House of Representatives

Income Tax (Attribution Managed Investment Trusts - Offsets) Bill 2015

Income Tax (Attribution Managed Investment Trusts - Offsets) Act 2016

Income Tax Rates Amendment (Managed Investment Trusts) Bill 2015

Medicare Levy Amendment (Attribution Managed Investment Trusts) Bill 2015

Tax Laws Amendment (New Tax System for Managed Investment Trusts) Bill 2015

Explanatory Memorandum

(Circulated by the authority of the Minister for Small Business and Assistant Treasurer, the Hon Kelly O'Dwyer MP)

Chapter 6 - Operation of the withholding tax provisions

Outline of chapter

6.1 This Chapter explains how the Pay As You Go (PAYG) withholding provisions and the withholding tax liability provisions apply to attribution MITs and their members.

Context of amendments

6.2 Under the dividend, interest and royalty withholding provisions (sections 128AF and 128B of the Income Tax Assessment Act 1936 (ITAA 1936), and sections 12-215, 12-250 and 12-285 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)), if a managed investment trust receives an amount of dividends, interest or royalties which flows through the trust and is paid to a foreign resident, the foreign resident is liable to withholding tax. The managed investment trust has a PAYG withholding obligation in relation to the dividends, interest or royalties that it pays to the foreign resident.

6.3 Under the managed investment trust withholding provisions (Subdivision 12-H of Schedule 1 to the TAA 1953), a managed investment trust is required to withhold an amount from a payment of its Australian sourced net income (other than dividends, interest and royalties) if the payment is made to an entity whose address, or place for payment, is outside Australia. If the payment is made to another Australian resident entity, the managed investment trust is required to give a notice or make information available to the recipient outlining certain details in relation to the payment.

6.4 Investors frequently invest in managed investment trusts indirectly through another entity that is a custodian. An entity is a custodian if it is carrying on a business that consists predominantly of providing a custodial or depository service in accordance with an Australian financial services licence.

6.5 The dividend, interest and royalty withholding provisions apply if a payment received by a foreign resident through an interposed entity is attributable to an amount of dividends, interest or royalties paid by an Australian resident. Therefore, if a custodian receives an amount from a managed investment trust that is attributable to dividends, interest or royalties on behalf of a foreign resident, the custodian has a dividend, interest or royalty withholding obligation.

6.6 If a custodian receives a payment that is covered by information made available by a managed investment trust under the managed investment trust withholding provisions, the custodian is required to withhold an amount from any related later payment to an entity whose address, or place for payment, is outside Australia. If the later payment is made to another resident entity, the custodian is required to give a notice or make information available to the recipient outlining certain details in relation to that later payment.

6.7 If an entity that is not a custodian or a managed investment trust receives a payment that is covered by information made available by a managed investment trust under the managed investment trust withholding provisions, that entity is required to withhold an amount from that payment if a foreign resident becomes entitled to that payment. If an Australian resident becomes entitled to the payment, the entity must make information available in relation to that payment.

6.8 The amount on which a managed investment trust withholding obligation arises is called a fund payment. An amount is a fund payment only if it is made by a managed investment trust. A custodian or other entity that receives a payment that is attributable to a fund payment may be required to withhold from a subsequent on-payment of an amount to a foreign resident entity.

6.9 A foreign resident beneficiary of a managed investment trust, custodian or other entity is liable to pay withholding tax on a fund payment (as defined in the managed investment trust withholding provisions), or a payment attributable to a fund payment, made by the managed investment trust, custodian or other entity (Subdivision 840-M of the Income Tax Assessment Act 1997 (ITAA 1997)). An amount on which withholding tax is payable is non-assessable non-exempt income of the foreign resident beneficiary.

6.10 In this Chapter:

·
a reference to an attribution MIT means an attribution MIT that is a withholding MIT as defined in new section 12-383 of Schedule 1 to the TAA 1953; and
·
legislative references are to Schedule 1 of the TAA 1953 unless otherwise indicated.

6.11 The amendments modify the dividend, interest and royalty withholding provisions, and the managed investment trust withholding provisions, to ensure that the withholding provisions apply appropriately to determined member components of an attribution MIT that are, directly or indirectly, attributed to a foreign resident.

Summary of new law

6.12 The amendments modify the operation of the dividend, interest and royalty withholding provisions so that:

·
the provisions apply to a deemed attribution MIT dividends, interest or royalties payment (AMIT DIR payment) made by an attribution MIT - that is, broadly, the total of the determined member components of dividends, interest or royalties that is attributed to members as shown on an AMMA statement to the extent that it exceeds the total amount of any pre-AMMA actual payments made to those members; and
·
if an attribution MIT or a custodian makes an AMIT DIR payment to an entity that is an Australian resident, the trustee of the attribution MIT or the custodian must give a notice or make information available in relation to the AMIT DIR payment.

6.13 The amendments also modify the operation of the managed investment trust withholding provisions so they apply to a deemed fund payment made by an attribution MIT. A deemed fund payment is, broadly, the total relevant determined member components that are attributed to members as shown on AMMA statements to the extent that it exceeds the total amount of any pre-AMMA actual payments made to those members.

6.14 If an attribution MIT makes a deemed AMIT DIR payment or a deemed fund payment, the attribution MIT must pay the Commissioner of Taxation an amount that is equal to the amount that the trustee would have to withhold if the deemed payment was an actual payment.

Comparison of key features of new law and current law

New law Current law
An attribution MIT must withhold an amount from a deemed AMIT DIR payment that it makes to a member that is a foreign resident.

A deemed AMIT DIR payment is, broadly, the total of the determined member components of dividends, interest or royalties that are attributed to members as shown on AMMA statements to the extent that it exceeds the total amount of any pre-AMMA actual payments made to those members.

If an attribution MIT makes a deemed AMIT DIR payment, the attribution MIT must pay the Commissioner of Taxation an amount that is equal to the amount that the trustee would have to withhold if the deemed payment was an actual payment.

A managed investment trust has a dividend, interest or royalty withholding obligation in relation to the dividends, interest or royalties that it pays to the foreign resident.

An attribution MIT must withhold an amount from a deemed fund payment that it makes to an entity whose address, or place for payment, is outside Australia.

A deemed AMIT fund payment is, broadly, the total amount of its Australian sourced determined member components of assessable income (other than dividends, interest and royalties) that is attributed to the members as shown on AMMA statements to the extent that it exceeds the amount of any pre-AMMA actual payments made to those members.

If an attribution MIT makes a deemed fund payment, the attribution MIT must pay the Commissioner of Taxation an amount that is equal to the amount that the trustee would have to withhold if the deemed payment was an actual payment.

If the fund payment is made to another entity that has a place of payment or address in Australia, the attribution MIT must make information available to the recipient outlining certain details in relation to the fund payment.

A managed investment trust must withhold an amount from a fund payment that is made to an entity whose address, or place for payment, is outside Australia.

A fund payment is an amount of the managed investment trust's Australian sourced net income (other than dividends, interest and royalties) that is paid by the trust to the entity.

If the fund payment is made to another entity that has a place of payment or address in Australia, the managed investment trust must make information available to the recipient outlining certain details in relation to the fund payment.

If a custodian receives a deemed DIR payment from an attribution MIT, the custodian must withhold an amount from any related later payment to an entity whose address, or place for payment, is outside Australia.

If a custodian makes a deemed payment that is attributable to a fund payment to an entity whose address, or place for payment, is outside Australia, the custodian must pay the Commissioner an amount that is equal to the amount that the custodian would have to withhold if the deemed payment was an actual payment.

If the custodian makes a deemed DIR payment or deemed fund payment to another entity that has a place of payment or address in Australia, the custodian is required to make information available to the recipient outlining certain details in relation to that later payment.

