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Ruling
Subject: Whether rebate of management fee forms part of assessable income
Question
Is the payment of the management fee rebate distributed as new units in the Trust, an item of revenue in the hands of the investor and assessable in the year that it is made?
Answer
Yes.
This ruling applies for the following period
For years ended 30 June 2010 to 2012
The scheme commenced on
1 July 2009
Relevant facts
You are an investor in a Trust.
You have received management fee rebates in the form of additional units in the trust.
The payment of a Management Fee rebate arises where the Management Fee charged to a trust is higher than the Management Fee applicable to your investment.
All rebates are paid by the investment manager.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Subsection 6-5(1).
Reasons for decision
Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer.
The prospectus sets out the conditions for the taxpayer's entitlement to the rebate. As the taxpayer has satisfied those conditions this means that the rebate of ongoing management fees is therefore expected and can be relied upon by the taxpayer as they know that they are entitled to the rebate.
Under the terms of the prospectus, the rebate is payable on a regular periodic basis. Therefore the receipt of the rebate of ongoing management fees by the taxpayer has the necessary element of being an expected periodical payment as in Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540; (1952) 10 ATD 82; (1952) 5 ATR 443. Even if payment of the rebate was on a one-off basis, it would still be assessable income (see Federal Commissioner of Taxation v. The Myer Emporium Ltd (1987) 163 CLR 199; 87 ATC 4363; (1987) 18 ATR 693; Westfield Limited v. Federal Commissioner of Taxation (1991) 28 FCR 333; 91 ATC 4234; (1991) 21 ATR 1398 and Warner Music Australia Pty Ltd v. Federal Commissioner of Taxation (1996) 70 FCR 197; 96 ATC 5046; (1996) 34 ATR 171 and also Taxation Ruling TR 92/3).
Therefore, as the receipts of rebate of ongoing management fees have the character of ordinary income, they are assessable income under section 6-5 of the ITAA 1997.
The payment of the management fee rebate distributed as new units does not alter the nature of the payment.