ATO Interpretative Decision
ATO ID 2003/230 (Withdrawn)
Superannuation
Part IX taxation of superannuation entities: distribution from a related fixed trust to a self managed superannuation fundFOI status: may be released
-
This ATO ID is withdrawn as it is superseded by TR 2006/7.This document incorporates revisions made since original publication.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Whether the distribution received by a self managed superannuation fund (SMSF) from a related fixed trust will be considered special income under section 273 of the Income Tax Assessment Act 1936 (ITAA 1936).
Decision
Yes. The distribution from the related fixed trust will be considered special income under subsection 273(7) of the ITAA 1936 as both conditions mentioned in the subsection are satisfied.
Facts
A business is operated under a discretionary trust.
A fixed trust is created and the discretionary trust deed is amended to include a new class of beneficiaries called 'Discretionary Beneficiaries'.
Included as a discretionary beneficiary is the fixed trust.
The fixed trust's absolute beneficiary is an SMSF.
A distribution is made by the discretionary trust to the fixed trust.
The fixed trust then distributes the monies to the SMSF.
Reasons for Decision
Section 273 of the ITAA 1936 applies to income derived in a year of income by a fund or unit trust that is a complying superannuation fund, a complying Approved Deposit Fund or a Pooled Superannuation Trust in relation to the year of income.
Subsection 273(7) of the ITAA 1936 states that a distribution received by a fund from a fixed trust is special income if:
- •
- the fund acquired the fixed entitlement under an 'arrangement', or the income was derived under an 'arrangement', some or all the parties were not dealing with each other at arm's length in relation to the 'arrangement'; and
- •
- the amount of the income is greater than might have been expected to have been derived by the fund if those parties had been dealing with each other at arm's length in relation to the 'arrangement'.
In order to assess the income as special income of the fund, it is necessary to show that the fixed trust distributions were derived, or the fixed entitlement was acquired under an 'arrangement', and the distributions were greater than they would have been had the parties been dealing with each other at arm's length.
An 'arrangement' is defined under subsection 273(8) of the ITAA 1936, as
'any agreement, arrangement, understanding, promise or undertaking, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings; and any scheme, plan, proposal, action, course of action or course of conduct'.
It is clear that there is an 'arrangement' under subsection 273(8) of the ITAA 1936, as a restructure of the business was organised which involved the establishment of the fixed trust and the amendment of the discretionary trusts' trust deed.
The SMSF has received the distribution under an arrangement where the parties are not dealing with each other at arm's length. The amount of the distribution is greater than would be expected if the parties had been dealing at arm's length.
Accordingly, the fixed trust distribution received by the SMSF will be considered as special income and taxed at the top marginal rate.
Date of decision: 25 February 2003Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
section 273
Related Public Rulings (including Determinations)
TR 2000/D11
ATO ID 2002/672
Keywords
Self managed superannuation fund
Special income
Superannuation
Superannuation funds
Regulated superannuation funds
Retirement income entities
ISSN: 1445-2782
| Date: | Version: | |
| 25 February 2003 | Original statement | |
| You are here | 8 September 2006 | Archived |