income tax assessment amendment (foreign investment) bill 1992

THE PARLIAMENT OF THE COMMONwEALT.H,iG)F AUSTRALIA

HOUSE OF REPRESENTATIVES

(As read a first time)

INCOME TAX ASSESSMENT AMENDMENT (FOREIGN

INVESTMENT) BILL 1992

TABLE OF PROVISIONS

Section

1.

2.

3.

4.

5.

6.

7.

8.

9.

10:

11.

12.

13.

14.

Short title etc.

Commencement

Foreign income and foreign tax

Grossing-up of foreign income

Insertion of new section:

23AK. Exemption of amounts paid out of attributed foreign investment fund income

Value at end of year of income

General domestic losses of post-1989 years of income

General domestic losses of pre-1990 years of income

Interpretation

Insertion of new sections:

96A. Certain provisions not to apply in respect of interests in

96B. non-resident trust estates to which Part XI applies

Beneficiary of non-resident trust estate

96C. Calculation of beneficiary's share of net income of non-resident trust estate

Payment of interest by taxpayer on distributions from certain non-resident trust estates

Interpretation

Passive income

Insertion of new sections:

160AFCE. Foreign tax in respect of certain amounts assessable under section

506 from interest in foreign company

160AFCF. Foreign tax in respect of certain amounts assessable under section

506 from interests in foreign trust

160AFCG. Foreign tax in respect of amounts exempt under section 23AK

92120-20-2,050/26.6.1992-(120/92) Cat. No. 9247800 T

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TABLE OF PROVISIONS-continued

Section

20.

21.

22.

23.

24.

15.

16.

17.

18.

19.

25.

Attribution credit

Attributed tax account credit

Exempting receipt of a section 6 resident company

Basic assumptions

Additional assumption for unlisted country CFC

Additional assumption for listed country CFC

Certain provisions to be disregarded in calculating attributable income

Modifications of net income of partnerships and trusts

Additional notional exempt income-unlisted or listed country CFC

Insertion of new Subdivision:

Subdivision E-Modifications Relating to Application of Part XI

431A. Exemption of attributable taxpayer from Part XI

431B. Dividends paid before attribution credit arises

Insertion of new Part:

PART XI-FOREIGN INVESTMENT FUNDS AND FOREIGN LIFE

ASSURANCE POLICIES

469.

Division I-Preliminary

Subdivision A-Application of Part

Taxpayers to be taxed on share of income of certain foreign investment funds and foreign life assurance policies

479.

480.

481.

482.

483.

484. .

485.

486.

487.

488.

470.

471.

472.

473.

474.

475.

476.

477.

478.

Subdivision B-Meaning of Certain Expressions used in this Part

Definitions

Australian entity

Australian partnership

Australian trust

Distributions by a FIF or a FLP

Entitlement to acquire

Quoted price

Resident Part IX entity

Tax detriment

Subdivision C-Key Concepts

Outline of Subdivision

What is a FIF

What is a FLP

What is an interest in a FIF or a FLP

Taxpayers to whose interests in PIFs and FLPs this Part applies

Exclusion of interests in certain foreign trusts from operative provision

Exclusion of interests of less than $50,000 from operative provision

Exclusion of certain visitors to Australia from operative provision

Notional accounting period of a PIF

Notional- accounting period of a FLP

489.

490.

491.

Subdivision D-The Disposal and Acquisition of Interests

What constitutes a disposal or acquisition of an interest in a FIF or a FLP

Time of disposal or acquisition of interest

Consideration for disposal or acquisition

Section

111


492.

Subdivision E-Associates

Associates of an entity to be determined in accordance with section 318 as modified

493.

494.

495.

Division 2-Exemption for Interests in Certain FIFs

Object of Division

Exemption of attributable taxpayer in relation to certain trusts

Exemption of attributable taxpayer referred to in section 456

Division 3-Exemption for Interest in Foreign Company that is Principally

Engaged in Designated Activities

496.

