Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2016 (53 of 2016)

Schedule 4   Managed investment trusts

Income Tax Assessment Act 1997

5   At the end of Division 275

Add:

Subdivision 275-L - Modification for non-arm's length income

Guide to Subdivision 275-L

275-600 What this Subdivision is about

The trustee of a managed investment trust in relation to an income year is taxed on amounts related to the managed investment trust's non-arm's length income for the income year.

Table of sections

Operative provisions

275-605 Trustee taxed on amount of non-arm's length income of managed investment trust

275-610 Non-arm's length income

275-615 Commissioner's determination in relation to amount of non-arm's length income

Operative provisions

275-605 Trustee taxed on amount of non-arm's length income of managed investment trust

(1) Subsections (2), (3) and (4) apply if the Commissioner has made a determination under section 275-615 that specifies an amount of *non-arm's length income for a specified *managed investment trust in relation to a specified income year.

Excess amount to be taxed

(2) The trustee of the *managed investment trust is liable to pay income tax at the rate declared by the Parliament on the amount mentioned in subsection (5).

Note: The rate is set out in subsection 12(10) of the Income Tax Rates Act 1986.

Excess amount to be adjusted

(3) If the trust is an *AMIT for the income year:

(a) if paragraph (b) does not apply - treat the trust as having an *over in the income year in which the determination is made, for the specified income year, of a character relating to *ordinary income, or *statutory income, from an *Australian source, equal to the amount mentioned in subsection (5); or

(b) if the trust already has such an over in the income year in which the determination is made, for the specified income year - increase the amount of that over by the amount mentioned in subsection (5).

(4) If the trust is not an *AMIT for the income year, reduce the trust's *net income for the income year in which the determination is made by the amount mentioned in subsection (5), to the extent that the net income is attributable to that amount.

Excess amount

(5) The amount is the excess mentioned in paragraph 275-610(1)(b) in respect of the *non-arm's length income, reduced by deductions (if any) that:

(a) are reflected in:

(i) if the trust is an *AMIT for the income year - the amounts of its *trust components for the income year (disregarding subsection (3)); or

(ii) otherwise - its *net income for the income year (disregarding subsection (4)); and

(b) are attributable only to the amount of non-arm's length income.

275-610 Non-arm's length income

(1) An amount of *ordinary income or *statutory income is non-arm's length income of a *managed investment trust if:

(a) it is derived from a *scheme the parties to which were not dealing with each other at *arm's length in relation to the scheme; and

(b) that amount exceeds the amount that the entity might have been expected to derive if those parties had been dealing with each other at arm's length in relation to the scheme; and

(c) the amount is none of the following:

(i) a distribution from a *corporate tax entity;

(ii) a distribution from a trust that is not a party to the scheme mentioned in paragraph (a);

(iii) a *return covered by subsection (2).

(2) This subsection covers a *return that an entity pays or provides on a *debt interest, if the rate (expressed on an annual basis) of the return does not exceed the greater of:

(a) the *benchmark rate of return for the interest; and

(b) the *base interest rate for the day on which the return is paid or provided, plus 3 percentage points.

(3) Subsection (4) applies if:

(a) an amount would be *non-arm's length income of the *managed investment trust (disregarding that subsection); and

(b) the amount is a distribution from a trust, or a share of the *net income of a trust, if the trust is a party to the scheme mentioned in paragraph (1)(a).

(4) The amount is *non-arm's length income of the *managed investment trust only to the extent that the distribution or share of *net income is attributable to non-arm's length income of the trust mentioned in paragraph (3)(b) (on that assumption that the trust were a managed investment trust) because of another operation of this section.

(5) Subsection (6) applies if:

(a) an amount (the first amount ) of *ordinary income or *statutory income of the *managed investment trust that would be *non-arm's length income of the managed investment trust (disregarding that subsection) is:

(i) a distribution from a trust that is a party to the scheme mentioned in paragraph (1)(a); or

(ii) a share of the *net income of a trust that is a party to that scheme; and

(b) another amount (the second amount ) of ordinary income or statutory income of the managed investment trust is:

(i) a distribution from another trust (whether or not the other trust is a party to that scheme); or

(ii) a share of the net income of another trust (whether or not the other trust is a party to that scheme); and

(c) it is reasonable to conclude that the second amount would have been higher but for the first amount.

(6) The first amount is not*non-arm's length income of the *managed investment trust to the extent that the second amount would have been higher as mentioned in paragraph (5)(c).

275-615 Commissioner's determination in relation to amount of non-arm's length income

(1) The Commissioner may make a determination in writing that specifies an amount of *non-arm's length income for a specified *managed investment trust in relation to a specified income year if the Commissioner is satisfied that:

(a) the amount of non-arm's length incomefor the managed investment trust in relation to the income year is reflected in:

(i) if the trust is an *AMIT for the income year - one or more of its *trust components for the income year; or

(ii) otherwise - its *net income for the income year; and

(b) the managed investment trustis a party to the *scheme mentioned in paragraph 275-610(1)(a) at a time in the income year in which the amount is derived; and

(c) at least one the parties to that scheme is not a managed investment trust in relation to the income year.

Determination does not form part of assessment

(2) A determination under subsection (1) does not form part of an assessment.

Notice by Commissioner of determination

(3) If the Commissioner makes a determination under subsection (1), the Commissioner must give a copy of the determination to the *managed investment trust concerned. The notice may be included in a notice of assessment.

Evidence of determination

(4) The production of:

(a) a notice of a determination; or

(b) a document signed by the Commissioner, a Second Commissioner or a Deputy Commissioner purporting to be a copy of a determination;

is:

(c) conclusive evidence of the due making of the determination; and

(d) conclusive evidence that the determination is correct (except in proceedings under Part IVC of the Taxation Administration Act 1953 on an appeal or review relating to the determination).

Objections

(5) If an entity to whom a determination relates is dissatisfied with the determination, the entity may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.