• Distribution

    Question number

    Frequently asked question

    2.1

    Is the trustee expected to have sufficient liquidity in the fund to allow appropriate distributions in every financial year?

    2.2

    Where can you find out the minimum annual distribution obligations for private AFs?

    2.3

    What may happen to a private AF that distributes under private AF guideline 19 if at the end of a financial year it holds a non-distributed amount that should have been distributed during that year?

    2.4

    Can current year's expenses be deducted from the minimum annual distribution required under private AF guideline 19?

    2.5

    What is the minimum distribution allowed under private AF guideline 19?

    2.6

    Where the market value of a fund's assets must be estimated at least annually, will the ATO accept an estimation by the trustee of the market value of shares in a private company?

    2.7

    During the current financial year the value of the fund's assets has fallen and the return is lower than expected. Does the fund still have to distribute 5% of the market value of the fund's net assets as of 30 June of the previous financial year?

    2.8

    Does Taxation Ruling TR 2005/13Income tax: tax deductible gifts- what is a gift? apply to a distribution from the private AF?

    2.1 Is the trustee expected to have sufficient liquidity in the fund to allow appropriate distributions in every financial year?

    Yes. Private AF guideline 30.2 requires that the investment strategy of the fund reflect the purpose and circumstances and have particular regard to (but not limited to) the liquidity of the fund's investments.

    2.2 Where can you find out the minimum annual distribution obligations for private AFs?

    You can find out the minimum annual distribution obligations in private AF guideline 19.

    2.3 What may happen to a private AF that distributes under private AF guideline 19 if at the end of a financial year it holds a non-distributed amount that should have been distributed during that year?

    Private AF guideline 19.2, which allows for a private AF to not distribute during the financial year in which the fund is established, does not apply to a private AF that was formerly a PPF.

    If the trustee holds an amount that should have been distributed, we may consider that the fund is not being applied for the purpose for which it was established. We may review the income tax exemption held by the fund.

    We may also review the DGR status of the fund.

    2.4 Can current year's expenses be deducted from the minimum annual distribution required under private AF guideline 19?

    No. The requirement is that an amount equal to at least 5% of the market value of the fund's net assets as at the end of the previous financial year must be distributed.

    2.5 What is the minimum distribution allowed under private AF guideline 19?

    Private AF guideline 19 says during each financial year, a private AF must distribute at least 5% of the market value of the fund's net assets as at the end of the previous financial year.

    Private AF guideline 19.1 says the fund must distribute at least $11,000, or the remainder of the fund if that is worth less than $11,000, during that financial year if both of the following applies:

    • the 5% is less than $11,000
    • any of the expenses of the fund in relation to that financial year are paid directly or indirectly from the fund's assets or income.

    2.6 Where the market value of a fund's assets must be estimated at least annually, will the ATO accept an estimation by the trustee of the market value of shares in a private company?

    No. Private AF guideline 20 requires that the market value of the fund's assets (other than land) be estimated at least annually and guideline 20.1 allows the trustee to estimate the market value itself or to arrange for a qualified valuer or another appropriate entity to make the estimation.

    2.7 During the current financial year the value of the fund's assets has fallen and the return is lower than expected. Does the fund still have to distribute 5% of the market value of the fund's net assets as of 30 June of the previous financial year?

    Yes. In determining net assets the expenses, returns or losses for the current financial year cannot be used to determine an applicable new value.

    The fund is established to provide to DGRs. The Guidelines requires distribution of at least 5% of the market value of the fund's net assets as at 30 June of the previous financial year.

    2.8 Does Taxation Ruling TR 2005/13 Income tax: tax deductible gifts - what is a gift? apply to a distribution from the private AF?

    No. The money, property or benefits applied, provided, transferred or distributed from a private AF are not gifts.

      Last modified: 12 Oct 2016QC 24109