Edited version of private ruling

Authorisation Number: 1011648907194

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Ruling

Subject: Investments - distributions - capital gain/capital loss

1. Do you include in your assessable income the net income of the fund that you are presently entitled to?

Yes.

2. Will you make a capital gain or capital loss on the disposal of your units in the fund?

Yes.

3. Will you be assessed on any unrealised gains from the fund?

No.

This ruling applies for the following period

1 July 2010 - 30 June 2011

1 July 2011 - 30 June 2012

1 July 2012 - 30 June 2013

1 July 2013 - 30 June 2014

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are a resident of Australia for tax purposes.

You have been invited to invest in an investment in country A.

The investment relates to an offer of units in the fund. The fund was established under the Unit Trusts Act 1960 and under a Master Trust Deed.

You can withdraw your investment by,

· redeeming your units on any valuation day, or

· transferring all or part of your investment to another party.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 102-20

Income Tax Assessment Act 1997 Section 104-10

Income Tax Assessment Act 1997 Section 104-25

Income Tax Assessment Act 1997 Section 108-5

Reasons for decision

Question 1

The assessable income of an Australian resident taxpayer includes ordinary income derived during the income year from all sources, whether in or out of Australia.

A distribution from a unit trust is ordinary income that is included in the assessable income of a unitholder in the year of income in which the unitholder is presently entitled to a share of the income of the unit trust, rather than the year in which the distribution is received by the unitholder.

Unless a provision in the trust deed states otherwise, a unitholder is entitled to a share of the income of a unit trust at the end of the period during which the income is derived by the trust.

Accordingly, a unitholder must include in assessable income for a particular year of income the share of net trust income to which the unitholder is entitled in that year of income. The date on which the distribution statement or actual payment is received by the unitholder is not relevant.

In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the income tax laws, but also any applicable double tax agreement contained in the International Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997.

The Agreements Act contains the double tax convention between Australia and the country A (the country A Convention).

The country A Convention deals with the taxation of income not addressed by the other Articles of the Convention. An Article gives Australia a taxing right on the distribution to an Australian resident from a unit trust which is derived from a country A source.

Therefore, your share of the net income from the unit trust is assessable income in Australia.

Question 2

You make a capital gain or capital loss if and only if a capital gains tax (CGT) event happens. The CGT events applicable to your circumstances are CGT event A1 and CGT event C2.

CGT event A1 happens if you dispose of a CGT asset. You dispose of a CGT asset if a change of ownership occurs from you to another entity.

CGT event C2 happens if your ownership of an intangible CGT asset ends by the asset:

a) being redeemed or cancelled; or

b) being released, discharged or satisfied; or

c) expiring; or

d) being abandoned, surrendered or forfeited; or

e) if the asset is an option - being exercised; or

f) if the asset is a convertible interest - being converted.

A CGT asset is:

a) any kind of property; or

b) a legal or equitable right that is not property.

In your case, your units in the fund will be property. As a result, they are considered to be a CGT asset.

You have two options in which to withdraw these units from the fund, this includes:

· redemption, or

· transfer of units.

Therefore, if you transfer the units CGT event A1 will occur and you will make a capital gain or capital loss. However, if you redeem the units CGT event C2 will occur and you will make a capital gain or a capital loss.

Question 3

The foreign investment fund legislation has been repealed. This legislation had some capacity to assess some unrealised gains. As this legislation has been repealed it is not applicable to your situation.