497.

498.

499.

500.

501.

Object of Division

Exemption

The extent to which life assurance business is a, designated activity

How to determine whether a foreign company was principally engaged in designated activities

Stock exchange listing method

Balance-sheet method

502.

503.

Division 4-Exemption for Interest in Foreign Bank

Object of Division

Exemption

Division 5-Exemption for Interest in an Employer-sponsored Superannuation

Fund

504.

505.

Object of Division

Interests of employees and former employees to be exempt

511.

512.

513.

514.

515.

516.

Division 6-Assessable Income to Include Foreign Investment Fund Income

506.

507.

Foreign investment fund income to be included in assessable income

Reduction of foreign investment fund income because of interim dividend or interim distribution of trust income

Division 7-How to Determine whether Foreign Investment Fund Income

Accrued to a Taxpayer from a FIF or a FLP

508.

509.

510.

Subdivision A-Preliminary

Object of Division

Methods applicable in relation to a FIF

Deemed rate of return method to be applied in relation to a

FLP

Subdivision B-Market Value Method

Procedure for determining foreign investment fund income by market value method

Step I-calculation of foreign investment fund amount

How market value is ascertained

Gross foreign investment fund income

Foreign investment fund loss

Step 2-calculation of foreign investment fund income

Section

536.

537.

538.

539.

540.

541.

542.

517.

518.

519.

520.

521.

522.

523.

524.

525.

526.

527.

528.

529.

530.

531.

532.

533.

534.

535.

IV


Subdivision C-Deemed Rate of Return Method

Procedure to be followed

Procedure for determining foreign investment fund income by deemed rate of return method

Step I-groups of interests in a FIF

Step I-interests in a FLP

Determination of Opening Value

Step 2-determination of opening value of interests in FIF or opening value of FLP

If relevant period starts on 1 July 1992

Value of interests in a FIF at start of relevant period (being

1 July 1992)-quoted prices


1 July 1992)-fair market value


1 July 1992)-notional past application of deemed rate of return method

Value of a FLP at start of relevant period (being 1 July 1992)

If relevant period starts after 1 July 1992

Value of interests in a FIF at start of relevant period (being later than 1 July 1992)-deemed rate of return method applied for previous period

Value of interests in a FIF at start of relevant period (being later than 1 July 1992)-calculation method applied, or interests exempt, for previous period

Value of interests in a FIF at start of relevant period (being later than 1 July 1992)-market value method applied for previous period

Value of interests in a FLP at start of relevant period (being later than 1 July 1992)

Value of interests in a FIF at time of acquisition (after start of relevant period)

Value of a FLP at time of acquisition (after start of relevant period)

Application of Rate of Return to Opening Value

Step 3-determination of foreign investment fund amount

Step 4-conversion of foreign investment fund amount to

Australian currency

Foreign investment fund income

Subdivision D-Calculation Method


Procedure for determining foreign investment fund income by calculation method

Determination of calculated profit or calculated loss of FIF

What is included in notional income

Notional income-general provision

Section 538 to be subject to subsequent provisions

Notional income-discounted securities

Notional income-interest in net income from partnership

Notional income-foreign investment income from another FIF

Section v


568.

569.

570.

571.

572.

573.

574.

575.

576.

543.

544.

545.

Notional income-exclusion of certain dividends and trust distributions

Derivation of income, profits or gains

Notional income to be pre-tax

546.

547.

548.

549.

550.

551.

552.

553.

What are notional deductions

Notional deductions-general provision

Notional deductions-expenditure in acquiring trading stock

Notional deductions-exclusion of expenditure in acquiring securities or partnership interest

Notional deductions-amortisation of expenditure in acquiring property

Notional deductions-interest in partnership loss

Notional deductions-past calculated losses

Notional deductions-taxes

Notional deductions-certain amounts to be excluded

How to determine taxpayer's share of calculated profit of foreign company

554.

