ATO Interpretative Decision
ATO ID 2003/1108
Income Tax
Franking of dividends: holding period and related payments - qualified person - family trust electionFOI status: may be released
-
Though Part IIIAA of the Income Tax Assessment Act 1936 ceased to have application from 1 July 2002, it is necessary to have regard to the rules in Division 1A of the former Part IIIAA in determining whether an entity is a qualified person for the purpose of the new rules contained in the Simplified Imputation System in respect of a franked distribution made directly or indirectly to the entity on or after 1 July 2002.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a beneficiary of a non-fixed trust in respect of which a family trust election has been made, a qualified person under section 160APHO of the Income Tax Assessment Act 1936 (ITAA 1936) in relation to dividends paid on ordinary shares acquired by the trustee post 31 December 1997 where the trustee has not held the shares at risk for 45 days.
Decision
No. The beneficiary of the non-fixed trust in respect of which a family trust election has been made is not a qualified person under section 160APHO of the ITAA 1936 in relation to the dividends.
Facts
The trustee acquired the ordinary shares at the end of January 2002 and sold the shares in June 2002. Franked dividends with attached franking credits of $5,490 were paid to the trustee and distributed to a beneficiary during the 2001-02 income year. The trustee had materially diminished risk in respect of each day the shares were held. Neither the trustee nor an associate of the trustee has made, is likely to make or is under an obligation to make a related payment in respect of the dividends paid.
Reasons for Decision
For a beneficiary to be a qualified person under section 160APHO of the ITAA 1936 in relation to an interest in shares on which a dividend has been paid, the beneficiary must have held the interest at risk for at least 45 days during the primary qualification period. The beneficiary is taken under sub-section 160APHG(3) of the ITAA 1936 to hold an interest in the shares while the trustee holds the shares. As a non-fixed trust, the trust will be considered a non-widely held trust. If a beneficiary of a non-widely held trust is to be a qualified person, the trustee must also be a qualified person. Having not held the shares at risk for 45 days, the trustee will not be considered a qualified person in relation to the dividend. Consequently, the beneficiary will also not be a qualified person in relation to the dividend (section 160 APHU(1) of the ITAA 1936).
Therefore, the beneficiary of the non-fixed trust is not a qualified person under section 160APHO of the ITAA 1936 in relation to the dividends paid where the trustee has not held the shares at risk for 45 days.
Date of decision: 27 November 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
section 160APHG
section 160APHO
section 160APHU
Keywords
Imputation system
Franked dividends
Trust beneficiaries
Discretionary trusts
Imputation credits
Franking credits
Dividend income
Date reviewed: 1 June 2018
ISSN: 1445-2782