If a custodian receives an amount of dividends, interest or royalties from a managed investment trust, the custodian must withhold an amount from any related later payment to an entity whose address, or place for payment, is outside Australia.

If a custodian makes a payment that is attributable to a fund payment to an entity whose address, or place for payment, is outside Australia, the custodian must withhold an amount from the fund payment.

In addition, if the payment is made to another entity that has a place of payment or address in Australia, the custodian must make information available to the recipient outlining certain details in relation to that later payment.

If an entity that is not a custodian or a managed investment trust receives an amount of dividends, interest or royalties that is not a deemed payment from an attribution MIT, the entity must withhold an amount from any related later payment to an entity that is a foreign resident.

If an entity makes a payment that is attributable to a fund payment that is a deemed payment to an entity that is a foreign resident, the entity must pay the Commissioner an amount that is equal to the amount that the entity would have to withhold if the deemed payment was an actual payment.

If a fund payment is received by the entity, the entity must make information available in relation to the payment when another entity that is an Australian resident becomes entitled to the payment.

If an entity that is not a custodian or a managed investment trust receives an amount of dividends, interest or royalties from a managed investment trust, the entity is required to withhold an amount from a subsequent payment attributable to the payment that a foreign resident becomes entitled to.

If a fund payment is received by the entity, the entity must make information available in relation to the payment when another entity that is an Australian resident becomes entitled to the payment.

Detailed explanation of new law

6.15 The amendments modify the dividend, interest and royalty withholding provisions, and the managed investment trust withholding provisions, to ensure that the withholding provisions apply appropriately to determined member components of an attribution MIT that are, directly or indirectly, attributed to a foreign resident.

Withholding provisions apply to withholding MITs

6.16 The withholding provisions apply to a managed investment trust that is a withholding MIT. A managed investment trust will be a withholding MIT in relation to an income year if:

·
the trust is:

-
a managed investment trust that is covered by paragraph 275-10(1)(a) of the ITAA 1997 - that is, the trust meets the requirements in subsection 275-10(3); or
-
a managed investment trust that is covered by paragraph 275-10(2)(b) of the ITAA 1997 - that is, the trust would be a managed investment trust in relation to the income year except for temporary circumstances outside of its control; and

·
a substantial proportion of the investment management activities carried out in relation to the trust in respect of the following assets of the trust are carried out in Australia throughout the income year:

-
assets that are situated in Australia at any time in the income year;
-
assets that are taxable Australian property at any time in the income year; and
-
assets that are shares, units or interests listed for quotation in the official list of an approved stock exchange in Australia at any time in the income year.

[Schedule 3, item 5, section 12-383 of Schedule 1 to the TAA 1953; Schedule 9, item 12, definition of 'withholding MIT' in subsection 995-1(1)]

6.17 A trust will meet the requirements in subsection 275-10(3) of the ITAA 1997 for the income year if, broadly:

·
at the time the trust makes the first fund payment in relation to the income year, the trustee is an Australian resident or has its central management and control in Australia;
·
the trust is not a trading trust, or does not control, or have the ability to control, another person in respect of a trading business;
·
at the time the payment is made, the trust is a managed investment scheme;
·
at the time the payment is made, the trust has wholesale membership and satisfies certain licensing requirements or is registered under section 601EB of the Corporations Act 2001; and
·
the trust satisfies certain widely-held requirements and closely-held restrictions.

6.18 These amendments do not change the circumstances in which a managed investment trust has a PAYG withholding obligation. The amendments are necessary as a result of the amendments to improve the structure of the income tax law by transferring the definition of managed investment trust from the TAA 1953 to the ITAA 1997 (see Chapter 8).

Definition of a custodian

6.19 Investors frequently invest in managed investment trusts indirectly through another entity that is a custodian.

6.20 Licenced custodians are regulated entities whose business consists of administering and holding assets on behalf of their investor clients. When custodial services are provided, the legal title to the investments is commonly held by a nominee company which the custodian uses to keep the assets in its care under custodial agreements separate from its other assets.

6.21 The definition of a custodian is being modified to clarify that an entity such as a nominee company which holds assets on behalf of a custodian is also taken to be a custodian. That is, an entity is a custodian if:

·
the entity is carrying on a business that consists predominantly of providing a custodial or depository service (as defined in section 766E of the Corporations Act 2001) pursuant to an Australian financial services licence; or
·
the entity is acting on behalf of an entity carrying on such a business pursuant to an Australian financial services licence.

[Schedule 6, item 47, subsection 12-390(9) of Schedule 1 to the TAA 1953]

6.22 An Investor Directed Portfolio Service is not a custodian within the scope of this definition. This is because, while the Investor Directed Portfolio Service may act on behalf of the holder of an Australian financial services licence, subsection 12-390(9) requires the nominee to be acting on behalf of the custodian in respect of investments in a withholding MIT.

Amount attributed taken to be a deemed payment

6.23 When a withholding MIT that is an attribution MIT gives a member an AMMA statement, the trustee is deemed to have made a payment to the member. The deemed payment can flow through one or more custodians giving rise to subsequent deemed payments. [Schedule 3, item 11, section 12A-1 of Schedule 1 to the TAA 1953]

6.24 The operation of the dividend, interest and royalty withholding provisions, and the managed investment trust withholding provisions, are modified so that the withholding regime operates appropriately for deemed payments.

6.25 Therefore, the current dividend, interest and royalty withholding provisions, and the managed investment trust withholding provisions, will continue to apply to impose a PAYG withholding obligation on relevant cash payments and present entitlements made by an attribution MIT to a foreign resident prior to the time that a deemed payment is made.

Deemed payments by attribution MITs (first deemed payments)

6.26 When a withholding MIT that is an attribution MIT gives a member an AMMA statement, the trustee is deemed to have made a payment to the member. The payment is generally the sum of the determined member components reflected in the statement that are of a character relating to assessable income, reduced by any previous actual payments related to those components. The deemed payment can flow through one or more custodians, giving rise to subsequent deemed payments. [Schedule 3, item 11, section 12A-200 of Schedule 1 to the TAA 1953]

6.27 If an attribution MIT gives an AMMA statement to an entity that is a member in respect of an income year (the first recipient), the amount attributed to the member for the income year (as shown on the AMMA statement) may give rise to a deemed payment. In these circumstances, the trustee of the attribution MIT may be taken to have made a payment (the first deemed payment) of an amount to the first recipient at the time that the AMMA statement was given to the first recipient. [Schedule 3, item 11, subsection 12A-205(1) and paragraph 12-205(2)(a) of Schedule 1 to the TAA 1953]

6.28 To work out the amount of the first deemed payment that is made to the first recipient, an attribution MIT must work out the total of all deemed payments to all members - that is:

·
the total of all determined member components of the attribution MIT of a character relating to assessable income for the income year;
less
·
the total amount of any AMIT DIR payments or fund payments that arose from any pre-AMMA actual payments.

[Schedule 3, item 11, subparagraphs 12A-205(2)(b)(i) to (iv) of Schedule 1 to the TAA 1953]

6.29 The first deemed payment that is made to the first recipient is the amount of the total deemed payment that is referable to the first recipient. [Schedule 3, item 11, subparagraph 12A-205(2)(b)(v) of Schedule 1 to the TAA 1953]

6.30 It is necessary to work out this amount so that, for example, where the first recipient is a custodian, the attribution MIT can notify the custodian of the amount of the deemed payment.

6.31 For the purposes of applying the dividend, interest and royalty withholding provisions in Division 11A of Part III of the ITAA 1936, the first recipient is taken to have derived the deemed payment just before the end of the income year to which the AMMA statement relates. [Schedule 3, item 11, subsection 12A-205(3) of Schedule 1 to the TAA 1953]

6.32 A withholding obligation under the new dividend, interest and royalty withholding provisions, and the managed investment trust withholding provisions, will arise in respect of a deemed payment only to the extent that the amount of the deemed payment exceeds the amount of any earlier cash payments.