555.

Procedure to be followed

How to work out attribution percentage applicable to taxpayer in respect of interest or interests in foreign company

How to determine taxpayer's share of calculated profit of foreign trust

556.

557.



558.

559.

560.

561.

562.

563.

564.

565.

566.

567.

Division 8-FIF Attribution Accounts

FIF attribution account entity

FIF attribution account percentage

FIF attribution account payments

FIF attribution surplus

FIF attribution credit

FIF attribution debit

Division 9-FIF Attributed Tax Accounts

FIF attributed tax account surplus

FIF attributed tax account credit

FIF attributed tax account debit

Division lO-Post-attribution Asset Disposals

Reduction of disposal consideration if FIF attributed income not distributed

Division lI-Keeping of Records

Application of Division

Records of acts, transactions etc.

Interest in FIF-if market value method was applied

Interest in FIF-if deemed rate of return method was applied

Interest in FIF-if calculation method was applied

Interest in FLP

Interest in FIF or FLP-if exemption applied

Offence of failing to keep records

Manner in which records required to be kept

VI

TABLE OF PROVISIONS-continued

Section

26.

577.

578.

If calculation method was applied-defence for failing to keep records if information unobtainable

Treatment of partnerships

New Schedules 3 to 6

SCHEDULE 3

EXEMPT FOREIGN TRUSTS ESTABLISHED IN COUNTRIES THAT

PROHIBIT DIRECT FOREIGN INVESTMENT ON STOCK EXCHANGES

IN THOSE COUNTRIES

SCHEDULE 4

DESIGNATED ACTIVITIES FOR THE PURPOSES OF DIVISION 3 OF

PART XI

SCHEDULE 5

APPROVED STOCK EXCHANGES FOR THE PURPOSES OF PART XI

SCHEDULE 6

APPROVED INTERNATIONAL SECTORAL CLASSIFICATION SYSTEMS

1990-91-92

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

Presented and read a first time, 25 June 1992

(Minister Assisting the Treasurer)

A BILL

FOR

An

Act to amend the law relating to income tax

The Parliament of Australia enacts:

Short title etc.

1.(1) This Act may be cited as the Income Tax Assessment

Amendment (Foreign Investment) Act 1992.

5 (2) In this Act, "Principal Act" means the Income Tax Assessment

Act 1936 1•

Commencement

2. This Act is taken to have commenced on 1 July 1992.

T

2 Income Tax Assessment Amendment (Foreign Investment)

No. ,1992

Foreign income and foreign tax

3. Section 6AB of the Principal Act is amended:

(a) by omitting from subsection (1) "or 459A" and substituting

", 459A or 506";

(b) by adding at the end of paragraph (2)(b):

"(v) tax that is taken, because of section 160AFCE or

160AFCF, to have been paid in respect of an amount included in assessable income under section 506;

5

(vi) tax that is taken, because of section 160AFCG, to have been paid in respect of the section 23AK exempt part of 10 a FIF attribution account payment (within the meaning of section 160AFCG).";

(c) by omitting from subsection (3A) "or 160AFCD" and substituting", 160AFCD, 160AFCE, 160AFCF or 160AFCG";

(d) by omitting from paragraph (3A)(a) "or 459A" and substituting 15

", 459A or 506";

(e) by adding at the end of subsection (3A):

"; or (c) the section 23AK exempt part of a FIF attribution account payment (within the meaning of section

160AFCG).". 20

Grossing-up of foreign income

4. Section 6AC of the Principal Act is amended by adding at the end:

"(6) If a taxpayer is, because of section 160AFCE or 160AFCF, taken to have paid an amount of foreign tax in respect of an amount 25 included in the assessable income of the taxpayer under section 506

('the section 506 amount'), the section 506 amount is taken, for the purposes of this Act (other than sections 160AFCE, 160AFCF find 562) to be increased by the amount of that tax.".

