ATO Interpretative Decision

ATO ID 2002/95 (Withdrawn)

Income Tax

• ATO ID 2002/95 has been withdrawn from the database due to the repeal of sections 160ARB and 160APA of the Income Tax Assessment Act 1936 which took effect from 1 July 2002. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2001/2002 income year.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether the taxpayer, a trustee of a trust who is liable to be assessed for tax in respect of a non-resident beneficiary under section 98 of the Income Tax Assessment Act 1936 (ITAA 1936), should include in their assessable income amounts distributed to a non-resident beneficiary as franked dividends and imputation credits.

Decision

No, the amount distributed to the non-resident beneficiary as franked dividends, which are exempt from withholding tax, is excluded from the assessable income of the trustee under section 128D of the ITAA 1936.

Section 160ARB of the ITAA 1936 provides a deduction that operates to remove the effect of the grossing-up of the dividends by the imputation credits.

Facts

The taxpayer, a trustee of a trust, distributes an amount of income, which includes franked dividends and imputation credits, to a non-resident beneficiary of the trust. No withholding tax is payable on the distribution.

The trustee is liable for tax in respect of the non-resident beneficiary.

Reasons for Decision

Section 128D of the ITAA 1936 excludes from assessable income, certain income that is exempt from withholding tax including franked dividends. The amount distributed to the non-resident beneficiary as franked dividends is excluded from the assessable income of the trustee under section 128D of the ITAA 1936.

The assessable income is reduced by the amount of imputation credits distributed to the non-resident beneficiary, as section 160ARB of the ITAA 1936 provides for a deduction limited to the lesser of:

(i)

the 'trust amount' (the share of the net income of the trust on which the trustee is liable to be assessed under section 98 of the ITAA 1936); and

(ii)

the 'potential rebate amount' in relation to the 'trust amount' if section 128D of the ITAA 1936 did not apply. The 'potential rebate amount' for the trustee (calculated using the formula in section 160APA of the ITAA 1936) equals the amount of imputation credits included in the assessable income of the trust estate.

In the trustee's case, the 'potential rebate amount' is less than the 'trust amount', and a deduction is available to the trustee under section 160ARB of the ITAA 1936 for the amount of the imputation credits included in assessable income.

Year of income:  Year ended 30 June 1999

Legislative References:
Income Tax Assessment Act 1936
   section 98
   section 128D
   section 160APA
   section 160ARB

Keywords
Non-resident individuals
Non-resident beneficiaries
Non-resident dividend withholding tax
Trusts
Trust beneficiaries
Trust distributions
Distributions to non-residents
Imputation credits
Franked dividends

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  30 January 2002

ISSN: 1445-2782