6.33 Consequently, if an attribution MIT makes actual cash payments or present entitlements to members during an income year, the existing dividend, interest and royalty withholding provisions, and the managed investment trust withholding provisions, will continue to apply to those cash payments except that:

·
the amount of the AMIT DIR payment will be worked out using the method statement in new section 12A-30; and
·
the amount of the fund payment will be worked out using the method statement in new section 12A-110.

Deemed payments by custodians (subsequent deemed payments)

6.34 If the first recipient of a deemed payment made by an attribution MIT is a custodian, the custodian may be taken to have made a payment (a subsequent deemed payment) to another entity (a subsequent recipient) if:

·
the subsequent recipient starts to have an entitlement to an amount that is reasonably attributable to all or part of the first deemed payment; or
·
the subsequent recipient would start to have such an entitlement if the first deemed payment were an actual payment of an amount.

[Schedule 3, item 11, subsection 12A-205(4) and paragraph 12-205(5)(a) of Schedule 1 to the TAA 1953]

6.35 The amount of the subsequent deemed payment is the amount of the entitlement and is taken to be attributable to the first deemed payment. [Schedule 3, item 11, paragraphs 12-205(5)(b) and (c) of Schedule 1 to the TAA 1953]

6.36 For the purposes of applying the dividend, interest and royalty withholding provisions in Division 11A of Part III of the ITAA 1936, the subsequent recipient is taken to have derived the subsequent deemed payment at the time when the subsequent recipient starts to have an entitlement to the first deemed payment. [Schedule 3, item 11, subsection 12A-205(6) of Schedule 1 to the TAA 1953]

6.37 If an entity that is a custodian (the first custodian) makes a subsequent deemed payment to another custodian (the second custodian), the second custodian is effectively taken to be the first recipient for the purposes of applying subsections 12A-205(4) and (5), and therefore may also be taken to have made subsequent deemed payments. [Schedule 3, item 11, subsection 12A-205(7) of Schedule 1 to the TAA 1953]

6.38 If the first custodian passes on the first deemed payment to foreign residents, the custodian will have a withholding obligation in respect of the deemed payment.

6.39 However, if the first custodian passes on the deemed payment to a second custodian that is an Australian resident, the first custodian will need to work out how much of the first deemed payment that it has received from the attribution MIT has been passed on to that second custodian and notify the second custodian of this amount.

What is a post-AMMA actual payment and a pre-AMMA actual payment in respect of a deemed payment?

6.40 It is likely that an attribution MIT will make actual cash payments or present entitlements in respect of a deemed payment to its members in respect of an income year. These actual cash payments or present entitlements can be made either before or after the attribution MIT gives AMMA statements to members for the income year.

6.41 The deemed payment (as reflected in the AMMA statements that are given to members) is likely to be greater than or equal to the actual cash payments or present entitlements made to members for the income year.

6.42 An actual payment or present entitlement by an attribution MIT will be a post-AMMA actual payment in respect of a deemed payment if:

·
the actual payment and the deemed payment are both attributable to the same member component for the attribution MIT; and
·
the actual payment is made at the same time as, or after, the time that the deemed payment is made - that is, at the same time as, or after, the AMMA statement is given to the member.

[Schedule 3, item 12, subsection 12A-210(2) of Schedule 1 to the TAA 1953; Schedule 9, item 11, definition of 'post-AMMA actual payment' in subsection 995-1(1)]

6.43 If an attribution MIT makes a post-AMMA actual payment, the dividend, interest and royalty withholding provisions, and the managed investment trust withholding provisions, will not to apply to that payment. This is because the payment will be covered by:

·
the deemed payment dividend, interest and royalty withholding provisions; and
·
the deemed payment managed investment trust withholding provisions.

6.44 An actual payment or present entitlement by an attribution MIT will be a pre-AMMA actual payment in respect of a deemed payment if:

·
the actual payment and the deemed payment are both attributable to the same member component for the attribution MIT; and
·
the actual payment is made before the time that the deemed payment is made - that is, before the AMMA statement is given to the member.

[Schedule 3, item 12, subsection 12A-210(2) of Schedule 1 to the TAA 1953; Schedule 9, item 12, definition of 'pre-AMMA actual payment' in subsection 995-1(1)]

Dividend, interest and royalty withholding on deemed payments

6.45 The amendments modify the dividend, interest and royalty withholding provisions so that they operate effectively for deemed payments made by an attribution MIT. Withholding liabilities under Subdivision 12-F do not apply in relation to deemed payments arising under Subdivision 12A-C relating to dividends, interest and royalties (although analogous liabilities may arise under Subdivision 12A-C). Attribution MIT trustees, custodians and other entities may be required to give notices to recipients of such deemed payments. [Schedule 3, items 1 and 11, subsection 128AF(1) of the ITAA 1936, section 12A-5 of Schedule 1 to the TAA 1953]

6.46 If an attribution MIT makes a pre-AMMA actual payment, the existing dividend, interest and royalty withholding provisions will continue to apply to that payment except that the amount of the AMIT DIR payment will be worked out using the method statement in new section 12A-30.

Deemed payments made by an attribution MIT

6.47 Currently, a managed investment trust that is a withholding MIT which receives a payment of dividends, interest or royalties from another entity to which a foreign resident becomes entitled has a withholding obligation under subsection 12-215(1), 12-250(1) or 12-285(1) in respect of that payment. This withholding obligation will not arise under those subsections if:

·
the withholding MIT is an attribution MIT; and
·
the receipt of the payment of dividends, interest and royalties gives rise to a deemed payment by an attribution MIT.

[Schedule 3, item 11, subsection 12A-10(1) of Schedule 1 to the TAA 1953]

6.48 However, the trustee of the attribution MIT may have a withholding obligation in respect of the deemed payment under Subdivision 12A-C if the deemed payment is an AMIT DIR payment.

What is an AMIT DIR payment?

6.49 An AMIT DIR payment is:

·
an AMIT dividend payment;
·
an AMIT interest payment; or
·
an AMIT royalty payment.

[Schedule 3, item 11, section 12A-25 of Schedule 1 to the TAA 1953; Schedule 9, item 1, definition of 'AMIT DIR payment' in subsection 995-1(1) of the ITAA 1997]

What is an AMIT dividend payment?

6.50 An AMIT dividend payment is defined in section 12A-30. The object of section 12A-30 is to ensure that the total of AMIT dividend payments that an attribution MIT makes in relation to an income year equals, as nearly as practicable, the total of its determined member components for the income year that are dividends on which withholding tax would be payable under Subdivision 12-F. [Schedule 3, item 11, subsections 12A-30(1), (2) and (3) of Schedule 1 to the TAA 1953; Schedule 9, item 1, definition of 'AMIT dividend payment' in subsection 995-1(1) of the ITAA 1997]

6.51 The amount of an AMIT dividend payment for an attribution MIT is worked out by applying the method statement in subsection 12A-30(4). The AMIT dividend payment may be an actual payment or a deemed payment that the trustee makes in relation to an income year. The amount of the AMIT dividend payment may be:

·
the amount of the actual payment or deemed payment; or
·
the amount of the actual payment or deemed payment, increased or reduced as a result of the method statement.

