ATO Interpretative Decision
ATO ID 2008/156 (Withdrawn)
Income Tax
Operation of section 99B: FIF income included in the beneficiary's assessable income by section 529 but not declared in the beneficiary's income tax returnFOI status: may be released
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This ATO ID is withdrawn due to amendments to section 23AK and the repeal of the FIF provisions in Part XI of the Income Tax Assessment Act 1936. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2009-2010 income year.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Will the payment of an amount of trust property, representing foreign investment fund (FIF) income accrued to a resident beneficiary taxpayer, which is included in the taxpayer's assessable income by virtue of section 529 of the Income Tax Assessment Act 1936 (ITAA 1936), result in an amount being included in their assessable income under subsection 99B(1) of the ITAA 1936?
Decision
No. The payment of an amount of trust property, representing FIF income that has accrued to a resident beneficiary taxpayer, which is included in the taxpayer's assessable income by virtue of section 529 of the ITAA 1936, will not result in an amount being included in their assessable income under subsection 99B(1) of the ITAA 1936 as paragraph 23AK(1)(g) of the ITAA 1936 applies to make that amount non-assessable non-exempt income.
Facts
The taxpayer is an Australian resident individual who has an interest in the corpus and income of a non-resident trust estate. No taxpayer is an attributable taxpayer in relation to the trust estate for the purpose of Division 6AAA of the ITAA 1936 and the trust estate is not a controlled foreign trust for the purpose of Part XI of the ITAA 1936.
The taxpayer's interest in the non-resident trust estate is an interest in a FIF for the purposes of paragraph 483(2)(a) of the ITAA 1936. Consequently, section 529 of the ITAA 1936 applies to include an amount of FIF income in the taxpayer's assessable income on an accruals basis in each income year in which the interest is held.
The taxpayer did not include the amounts of FIF income in their income tax returns for income years in which they held the interest.
The trustee of the non-resident trust estate distributed trust property, being accumulated income, to the resident beneficiary in the current year of income.
Reasons for Decision
Subsection 99B(1) of the ITAA 1936 includes an amount of trust property paid to or applied for the benefit of a beneficiary in the beneficiary's assessable income.
However, section 23AK of the ITAA 1936 may apply to treat an amount (that would otherwise be included in the beneficiary's assessable income under subsection 99B(1) of the ITAA 1936) as non-assessable non-exempt income. Two requirements must be satisfied in order for section 23AK of the ITAA 1936 to apply: first, there must be a FIF attribution account payment to the taxpayer and second, a FIF attribution debit must arise for the FIF attribution account entity (the trust estate) in relation to the taxpayer when the payment is made.
The amount paid by the trustee of the non-resident trust estate to the beneficiary of the trust estate (that would otherwise be included in their assessable income under subsection 99B(1) of the ITAA 1936) is a FIF attribution account payment: refer to paragraph 603(1)(f) of the ITAA 1936.
A FIF attribution debit arises for the non-resident trust estate (the FIF attribution account entity) in relation to the taxpayer if the non-resident trust estate makes a FIF attribution account payment to the taxpayer and, immediately before the payment, there is a FIF attribution account surplus for the non-resident trust estate in relation to the taxpayer: refer to section 606 of the ITAA 1936.
There will be a FIF attribution account surplus for the FIF attribution account entity in relation to the taxpayer at a particular time if the total of all earlier FIF attribution credits exceeds the total of all earlier FIF attribution debits: refer to section 604 of the ITAA 1936.
A FIF attribution credit arises for a FIF attribution account entity in relation to the taxpayer if an amount is included in the taxpayer's assessable income under section 529 of the ITAA 1936 in respect of the FIF income of the entity: refer to section 605 of the ITAA 1936.
Although the taxpayer did not include the relevant amounts of FIF income in their relevant income tax returns, the amounts are nevertheless included in their assessable income in the relevant income years by virtue of section 529 of the ITAA 1936: refer to sections 6-10 and 6-15 of the Income Tax Assessment Act 1997.
Consequently, a FIF attribution account credit arises for the trust estate in relation to the taxpayer in respect of each amount that is included in the taxpayer's assessable income under section 529 of the ITAA 1936.
Therefore, the trust estate has a FIF attribution account surplus in relation to the taxpayer (equal to the total of the earlier credits so arising).
The payment of trust property by the trustee of the non-resident trust estate to the resident beneficiary is a FIF attribution account payment to the taxpayer, and as the trust estate has a FIF attribution surplus in relation to the taxpayer, the payment gives rise to a FIF attribution debit for the trust estate. Therefore, paragraph 23AK(1)(g) of the ITAA 1936 applies to treat the payment as non-assessable non-exempt income.
Accordingly, the amount of trust property paid to the taxpayer is not included in the taxpayer's assessable income under subsection 99B(1) of the ITAA 1936 due to the application of paragraph 23AK(1)(g) of the ITAA 1936.
Year of income: Year ended 30 June 2008
Legislative References:
Income Tax Assessment Act 1936
section 23AK
paragraph 23AK(1)(g)
section 99B
subsection 99B(1)
Division 6AAA
section 170
Part XI
paragraph 483(2)(a)
section 529
paragraph 603(1)(f)
section 604
section 605
section 606
section 6-10
section 6-15 Related ATO Interpretative Decisions
ATO ID 2008/155
Keywords
Foreign investment funds
Non resident trusts
Non-assessable non-exempt income
Trust distributions
ISSN: 1445-2782
| Date: | Version: | |
| 25 November 2008 | Original statement | |
| You are here | 27 May 2011 | Archived |