ATO Interpretative Decision

ATO ID 2011/70

Income Tax

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

Issue

If the trustee of a managed investment trust (MIT) with a substituted accounting period that ends on 31 December in lieu of the year of income ending on the following 30 June, makes a fund payment during August 2011 to a unit holder with an address in the Republic of Singapore, is the amount the trustee is required to withhold under section 12-385 of Schedule 1 to the Taxation Administration Act 1953 (TAA) calculated at 7.5% of that fund payment?

Decision

Yes. The Republic of Singapore was added to the list of information exchange countries in subregulation 44E(2) of the Taxation Administration Regulations 1976 (the Regulations) by the Taxation Administration Amendment Regulations 2011 (No. 3) (the Amending Regulations). The Amending Regulations treat the Republic of Singapore as an information exchange country for any fund payment made in relation to the net income of a trust that was derived on or after 1 July 2011. As the net income of a trust is derived at the end of a relevant income year (in this case 31 December 2011), the amount the trustee is required to withhold from the fund payment which relates to that income year is 7.5% of the fund payment.

Facts

A trust is a MIT within the meaning of that term in section 12-400 of Schedule 1 to the TAA.

The MIT has a substituted accounting period that ends on 31 December in lieu of the year of income ending on the following 30 June. The MIT makes two fund payments within the meaning of that term in section 12-405 of Schedule 1 to the TAA to each of its beneficiaries in relation to each income year - an interim payment in August and a final payment in February.

In relation to its 2011-12 income year, the trustee of the MIT makes the first fund payment on 31 August 2011. The trustee must withhold from the fund payment under subsections 12-385(2) and 12-385(3) of Schedule 1 to the TAA at the rate of 7.5% if the recipient has an address or place for payment in an information exchange country and at the rate of 30% in all other cases.

At the time the fund payment is made, one of the unit holders in the MIT is a resident of the Republic of Singapore. The unit holder has provided an address in the Republic of Singapore to the trustee of the MIT which the trustee of the MIT has kept in its records.

Reasons for Decision

Under subsections 12-385(2) and 12-385(3) of Schedule 1 to the TAA, the trustee of the MIT withholds at the rate of 7.5% from the fund payment made to the unit holder with the address in the Republic of Singapore provided that country is an information exchange country.

The list of information exchange countries is set out in subregulation 44E(2) of the Regulations. The Republic of Singapore was added to the list of information exchange countries by the Amending Regulations. Item 4 of the Amending Regulations treats the Republic of Singapore as an information exchange country for any fund payment made in relation to the net income of a trust that was derived on or after 1 July 2011. Whether the trustee of the MIT can withhold from the fund payment made on 31 August 2011 at the rate of 7.5% therefore hinges on whether the fund payment is considered to be made in relation to net income of the MIT that was derived on or after 1 July 2011.

A question arises as to whether the reference in item 4 of the Amending Regulations to 'net income' is necessarily to the net income for an income year or whether it could be read as meaning different items or 'heads' of income themselves derived at various times throughout an income year, each net of relevant expenses.

Several factors tend to suggest that the reference to 'net income' is intended to mean a singular net income for an entire income year.

Firstly, item 4 of the Amending Regulations refers to a 'fund payment' (within the meaning given by section 12-405 of Schedule 1 to the TAA) made in relation to 'the net income of a trust'. A fund payment as so defined considers what is expected to be the 'net income of the trust for the income year'. In this context, 'net income' has the same meaning as it is given in subsection 95(1) of the Income Tax Assessment Act 1936 (as a result of subsection 3AA(2) of the TAA and subsection 995-1(1) of the Income Tax Assessment Act 1997). The net income of a trust estate as defined in section 95 can only be calculated as at the end of an income year, as it is only at that time that it is possible to determine all the assessable income and allowable deductions of the trust for that year. Item 4 of the Amending Regulations specifically deals with fund payments as defined, so the subsequent reference in that item to 'the' net income is necessarily to the same amount referred to in the definition of fund payment.

Secondly, the reference in item 4 of the Amending Regulations to 'the net income' of the trust suggests that there is only one net income to be calculated for an income year, not several individual amounts throughout an income year.

Notwithstanding this, if the reference to 'net income' in item 4 of the Amending Regulations was instead intended to be a reference to different items or 'heads' of income themselves derived at various times throughout an income year net of relevant expenses, it might be expected that these amounts would also be determined at year end. This is because the trust may have one or more general expenses that would be allocable against all such heads of income, a proper reckoning of which could not be done until all such expenses for the year were known.

For all of these reasons, it is considered that for the purpose of item 4 of the Amending Regulations, the net income of a trust is derived at the end of the relevant income year.

As the fund payment made by the MIT on 31 August 2011 is made in relation to the MIT's 2011-12 income year which ends on 31 December 2011, the fund payment is made in relation to the net income of the MIT that is derived on 31 December 2011. As a result, the trustee of the MIT should withhold from the fund payment at the rate of 7.5%.

Year of income:  Year ended 30 June 2012

Legislative References:
Income Tax Assessment Act 1936
   subsection 95(1)

Keywords
Distributions to non residents
Investment trusts
Withholding taxes

Siebel/TDMS Reference Number:  1-3E4G94G; 1-5TGNFOW

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  26 August 2011
Date reviewed:  4 June 2015

ISSN: 1445-2782