[Schedule 3, item 11, subsection 12A-30(4) of Schedule 1 to the TAA 1953]

6.52 Under step 1 of the method statement, the trustee must work out what it is reasonable to expect will be the total determined member components of an assessable income character that are dividends on which withholding tax would be payable if they are derived by a foreign resident. [Schedule 3, item 11, step 1 of the method statement in subsection 12A-30(4) of Schedule 1 to the TAA 1953]

6.53 Under step 2 of the method statement, the amount of the AMIT dividend payment is so much of the step 1 amount that is reasonable having regard to:

·
the object of the AMIT dividend payment provision (as mentioned in subsection 12A-30(2));
·
the amounts of any earlier AMIT dividend payments made by the attribution MIT in relation to the income year - that is, the amount of any pre-AMMA actual payments made to members during the income year; and
·
the expected amounts of any later AMIT dividend payments the attribution MIT expects to make in relation to the income year - that is, for example, the expected amount of any deemed payments to be made to members during the income year.

[Schedule 3, item 11, step 2 of the method statement in subsection 12A-30(4) of Schedule 1 to the TAA 1953]

6.54 In the case of an actual payment, the amounts of the total determined member components of dividends on which withholding tax would be payable if they were derived by a foreign resident for the attribution MIT for the income year are worked out based on the trustee's knowledge at the time when the payment is made. [Schedule 3, item 11, subsection 12A-30(5) of Schedule 1 to the TAA 1953]

6.55 However, in the case of a deemed payment, the amount is worked out based on the AMMA statement. [Schedule 3, item 11, subsection 12A-30(6) of Schedule 1 to the TAA 1953]

6.56 The amount of an AMIT dividend payment can take into account the expected amounts of any later AMIT dividend payments an attribution MIT expects to make in relation to the income year. Therefore, when an attribution MIT makes a pre-AMMA actual payment to a member, the trustee can take into account any expected later deemed payment in working out the amount of the AMIT dividend payment. As a result, the amount of the AMIT dividend payment can exceed the amount of the actual payment.

6.57 A payment is not an AMIT dividend payment in relation to an income year if:

·
the payment is a post-AMMA actual payment in respect of another payment that is made on or after the time that the deemed payment is taken to be made; and
·
the other payment is an AMIT dividend payment.

[Schedule 3, item 11, subsections 12A-30(7) of Schedule 1 to the TAA 1953]

What is an AMIT interest payment?

6.58 An AMIT interest payment is defined in section 12A-35. The object of section 12A-35 is to ensure that the total of AMIT interest payments that an attribution MIT makes in relation to an income year equals, as nearly as practicable, the total of its determined member components for the income year that is interest on which withholding tax would be payable under Subdivision 12-F. [Schedule 3, item 11, subsections 12A-35(1), (2) and (3) of Schedule 1 to the TAA 1953; Schedule 9, item 1, definition of 'AMIT interest payment' in subsection 995-1(1) of the ITAA 1997]

6.59 The amount of an AMIT interest payment for an attribution MIT is worked out by applying the method statement in subsection 12A-30(4), and subsections 12A-30(5) to (7), as if:

·
references in those subsections to AMIT dividend payments are references to AMIT interest payments; and
·
the reference in subsection 12A-30(4) to 'the amount mentioned in subsection 12A-30(3)' is a reference to 'the amount mentioned in subsection 12A-35(3)'.

[Schedule 3, item 11, subsection 12A-35(4) of Schedule 1 to the TAA 1953]

6.60 Therefore, similar to AMIT dividend payments, an AMIT interest payment may be an actual payment or a deemed payment that the trustee makes in relation to an income year. The amount of the AMIT interest payment may be:

·
the amount of the actual payment or deemed payment; or
·
the amount of the actual payment or deemed payment, increased or reduced as a result of the method statement.

6.61 To work out the amount of an AMIT interest payment, an attribution MIT must apply the method statement in subsection 12A-30(4), as modified by subsection 12A-35(4).

6.62 Under step 1 of the method statement, the trustee must work out what it is reasonable to expect will be the total determined member components of an assessable income character that is interest on which withholding tax would be payable if it was derived by a foreign resident.

6.63 Under step 2 of the method statement, the amount of the AMIT interest payment is so much of the step 1 amount that is reasonable having regard to:

·
the object of the AMIT interest payment provision (as mentioned in subsection 12A-35(2));
·
the amount of any pre-AMMA actual payments made to members during the income year; and
·
the expected amounts of any later AMIT interest payments the attribution MIT expects to make in relation to the income year.

6.64 In the case of an actual payment, the amounts of the total determined member components of an assessable income character that is interest on which withholding tax would be payable if they were derived by a foreign resident for the attribution MIT for the income year are worked out based on the trustee's knowledge at the time when the payment is made.

6.65 However, in the case of a deemed payment, the amount is worked out based on the AMMA statement.

6.66 A payment is not an AMIT interest payment in relation to an income year if:

·
the payment is a post-AMMA actual payment in respect of another payment that is made on or after the time that the deemed payment is taken to be made; and
·
the other payment is an AMIT interest payment.

What is an AMIT royalty payment?

6.67 An AMIT royalty payment is defined in section 12A-40. The object of section 12A-40 is to ensure that the total of AMIT royalty payments that an attribution MIT makes in relation to an income year equals, as nearly as practicable, the total of its determined member components for the income year that are royalties on which withholding tax would be payable under Subdivision 12-F. [Schedule 3, item 11, subsections 12A-40(1), (2) and (3) of Schedule 1 to the TAA 1953; Schedule 9, item 1, definition of 'AMIT royalty payment' in subsection 995-1(1) of the ITAA 1997]

6.68 The amount of an AMIT royalty payment for an attribution MIT is worked out by applying the method statement in subsection 12A-30(4), and subsections 12A-30(5) to (7), as if:

·
references in those subsections to AMIT dividend payments are references to AMIT royalty payments; and
·
the reference in subsection 12A-30(4) to 'the amount mentioned in subsection 12A-30(3)' is a reference to 'the amount mentioned in subsection 12A-40(3)'.

[Schedule 3, item 11, subsection 12A-40(4) of Schedule 1 to the TAA 1953]

6.69 Therefore, similar to AMIT dividend payments, an AMIT royalty payment may be an actual payment or a deemed payment that the trustee makes in relation to an income year. The amount of the AMIT royalty payment may be:

·
the amount of the actual payment or deemed payment; or
·
the amount of the actual payment or deemed payment, increased or reduced as a result of the method statement.

6.70 To work out the amount of an AMIT royalty payment, an attribution MIT must apply the method statement in subsection 12A-30(4), as modified by subsection 12A-40(4).

6.71 Under step 1 of the method statement, the trustee must work out what is reasonable to expect will be the total determined member components of an assessable income character that are royalties on which withholding tax would be payable if it was derived by a foreign resident.

6.72 Under step 2 of the method statement, the amount of the AMIT royalty payment is so much of the step 1 amount that is reasonable having regard to:

·
the object of the AMIT royalty payment provision (as mentioned in subsection 12A-40(2));
·
the amount of any pre-AMMA actual payments made to members during the income year; and
·
the expected amounts of any later AMIT royalty payments the attribution MIT expects to make in relation to the income year.

6.73 In the case of an actual payment, the amounts of the total determined member components of an assessable income character that are royalties on which withholding tax would be payable if they were derived by a foreign resident for the attribution MIT for the income year are worked out based on the trustee's knowledge at the time when the payment is made.

6.74 However, in the case of a deemed payment, the amount is worked out based on the AMMA statement.

6.75 A payment is not an AMIT royalty payment in relation to an income year if:

·
the payment is a post-AMMA actual payment in respect of another payment that is made on or after the time that the deemed payment is taken to be made; and
·
the other payment is an AMIT royalty payment.

Deemed payments made by a custodian

6.76 An entity is a custodian if:

·
the entity is carrying on a business that consists predominantly of providing a custodial or depository service (as defined in section 766E of the Corporations Act 2001) pursuant to an Australian financial services licence; or
·
the entity is acting on behalf of an entity that is carrying on such a business pursuant to such a licence.

