ATO Interpretative Decision

ATO ID 2002/749 (Withdrawn)

Income Tax

Superannuation Fund - entitlement to franking rebate as a beneficiary of a trust
FOI status: may be released

ATO ID 2002/749 is withdrawn because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 (ITAA 1936) that does not apply after the 2007 income year. Despite its withdrawal, this ATO ID continues to be a precedential ATO view in respect of decisions for income years up to and including, the 2007 income year.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the trustee of the superannuation fund, who is a beneficiary of a unit trust, entitled to the benefit of franking rebate, under section 160AQYA of the Income Tax Assessment Act 1936 (ITAA 1936), which are attributable to dividends from shares acquired by the trust post 31 December 1997 and distributed from that trust?

Decision

No, the trustee of the superannuation fund is not entitled to the benefit of franking rebate, under section 160AQYA of the ITAA 1936 which are attributable to dividends from shares acquired by the unit trust post 31 December 1997 and distributed from that trust.

Facts

The Superannuation Fund is a complying superannuation fund with only two members, husband and wife.

The Superannuation Fund owns (and has always owned) 100% of the issued units in the Unit Trust.

The Unit Trust has not made a family trust election.

The Superannuation Fund does not have a vested and indefeasible interest in the corpus of the Unit Trust.

The trustee of the Unit Trust is a qualified person in relation to the dividends.

There is no related payment in respect of the dividends.

Reasons for Decision

Section 160AQYA of the ITAA 1936, sets out when the trustee of a superannuation fund is entitled to a franking rebate. To be entitled to the franking rebate, the trustee of the superannuation fund must be a qualified person in relation to the relevant franked dividend for the purposes of Division 1A of Part IIIAA of the ITAA 1936.

Under Division 1A of Part IIIAA of the ITAA 1936, where a taxpayer derives dividends through a distribution from a trust consisting wholly or in part of dividends, the taxpayer needs to determine what component of the trust distribution is attributable to a particular dividend, and then determine whether, in relation to that dividend, the taxpayer is a qualified person.

Under section 160APHD of the ITAA 1936, a " qualified person ", in relation to a dividend paid on shares, has the meaning given by section 160APHO, as that meaning is affected by section 160APHU.

Under section 160APHU of the ITAA 1936, if a trustee is not a qualified person in relation to a dividend then no beneficiary of the trust is a qualified person in relation to the dividend.

Under section 160APHO of the ITAA 1936, a taxpayer who holds shares or an interest in shares on which a dividend or distribution has been paid is a qualified person in relation to the dividend if the taxpayer has held the shares or interest in shares at-risk, not counting the day of acquisition or disposal, for at least 45 days (or 90 days for certain preference shares).

Under subsection 160APHO(3) of the ITAA 1936, when calculating the days for which the taxpayer continuously held the shares or interest, any days on which the taxpayer has materially diminished risks of loss or opportunities for gain in respect of the shares or interest are to be excluded, but the exclusion of those days is not taken to break the continuity of the period for which the taxpayer held the shares or interest.

Subsection 160APHM(2) of the ITAA 1936 states

'A taxpayer is taken to have 'materially diminished' risks of loss or opportunities for gain on a particular day in respect of shares held by the taxpayer, or in respect of an interest held by the taxpayer in shares, if the taxpayer's net position on that day in relation to the shares or interest has less than 30% of those risks and opportunities.'

Section 160APHL of the ITAA 1936, determines how beneficiaries under a trust calculate the extent of their interests in shares acquired after 3.00 pm by legal time in the Australian Capital Territory on 31 December 1997.

Subsection 160APHL(5) of the ITAA 1936, provides the calculation for determining the beneficiary's interest in the relevant share and subsection 160APHL(7) of the ITAA 1936 deems this a long position (section 160APHJ(4) of the ITAA 1936).

If the trust is not a widely held trust, a family trust, deceased estate or employee share scheme, subsection 160APHL(10) of the ITAA 1936, will give rise to a short position (section 160APHJ(3) of the ITAA 1936) equal to the long position that arose under subsection 160APHL(7) of the ITAA 1936, which in effect cancels out this long position. Furthermore, where the beneficiary's interest in the trust holding is a fixed interest it would give rise to a corresponding long position.

Under Subsection 160APHL(11) of the ITAA 1936, the beneficiary's interest in the trust holding is a fixed interest to the extent that it is a vested and indefeasible interest in the corpus of the trust.

The Superannuation Fund's interest in the corpus of the Unit Trust is not a fixed interest, as the Superannuation Fund does not have a vested and indefeasible interest in the corpus of the Unit Trust.

Therefore, the trustee of the Superannuation Fund has a nil net position and the interest is not held at-risk. The trustee of the Superannuation Fund will not be a qualified person for the purposes of Division 1A of Part IIIAA of the ITAA 1936. Consequently, the trustee of the superannuation fund will be denied entitlement to the benefit of a franking rebate on a distribution from the Unit Trust.

Date of decision: 3 May 2002

Year of income: Year ending 30 June 2002

Legislative References:
Income Tax Assessment Act 1936
   Part IIIAA Division 1A
   section 160APHD
   subsection 160APHJ(3)
   subsection 160APHL(4)
   section 160APHL
   subsection 160APHL(5)
   subsection 160APHL(7)
   subsection 160APHL(10)
   subsection 160APHL(11)
   subsection 160APHM(2)
   section 160APHO
   subsection 160APHO(3)
   section 160APHU
   section 160AQYA

Related Public Rulings (including Determinations)
Taxation Determination TD 2007/11

Related ATO Interpretative Decisions
ATO ID 2002/750

Keywords
Superannuation funds
Interposed entity election
Family trust distribution tax
Imputation credits
Franking Rebates

Business Line: Private Groups and High Wealth Individuals

Date of publication: 31 July 2002

ISSN: 1445-2782

history

	Date:	Version:
	3 May 2002	Original statement
You are here	21 March 2014	Archived

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