5. After section 23AJ of the Principal Act the following section is 30 inserted:

Exemption of amounts paid out of attributed foreign investment fund income

"23AK.(1) If:

(a) either: 35

(i) a FIF attribution account payment of a kind referred to in paragraph 560(1)(a), (b), (c) or (e) is made to a taxpayer

(other than a partnership or taxpayer in the capacity of trustee of a trust); or

(ii) a FIF attribution account payment of a kind referred to 40 in paragraph 560(1)(d) is made to a taxpayer; and

Income Tax Assessment Amendment (Foreign Investment)

No. ,1992

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(b) on the making of the payment, a FIF attribution debit arises, for the FIF attribution account entity making the payment, in relation to the taxpayer; the following provisions have effect:

(c) if the payment is of a kind referred to in paragraph 560(1)(a)the payment is exempt from tax to the extent of the debit;

(d) if the payment is of a kind referred to in paragraph 560( 1 )(b) and, apart from this section, an amount would be included in the taxpayer's assessable income under section 92 in respect of an individual interest in the net income of the partnership of the year of income referred to in that paragraph-that amount is not so included, to the extent of the debit;

(e) if the payment is of a kind referred to in paragraph 560(1)(c) and, apart from this section, an amount would:

(i) be included in the taxpayer's assessable income under section 97, 98A or 100; or

(ii) be assessable to the trustee of the trust referred to in that paragraph under section 98; in respect of a share of the net income of the trust of the year of income referred to in that paragraph-that amount is not so included, or not so assessable, to the extent of the debit;

(0 if the payment is of a kind referred to in paragraph 560(1)(d)the payment is not, to the extent of the debit, assessable to the taxpayer as mentioned in that paragraph;

(g) if the payment is of a kind referred to in paragraph 560(1)(e) and, apart from this section, an amount would be included in the taxpayer's assessable income, of the year of income referred to in that paragraph, under section 99B in respect of the trust property referred to in that paragraph-that amount is not so included to the extent of the debit.

"(2) This section is to be disregarded for the purposes of applying:

(a) the definition of 'foreign income deduction' in sections 79D and 160AFD; and

(b) any other provision of this Act to determine allowable deductions. 35

"(3) In this section:

'FIF attribution account entity' has the same meaning as in Part XI;

'FIF attribution account payment' has the same meaning as in Part XI;

'FIF attribution debit' has the same meaning as in Part XI;

40 'trust' has the same meaning as in Part XI, but does not include a trust covered by subsection 562(7).".


No. ,1992

Value at end of year of income

6.(1) Section 31 of the Principal Act is amended by adding at the end:

"(4) The value to be taken into account at the end of the year of income of an article of trading stock that consists of an interest in a 5

FIF within the meaning of Part XI is to be its cost price.".

(2) The amendment made by subsection (1) applies to assessments in respect of income of the year of income that ended on 30 June 1992

~nd to assessments in respect of income of all subsequent years of

Income. 10

(3) If:

(a) an article of trading stock was on hand at the beginning of the year of income that ended on 30 June 1992; and

(b) the value of that article of trading stock that was taken into account at the beginning of that year of income was greater or 15 less than its cost price; then:

(c) subsection 31 (4) of the Principal Act as amended by subsection

(1) of this section does not apply to that article of trading stock; and

(d) the value of that article of trading stock that is to be taken into account at the end of that year of income or at the end of any subsequent year of income is the value referred to in paragraph

(b) of this subsection.

20

General domestic losses of post-1989 years of income

7. Section 79E of the Principal Act is amended by omitting "or

23AJ" from the definition of "exempt income'; in subsection (12) and substituting ", 23AJ or 23AK".

25

General domestic losses of pre-1990 years of income

8. Section 80 of the Principal Act is amended by omitting "or 30

23AJ" from the definition of "exempt income" in subsection (3) and substituting ", 23AJ or 23AK".