[Schedule 6, item 47, subsection 12-390(9) of Schedule 1 to the TAA 1953]

6.77 Currently, a custodian which receives a payment of dividends, interest or royalties from another entity to which a foreign resident becomes entitled has a withholding obligation under subsection 12-215(1), 12-250(1) or 12-285(1) in respect of that payment. This withholding obligation will not arise under those subsections if the custodian receives the payment from an attribution MIT and:

·
the receipt of the payment of dividends, interest or royalties arises because of a deemed payment; or
·
the payment is a post-AMMA actual payment in respect of a deemed payment.

[Schedule 3, item 11, subsections 12A-10(2) and (3) of Schedule 1 to the TAA 1953]

6.78 However, the custodian may have a withholding obligation in respect of the deemed payment under Subdivision 12A-C if the deemed payment is an AMIT DIR payment.

Requirement to give a notice or make information available in respect of a deemed AMIT DIR payment

6.79 Currently, if an attribution MIT makes a fund payment (or a custodian makes a subsequent on-payment), the trustee of the attribution MIT or the custodian must give a notice or make information available in relation to the fund payment (section 12-395).

6.80 These requirements are being extended so that they will also apply when an attribution MIT or a custodian makes an AMIT DIR payment. The new requirements are consistent with the notice and information requirements that apply to fund payments and are necessary to ensure compliance with the dividend, interest and royalty withholding obligations for deemed payments.

6.81 The requirement to give a notice or make information available in relation to an AMIT DIR payment will apply if:

·
an attribution MIT or a custodian makes a payment to another entity (the recipient) from which an amount would have been required to be withheld under Subdivision 12 if:

-
the attribution MIT or custodian were a company;
-
the payment had been made to a foreign resident; and
-
the conditions that must be satisfied for a withholding obligation to arise in relation to dividend, interest or royalty payment were satisfied - that is, in the case of a dividend payment, the condition in either or both paragraphs 12-210(a) or (b) were satisfied; in the case of an interest payment, the condition in either or both paragraphs 12-245(a) or (b) were satisfied; or, in the case of a royalty payment, the condition in either or both paragraphs 12-280(a) or (b) were satisfied;

·
an amount is not required to be withheld from the payment because:

-
the recipient is an Australian resident; or
-
the recipient is a foreign resident carrying on business in Australia at or through a permanent establishment (within the meaning of subsection 128B(3F) of the ITAA 1936) of the recipient in Australia, and the payment is attributable to the permanent establishment; and

·
the payment is a deemed payment or a pre-AMMA actual payment in respect of a deemed payment.

[Schedule 3, item 11, subsection 12A-15(1) of Schedule 1 to the TAA 1953]

6.82 In these circumstances, the attribution MIT or custodian must, before or at the time that the payment is made:

·
give a written notice to the recipient specifying the part of the payment from which an amount would have been so required to be withheld and the income year of the attribution MIT to which that part relates; or
·
make those details available on a website in a way that the details are readily accessible to the recipient for not less than five continuous years.

[Schedule 3, item 11, subsections 12A-15(2) and (3) of Schedule 1 to the TAA 1953]

6.83 Similarly, currently, if an entity that is not an attribution MIT or a custodian receives an amount that is attributable to a fund payment to which an Australian resident becomes entitled, the other entity must give a notice or make information available in relation to the payment (subsections 12-395(4) to (6)). These requirements are being extended so that they will also apply when the other entity receives an AMIT DIR payment.

6.84 The requirement to give a notice or make information available in relation to an AMIT DIR payment will apply if:

·
an entity that is not an attribution MIT or a custodian receives the payment;
·
another entity (the subsequent recipient) becomes, broadly, entitled to receive (directly or indirectly) or otherwise deal with an amount attributable to the payment;
·
the entity would have been required to withhold an amount from the payment under subsection 12-215(1), 12-250(1) or 12-285(1) if the subsequent recipient had been a foreign resident;
·
an amount is not required to be withheld from the payment because:

-
the subsequent recipient is an Australian resident; or
-
the subsequent recipient is a foreign resident carrying on business in Australia at or through a permanent establishment (within the meaning of subsection 128B(3F) of the ITAA 1936) of the recipient in Australia, and the payment is attributable to the permanent establishment; and

·
the payment arises because it is a deemed payment or a pre-AMMA actual payment in respect of a deemed payment.

[Schedule 3, item 11, subsection 12A-15(4) of Schedule 1 to the TAA 1953]

6.85 In these circumstances, the other entity must, before or at the time that the payment is, broadly, made or credited to the subsequent recipient, or is otherwise dealt with on the subsequent recipient's behalf or as they direct:

·
give a written notice to the recipient specifying the part of the payment from which an amount would have been so required to be withheld and the income year of the attribution MIT to which that part relates; or
·
make those details available on a website in a way that the details are readily accessible to the recipient for not less than five continuous years.

[Schedule 3, item 11, subsections 12A-15(5) and (6) of Schedule 1 to the TAA 1953]

Managed investment trust withholding on deemed payments

6.86 The amendments modify the managed investment trust withholding provisions so that they operate effectively for deemed payments made by an attribution MIT.

6.87 Withholding liabilities under Subdivision 12-H do not apply in relation to deemed payments arising under Subdivision 12A-C analogous to fund payments under Subdivision 12-H (although analogous liabilities may arise under Subdivision 12A-C). Attribution MIT trustees, custodians and other entities may be required to give notices to recipients of such deemed payments. [Schedule 3, item 11, section 12A-100 of Schedule 1 to the TAA 1953]

6.88 If an attribution MIT makes a pre-AMMA actual payment, the existing managed investment trust withholding provisions will continue to apply to that payment except that the amount of the fund payment will be worked out using the method statement in new section 12A-110.

6.89 The amendments modify the managed investment trust withholding provisions which require a withholding MIT to withhold an amount from a payment of its Australian sourced net income (other than dividends, interest and royalties) that is made to an entity whose address, or place for payment, is outside Australia.

6.90 A withholding MIT has an obligation to withhold amounts in respect of a fund payment it makes to an entity that has an address outside Australia or to a fund payment that is authorised to be made to a place outside Australia. [Schedule 6, item 42, subsection 12-385(1) of Schedule 1 to the TAA 1953]

6.91 The rate of withholding on fund payments that are made by a withholding MIT are set out in section 12-385.

6.92 The objective of the modifications is to ensure that attribution MITs have an obligation to pay an amount on a deemed fund payment. A deemed fund payment is, broadly, the total relevant determined member components that are attributed to members as shown on an AMMA statement to the extent that it exceeds the total amount of any pre-AMMA actual payments made to those members.

6.93 If an attribution MIT makes a deemed fund payment, the attribution MIT must pay the Commissioner of Taxation an amount that is equal to the amount that the trustee would have to withhold if the deemed payment was an actual payment.

6.94 In particular, the modifications:

·
modify the definition of fund payment - that is, attribution MITs will apply the new definition in section 12A-110 (instead of section 12-405); and
·
revise the circumstances in which an attribution MIT, custodian or other entity has a PAYG withholding obligation so that:

-
the payment obligation for an attribution MIT in relation to a deemed payment that is a fund payment will arise under section 12A-215 (instead of subsection 12-385(1)); and
-
the payment obligation for a custodian that is a member of an attribution MIT in respect to a deemed payment that is a fund payment from the attribution MIT will arise under section 12A-220 (instead of subsection 12-390(1)).

6.95 However, key elements of the managed investment trust withholding provisions in Schedule 12-H will continue to apply to attribution MITs. For example:

·
sections 12-385 and 12-390 will continue to apply to require an attribution MIT, custodian or other entity to withhold an amount from a payment that is a pre-AMMA actual payment;
·
sections 12-385 and 12-390 will continue to apply to specify the rate of withholding on fund payments (including deemed payments) made by an attribution MIT, custodian or other entity;
·
the requirements in section 12-395 for managed investment trusts, custodians and other entities to give certain notices or make information available in relation to fund payments will continue to apply to an attribution MIT, custodian or other entity; and
·
section 12-410, which specifies recipients of fund payments in respect of whom a PAYG withholding amount must be withheld, will continue to apply to an attribution MIT or custodian.

