discount capital gain.

    If the trustee is liable to pay tax on the determined member component attributed to a foreign resident member, the member is entitled to a refundable tax offset equal to the amount of tax paid by the trustee.

    However, the trustee is not liable to pay income tax where the determined member component is an AMIT dividend, interest or royalty (DIR) payment or a fund payment when an amount for that payment has been withheld or paid by the trustee under the withholding provisions.

    Arm's length income

    The arm’s length income rule is an integrity rule that will apply if the Commissioner makes a determination that specifies an amount of non-arm’s length income in relation to a MIT for a specified income year.

    If the Commissioner makes such a determination, the trustee of the MIT or AMIT is liable to tax on the amount of non-arm’s length income that exceeds what would have been expected had the parties been acting at arm's length (less deductions that are reflected in the AMIT's trust components or a MIT's net income for the income year, and that are attributable only to the excess amount of the non-arm’s length income).

    The rate of tax that is payable in relation to the non-arm’s length income is the standard corporate tax rate (currently 30%).

      Last modified: 06 Oct 2016QC 47436