Interpretation

9. Section 95 of the Principal Act is amended by adding at the end:

"(3) In this Division, a trust estate that is not a resident trust estate 35 in relation to a year of income is referred to as a non-resident trust estate in relation to that year of income.".

10. After section 96 of the Principal Act the following sections are inserted:


No. ,1992

5

Certain provisions not to apply in respect of interests in non-resident trust estates to which Part XI applies

"96A.( 1) An amount is not to be included under section 97 in the assessable income of a year of income of a beneficiary of a trust estate

5 if:

1 0

(a) the beneficiary is a resident; and

(b) the trust estate is a non-resident trust estate in relation to that year of income; and

(c) section 506 applies to the beneficiary in relation to each notional accounting period of the relevant trust that ended or commenced in that year of income.

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"(2) If:

(a) the assessable income of the trust estate of a resident public unit trust of a year of income includes any foreign investment fund income; and

(b) the sum of:

(i) the values of all the interests of a beneficiary of the trust estate who is a natural person (otherwise than in the capacity of a trustee), and any associates of that beneficiary, in FIFs and resident public unit trusts; and

(ii) the values of all FLPs in which that beneficiary and any associates of that beneficiary had interests; at the end of the year of income did. not exceed $50,000; then:

(c) in calculating the beneficiary's share of the net income of the trust estate of the year of income, that net income is taken to be the amount that would have been that net income if that foreign investment fund income had not been included in that assessable income; and

(d) in calculating the beneficiary's share of the net income of any subsequent year of income, that net income is taken to be the amount that would have been that net income if section 23AK or section 567 applied as if no FIF attribution account credit arose for the relevant trust for the year of income mentioned in paragraph (c).

"(3) For the purposes of subsection (2), the value at the end of the year of income of a person's interest in a FIF or in a resident public unit trust, or of a FLP in which a person has an interest, is taken to be:

(a) the cost incurred by the person in acquiring the interest in the

FIF, resident public unit trust or FLP, as the case may be; or

(b) the market value of the interest in the FIF or .resident public


No. ,1992 unit trust, or of the FLP, as the case may be, at the end of the year of income; whichever is the greater amount.

"(4) For the purposes of this section, a unit trust is a resident public unit trust in relation to a year of income if:

(a) it is a public unit trust for the purposes of Division 6AAA at all times during the year of income; and

5

(b) either of the following conditions was satisfied at any time during the year of income:

(i) the central management and control of the unit trust was 10 in Australia;

(ii) a person who was a resident or persons who were residents held more than 50% of:

(A) the beneficial interests in the income of the unit trust; or

(B) the beneficial interests in the property of the unit trust.

15


'interest', in relation to a resident public unit trust, means a unit in the trust or an entitlement to acquire such a unit.

"( 6) Expressions used in this section that are also used in Part XI have, unless the contrary intention appears, the same meanings as in that Part.

20

Beneficiary of non-resident trust estate

"96B.(1) If at any time during the year of income ending on 30 June 25

1993 or a subsequent year of income a taxpayer had an interest

(including an interest that is to arise at a future time or is contingent on the happening of an event) in a non-resident trust estate in relation to the year of income, this section has effect for the purposes of the application of this Division to the taxpayer in relation to the trust 30 estate in relation to the year of income.

"(2) The taxpayer is taken to be a beneficiary of the trust estate who is presently entitled to a share of the income of the trust estate of the year of income and who is not under a legal disability.

"(3) The taxpayer's share of the net income of the trust estate of 35 the year of income is the amount calculated in accordance with section

96C.