Deemed payments by an attribution MIT

6.96 If a trustee of an attribution MIT makes a fund payment that is a deemed payment, the attribution MIT does not have a withholding obligation under subsection 12-385(1) in respect of the deemed payment. [Schedule 3, item 11, subsection 12A-105(1) of Schedule 1 to the TAA 1953]

6.97 However, the trustee may need to withhold an amount in respect of the deemed payment under Subdivision 12A-C.

Deemed payments by a custodian

6.98 If a payment that is attributable to a fund payment is made by a custodian, the custodian does not have a withholding obligation under subsection 12-390(1) in respect of the payment if the payment arises because it is:

·
a deemed payment; or
·
a post-AMMA actual payment in respect of a deemed payment.

[Schedule 3, item 11, subsection 12A-105(2) of Schedule 1 to the TAA 1953]

6.99 However, the custodian may need to withhold an amount in respect of the deemed payment under Subdivision 12A-C.

Deemed payments by another entity

6.100 If a payment that is attributable to a fund payment is made by an entity (other than an attribution MIT or a custodian), the entity does not have a withholding obligation under subsection 12-390(4) in respect of the payment if the payment arises because it is:

·
a deemed payment; or
·
a post-AMMA actual payment in respect of a deemed payment.

[Schedule 3, item 11, subsection 12A-105(3) of Schedule 1 to the TAA 1953]

6.101 However, the other entity may need to withhold an amount in respect of the deemed payment under Subdivision 12A-C.

Requirement to give a notice or make information available in respect of a deemed payment

6.102 The current requirements in section 12-395 for managed investment trusts, custodians and other entities to give certain notices or make information available in relation to fund payments will continue to apply to an attribution MIT, custodian or other entity and will be extended so that they also apply to deemed payments. [Schedule 3, item 11, subsection 12A-105(4) of Schedule 1 to the TAA 1953]

Fund payment for an attribution MIT

6.103 A fund payment is defined in section 12-405 to mean, broadly, a component of an actual payment made to a beneficiary by a managed investment trust that represents a distribution of the Australian source net income (other than dividends, interest and royalties) of the trust.

6.104 Therefore, a key modification to the managed investment trust withholding provisions is to switch off the section 12-405 definition of fund payment for attribution MITs. [Schedule 3, items 9 and 10, subsection 12-405(1A) of Schedule 1 to the TAA 1953]

6.105 A new definition of fund payment will apply to a managed investment trust that is an attribution MIT. [Schedule 3, item 11, section 12A-110 of Schedule 1 to the TAA 1953; Schedule 9, item 6, definition of 'fund payment' in subsection 995-1(1) of the ITAA 1997]

6.106 The object of section 12A-110 is to ensure that the total of fund payments that an attribution MIT makes in relation to an income year equals, as nearly as practicable, the total of its determined member components for the income year that are of an assessable income character disregarding excluded components. [Schedule 3, item 11, subsections 12A-110(2) and (3) of Schedule 1 to the TAA 1953]

6.107 An amount is an excluded component if it is a determined member component of a character relating to assessable income that is:

·
discount capital gains from a CGT asset that is not taxable Australian property;
·
non-discount capital gains from a CGT asset that is not taxable Australian property;
·
dividends, interest and royalties that are subject to, or exempted from, a requirement to withhold under Subdivision 12-F;
·
foreign source income; or
·
specified by the Commissioner of Taxation for these purposes in a legislative instrument.

[Schedule 3, item 11, paragraph 12A-110(3)(a) and subsection 12A-110(4) of Schedule 1 to the TAA 1953]

6.108 An amount is also an excluded component if it is a capital loss from a CGT event that happened in the income year to a CGT asset that is not taxable Australian property. [Schedule 3, item 11, paragraph 12A-110(3)(b) of Schedule 1 to the TAA 1953]

6.109 The amount of a fund payment for an attribution MIT is worked out by applying the method statement in subsection 12A-110(5). The fund payment may be an actual payment or a deemed payment that the trustee makes in relation to an income year. The amount of the fund payment may be:

·
the amount of the actual payment or deemed payment; or
·
the amount of the actual payment or deemed payment, increased or reduced as a result of the method statement.

[Schedule 3, item 11, subsection 12A-110(5) of Schedule 1 to the TAA 1953]

6.110 Under step 1 of the method statement, the actual payment or deemed payment must be reduced by the amount that is attributable to the excluded components. [Schedule 3, item 11, step 1 of the method statement in subsection 12A-110(5) of Schedule 1 to the TAA 1953]

6.111 Under step 2 of the method statement, the trustee must work out what is reasonable to expect will be the total determined member components of an assessable income character for the attribution MIT in relation to the income year, disregarding the excluded components (the step 2 amount). In working out the step 2 amount, a capital gain from taxable Australian property of the trust that was or would be reduced under step 3 of the method statement in subsection 102-5 of the ITAA 1997 (that is, a discount capital gain) is taken to be double the amount it actually is. [Schedule 3, item 11, step 2 of the method statement in subsection 12A-110(5) of Schedule 1 to the TAA 1953]

6.112 Under step 3 of the method statement, the amount of the fund payment is so much of the step 2 amount that is reasonable having regard to:

·
the object of the fund payment provision (as mentioned in subsection 12A-110(2));
·
the step 1 amount;
·
the amounts of any earlier fund payments made by the attribution MIT in relation to the income year - that is, the amount of any pre-AMMA actual payments made to members during the income year; and
·
the expected amounts of any later fund payments the attribution MIT expects to make in relation to the income year - that is, for example, the expected amount of any deemed payments to be made to members in relation to the income year.

[Schedule 3, item 11, step 3 of the method statement in subsection 12A-110(5) of Schedule 1 to the TAA 1953]

6.113 The amount of the total determined member components of an assessable income character for the attribution MIT for the income year (including the amount of any excluded components), and the expected amount of any later fund payments, is worked out based on the trustee's knowledge at the time when the actual payment is made. However, in the case of a deemed payment, the amount is worked out based on the AMMA statements given to members. [Schedule 3, item 11, subsections 12A-110(6) and (7) of Schedule 1 to the TAA 1953]

6.114 The amount of a fund payment can take into account the expected amounts of any later fund payments an attribution MIT expects to make in relation to the income year. Therefore, when an attribution MIT makes an actual payment to a member, the trustee can take into account an expected later deemed payment in working out the amount of the fund payment in relation to the actual payment. As a result, the amount of the fund payment can exceed the amount of the actual payment.

6.115 A payment is not a fund payment in relation to an income year if:

·
the payment is a post-AMMA actual payment in respect of another payment; and
·
the other payment is a fund payment.

[Schedule 3, item 11, subsection 12A-110(8) of Schedule 1 to the TAA 1953]

6.116 In addition, an amount is not a fund payment in relation to an income year unless it is paid:

·
during the income year;
·
within 3 months after the end of the income year; or
·
within a longer period allowed by the Commissioner of Taxation.

[Schedule 3, item 11, subsection 12A-110(9) of Schedule 1 to the TAA 1953]

6.117 The Commissioner may allow a longer period for an amount to be a fund payment if the Commissioner is of the opinion that:

·
if the payment arises at a time because it is a deemed payment - the attribution MIT complied with the requirement in subsection 276-455(1) of the ITAA 1997 to give AMMA statements to members within three months of the end of the income year; or
·
otherwise - the trustee of the attribution MIT was unable to make the payment during the income year, or within three months after the end of the income year, because of circumstances beyond the influence or control of the trustee.

[Schedule 3, item 11, subsection 12A-110(10) of Schedule 1 to the TAA 1953]

6.118 In addition, a payment is not a fund payment in relation to an income year if it is an AMIT DIR payment in relation to that year. [Schedule 3, item 11, subsection 12A-110(11) of Schedule 1 to the TAA 1953]

Example 6.1


An attribution MIT (the ABC Trust) has 100 members holding equal interests in the trust. The ABC Trust makes four cash distributions of an assessable income character to each member in relation to the 2016-17 income year:

·
an interim cash distribution of $10,000 on 31 October 2016;
·
an interim cash distribution of $10,000 on 31 January 2017;
·
an interim cash distribution of $10,000 on 30 April 2017; and
·
a final cash distribution of $8,000 on 31 August 2017.


The ABC Trust gives AMMA statements for the 2016-17 income year to the members on 31 August 2017 (at the same time that it makes the final cash distribution). The total determined member component of an assessable income character for the income year for each member recorded on the AMMA statements is $45,000.

Neither the actual distributions nor the determined member component contain any excluded components.

Applying the method statement in subsection 12A-110(5), the ABC Trust will have made a fund payment to each member in respect of each cash distribution.

In addition, the ABC Trust will have made a fund payment to each member in respect of a deemed payment that arises at the time that the AMMA statements are given to members. The amount of the deemed payment for each member is $15,000 - that is, the total amount on the AMMA statement ($45,000) reduced by the total amount of the pre-AMMA actual payments ($30,000).

The final cash distribution of $8,000 that was made at the same time that AMMA statements were given to members is a post-AMMA actual payment, and therefore is not a deemed payment that gives rise to a fund payment.

Applying the method statement in section 12A-110, the fund payment in respect of the deemed payment will be $15,000.

Therefore, the ABC Trust would have made the following fund payments in respect of the 2016-17 income year:

·
an actual cash payment of $10,000 on 31 October 2016;
·
an actual cash payment of $10,000 on 31 January 2017;
·
an actual cash payment of $10,000 on 30 April 2017; and
·
a deemed payment of $15,000 on 31 August 2017.

Example 6.2


An attribution MIT (the XYZ Trust) has 100 members holding equal interests in the trust. The XYZ Trust makes four cash distributions of an assessable income character to members in relation to the 2016-17 income year. The total amount distributed to all members is:

·
an interim cash distribution of $10,000 on 31 October 2016;
·
an interim cash distribution of $10,000 on 31 January 2017;
·
an interim cash distribution of $10,000 on 30 April 2017; and
·
a final cash distribution of $10,000 on 31 August 2017.


On 30 September 2017, the XYZ Trust gives AMMA statements for the 2016-17 income year to its members. The total determined member components of an assessable income character for the income year for all members recorded on the AMMA statements is $46,000.

Neither the actual payments nor the determined member component contain excluded components.

Applying the method statement in subsection 12A-110, the XYZ Trust will have made a fund payment to each member in respect of each cash distribution.

As all the cash distributions were made before the AMMA statements were given to members, these distributions are pre-AMMA actual payments.

The trustee of the XYZ Trust expected to have a total fund payment amount of $46,000 for the 2016-17 income year. The trustee also expected to pay four equal distributions during the income year. Therefore, at each distribution date, the trustee determined to allocate the full year fund payment amount equally to each cash distribution of $10,000.

Accordingly, the trustee worked out the fund payment amount for each distribution as follows:

·
in respect of the actual cash payment of $10,000 on 31 October 2016, the trustee worked out a fund payment amount of $11,500;
·
in respect of the actual cash payment of $10,000 on 31 January 2017, the trustee worked out a fund payment amount of $11,500;
·
in respect of the actual cash payment of $10,000 on 30 April 2017, the trustee worked out a fund payment amount of $11,500; and
·
in respect of the actual cash payment of $10,000 on 31 August 2017, the trustee worked out a fund payment amount of $11,500.


Under section 12A-205, the issue of AMMA statements may give rise to a deemed payment. However, the deemed payment from the XYZ Trust is nil because the total of the determined member components ($46,000) is equal to the total amount of the funds payments attributable to the pre-AMMA actual payments ($46,000).

Attribution MITs must withhold amounts in relation to deemed payments

Deemed payments that are dividends, interest or royalties

6.119 If the trustee of an attribution MIT receives a payment of dividend, interest or royalties from another entity, the trustee will have a dividends, interest or royalties withholding obligation in respect of a deemed payment, to the extent that the deemed payment is an AMIT DIR payment, that it makes to an entity (the recipient) that is a foreign resident. [Schedule 3, item 11, subsection 12A-215(1) of Schedule 1 to the TAA 1953]

6.120 The amount that the attribution MIT must pay to the Commissioner of Taxation is the amount that it would have to withhold under section 12-210, 12-245 or 12-280 in respect of the AMIT DIR payment on the assumptions that the deemed payment was an actual payment and that:

·
if the deemed payment corresponds to a dividend that is subject to a requirement to withhold under Subdivision 12-F - the trust had been a company and had paid the deemed payment as a dividend;
·
if the deemed payment corresponds to interest that is subject to a requirement to withhold under Subdivision 12-F - the trust had paid the deemed payment as interest; or
·
if the deemed payment corresponds to a royalty that is subject to a requirement to withhold under Subdivision 12-F - the trust had paid the deemed payment as a royalty.

[Schedule 3, item 11, subsections 12A-215(2) and (3) of Schedule 1 to the TAA 1953]

6.121 The attribution MIT must pay the amount to the Commissioner at the same time that it has to withhold or pay other amounts to the Commissioner under Division 16. That is:

·
if an entity must pay an amount to the Commissioner under Subdivision 12A-C, for the purposes of Division 16 the entity is treated as being obliged to withhold the amount under Division 12 (including Subdivisions 12-F and 12-H); and
·
if an entity has paid an amount to the Commissioner under Subdivision 12A-C, for the purposes of Division 16 the entity is treated as having withheld the amount under Division 12 (including Subdivisions 12-F and 12-H).

[Schedule 3, item 13, section 16-7 of Schedule 1 to the TAA 1953]

Deemed payments that are fund payments

6.122 The trustee of an attribution MIT will have a managed investment trust withholding obligation in respect of a deemed payment, to the extent that the deemed payment is a fund payment it makes to an entity (the recipient) that has an address outside Australia or to a fund payment that is authorised to be made to a place outside Australia payment. [Schedule 3, item 11, subsection 12A-215(1) of Schedule 1 to the TAA 1953]

6.123 The amount that the attribution MIT must pay to the Commissioner is the amount that it would have to withhold under section 12-385 in respect of the fund payment on the assumption that the deemed payment was an actual payment. [Schedule 3, item 11, subsections 12A-215(2) and (3) of Schedule 1 to the TAA 1953]

6.124 The attribution MIT must pay the amount to the Commissioner at the same time that it has to withhold or pay other amounts to the Commissioner under Division 16. [Schedule 3, item 13, section 16-7 of Schedule 1 to the TAA 1953]

6.125 If an attribution MIT makes an actual payment that is a fund payment, the attribution MIT will continue to have an obligation to withhold an amount from the actual payment under subsection 12-385(1).

Trustee can recover amounts from the foreign resident recipient

6.126 The trustee can recover from the foreign resident recipient as a debt an amount that the trustee has paid to the Commissioner under subsection 12A-215(1) in relation to a deemed DIR payment or a deemed fund payment. The trustee can recover the debt from the recipient against debts due by the trustee to the recipient. [Schedule 3, item 11, subsections 12A-215(4) and (5) of Schedule 1 to the TAA 1953]

6.127 Therefore, if the deemed payment made by the trustee to a foreign resident recipient is not accompanied by an actual cash payment, or if the cash payment is less than the amount of the withholding obligation, the trustee can recover the amount of any excess withholding obligation paid to the Commissioner as a debt from the foreign resident recipient. The trustee can recover that debt from future cash payments that it makes to the foreign resident recipient.

Custodian that is a member of an attribution MIT must withhold amounts in relation to subsequent deemed payments

Subsequent deemed payments that are dividends, interest or royalties

6.128 If a custodian receives a deemed payment from an attribution MIT, the custodian will have a dividend, interest or royalties withholding obligation in respect of a subsequent deemed payment where:

·
the subsequent deemed payment, or a part of that payment, (the covered part) is an AMIT DIR payment that was covered by a notice or information under section 12A-15; and
·
the subsequent deemed payment is made to an entity (the recipient) that is a foreign resident.

[Schedule 3, item 11, subsection 12A-220(1) of Schedule 1 to the TAA 1953]

6.129 The amount that the custodian must pay to the Commissioner is the amount that it would have to withhold under section 12-210, 12-245 or 12-280 in respect of the AMIT DIR payment on the assumptions that the subsequent deemed payment was an actual payment and that:

·
if the deemed payment from the attribution MIT corresponds to a dividend that is subject to a requirement to withhold under Subdivision 12-F - the custodian had been a company and had paid the subsequent deemed payment as a dividend;
·
if the deemed payment from the attribution MIT corresponds to interest that is subject to a requirement to withhold under Subdivision 12-F - the custodian had paid the subsequent deemed payment as interest; or
·
if the deemed payment corresponds to a royalty that is subject to a requirement to withhold under Subdivision 12-F - the custodian had paid the subsequent deemed payment as a royalty.

[Schedule 3, item 11, subsections 12A-220(2) and (3) of Schedule 1 to the TAA 1953]

6.130 The custodian must pay the amount to the Commissioner at the same time that it has to withhold or pay other amounts to the Commissioner under Division 16. [Schedule 3, item 13, section 16-7 of Schedule 1 to the TAA 1953]

Subsequent deemed payments that are fund payments

6.131 If a custodian receives a deemed payment from an attribution MIT, the custodian will have a managed investment trust withholding obligation in respect of a subsequent deemed payment to the extent that:

·
all or some of the subsequent deemed payment is reasonably attributable to the part of an earlier payment received by the custodian that was a fund payment and is covered by a notice or information under section 12-395; and
·
the subsequent deemed payment is made to an entity (the recipient) that is a foreign resident.

[Schedule 3, item 11, subsection 12A-220(1) of Schedule 1 to the TAA 1953]

6.132 The amount that the custodian must pay to the Commissioner is the amount that it would have to withhold under subsection 12-390(1) in respect of the fund payment on the assumption that the subsequent deemed payment was an actual payment. [Schedule 3, item 11, subsections 12A-220(2) and (3) of Schedule 1 to the TAA 1953]

6.133 The custodian must pay the amount to the Commissioner at the same time that it has to withhold or pay other amounts to the Commissioner under Division 16. [Schedule 3, item 13, section 16-7 of Schedule 1 to the TAA 1953]

6.134 If a custodian makes a subsequent on-payment of an amount attributable to a fund payment, the custodian will continue to have an obligation to withhold an amount from the subsequent on-payment under subsection 12-390(1).

Custodian can recover amounts from the foreign resident recipient

6.135 The custodian can recover from the foreign resident recipient as a debt an amount that the custodian has paid to the Commissioner under subsection 12A-220(1) in relation to a deemed DIR payment or a deemed fund payment. The custodian can recover the debt from the recipient against debts due by the custodian to the recipient. [Schedule 3, item 11, subsections 12A-220(4) and (5) of Schedule 1 to the TAA 1953]

6.136 Therefore, if the deemed payment made by the custodian to a foreign resident recipient is not accompanied by an actual cash payment, or if the cash payment is less than the amount of the withholding obligation, the custodian can recover the amount of any excess withholding obligation paid to the Commissioner as a debt from the foreign resident recipient. The custodian can recover that debt from future cash payments that it makes to the foreign resident recipient.

Entity (other than a managed investment trust or a custodian) that is a member of an attribution MIT must withhold amounts

6.137 An entity (other than a managed investment trust or a custodian) that is a member of an attribution MIT may receive a deemed payment from an attribution MIT or a custodian.

6.138 In that event, the entity will include the deemed payment in its assessable income or net income (because of section 276-80 of the ITAA 1997).

6.139 If a foreign resident becomes entitled to the deemed payment, the existing income tax law will apply to determine the entity's withholding obligations. That is, broadly:

·
if the entity is attributed an amount of dividends, interest or royalties from an attribution MIT, the entity is required to withhold an amount from any subsequent payment attributable to the dividends, interest or royalties that a foreign resident becomes entitled to; or
·
if the entity is attributed a fund payment from an attribution MIT:

-
the entity is required to withhold an amount from any subsequent payment attributable to the fund payment that a foreign resident becomes entitled to; and
-
the entity must make information available in relation to the amount when another entity that is an Australian resident becomes entitled to the amount.

Consequential amendments

6.140 A range of consequential amendments are made to support the new PAYG withholding regime for attribution MITs.

6.141 First, consequential amendments are made to relevant definitions in subsection 995-1(1) of the ITAA 1997. [Schedule 9, items 2 and 3, definitions of 'amount required to be withheld' and 'amount withheld' in subsection 995-1(1) of the ITAA 1997]

6.142 Second, numerous consequential amendments of a technical nature are made to Division 16 of Part 2-5 to support the new regime. [Schedule 3, items 12, 14 to 19, sections 16-1, 16-20, 16-25, 16-30 and 16-140 of Schedule 1 to the TAA 1953]

6.143 Finally, consequential amendments are made to Division 18 of Part 2-5 to ensure that, broadly:

·
entities that receive AMIT DIR payments or fund payments on which an amount has been withheld are entitled to a credit for the amount withheld; and
·
if an entity paid an amount to the Commissioner of Taxation purportedly under Subdivision 12A-C (that is, in relation to a deemed payment), the entity is treated as having withheld an amount under Division 12.

[Schedule 3, items 20 to 23, subsections 18-30(1), 18-32(1), 18-65(1A) and 18-70(1A) of Schedule 1 to the TAA 1953]

Operation of the TFN withholding provisions

6.144 If a managed investment trust is required to withhold an amount under the dividend, interest and royalty withholding rules in Subdivision 12-F, or under the fund payment withholding rules in Subdivision 12-H, in relation to an amount that it pays to an investor that is a foreign resident, the foreign resident is taken to have quoted a tax file number (TFN) in relation to the investment (section 202EE of the ITAA 1936).

6.145 This outcome will also arise in respect of deemed payments that are made to a foreign resident. That is, where an attribution MIT is required to withhold an amount under Subdivision 12A-C in respect of an AMIT DIR payment or a fund payment that is a deemed payment that it makes to an investor that is a foreign resident, the foreign resident is also taken to have quoted a TFN in relation to the investment. [Schedule 6, item 16, section 202EE of the ITAA 1936]

6.146 If a managed investment trust makes a payment to an investor that is an Australian resident who has not quoted a TFN, the managed investment trust is required to withhold an amount in respect of the payment under the TFN withholding provisions in Subdivision 12-E. The TFN withholding provisions will continue to apply to the total amount of any actual payments (except to the extent that the payment represents a return of capital) made to an Australian resident who has not quoted a TFN.

6.147 Therefore, if a deemed payment is made to an investor that is an Australian resident who has not quoted a TFN, the attribution MIT will not be required to withhold an amount under Subdivision 12-E in respect of any subsequent actual payment that relates to the deemed payment at the time the payment is made.


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