Calculation of beneficiary's share of net income of non-resident trust estate

"96C.( 1) If all of the income, profits or gains derived by a non40 resident trust estate during the year of income consisted of either or both of the following:


No. ,1992

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20

25

30

35

40

(a) income, profits or gains to which beneficiaries of the trust estate were presently entitled;

(b) income, profits or gains to which beneficiaries of the trust estate were not presently entitled but which were distributed to beneficiaries of the trust estate during the year of income or within 2 months after the end of the year of income; the share of a taxpayer referred to in section 96B of the net income of the trust estate of the year of income is the amount worked out using the formula:

Net income X Attribution percentage.

In the formula:

~Net income'

Income; means the net income of the trust estate of the year of

'Attribution percentage' means the percentage of the total income, profits and gains derived by the trust estate during the year of income to which the taxpayer was presently entitled or to which the taxpayer was not presently entitledb,ut which was distributed to the taxpayer during the year of income or within 2 months after the end of the year of income.

"(2) If subsection (1) does not apply in respect of a non-resident trust estate of the year of income, the share of a taxpayer referred to in section 96B of the net income of the trust estate of the year of income is the amount determined by calculating:

(a) the part of the taxpayer's share of the net income that is attributable to any interest or interests in the trust estate that the taxpayer had in the trust estate throughout the whole of the year of income; and

(b) the part or parts of the taxpayer's share of the net income that is or are attributable to any interest or interests in the trust estate that the taxpayer had throughout a particular part or particular parts of the year of income; and adding up the amounts so calculated.

"(3) The part of the taxpayer's share of the net income that is attributable to an interest or interests that the taxpayer had throughout the whole of the year of income is the amount worked out using the formula:

Net income X Attribution percentage.

"(4) The part of the taxpayer's share of the net income that is attributable to an interest that the taxpayer had throughout a particular part of the year of income is the amount worked out using the formula:

Number of days held.

Net income X Attribution percentage X

Total number of days

"(5) For the purposes of the formulas in subsections (3) and (4):


No. ,1992

'Net income' means the net income of the trust estate of the year of income;

'Attribution percentage' means:

(a) the percentage of the income of the trust estate represented by the share of the income to which the taxpayer was entitled, or 5 was entitled to acquire, at the test time because of:

(i) the taxpayer's interest or interests in the trust estate; and

(ii) any interest or interests in the trust estate that the taxpayer was entitled to acquire; or

(b) the percentage of the corpus of the trust estate represented by 10 the share of the corpus to which the taxpayer was entitled, or was entitled to acquire, at the test time because of:

(i) the taxpayer's interest or interests in the trust estate; and

(ii) any interest or interests in the trust estate' that the taxpayer was entitled to acquire; or, if those percentag~s differ, th~ greater of those percentages;

'Number of days held' means the number of days in the part of the year of income throughout which the taxpayer had the interest;

'Total number of days' means the number of days in the year of income;

'the test time' means:

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(a) if the taxpayer had an interest or interests in the trust estate at the end of the year of income-the end of the year of income; or

(b) if the taxpayer ceased during the year of income to have any interest in the trust estate-the time immediately before the 25 taxpayer ceased to have such an interest.

"(6) For the purposes of subsection (5):

(a) the percentage of the income of the trust estate represented by the share of the income to which the taxpayer was entitled, or was entitled to acquire, at the test time because of the interest 30 or interests referred to in subparagraph(a)(i) or (ii) of the definition of 'attribution percentage' in that subsection; or

(b) the percentage of the corpus of the trust estate represented by the share of the corpus to which the taxpayer was entitled, or was entitled to acquire, at the test time because of the interest 35 or interests referred to in subparagraph (b)(i) or (ii) of the definition of 'attribution percentage' in that subsection; is to be worked out by:

(c) ascertaining whichever of the following is applicable:

(i) the income of the trust estate for the year of income;

(ii) the corpus of the trust estate as at the end of the year of income; and

(d) assuming that the share to which the taxpayer was entitled, or

40


No. ,1992

9

5 became entitled to acquire, at the test time because of the interest or interests was the same at all other times during the year of income; and

(e) ascertaining the percentage concerned:

(i) if the test time is a time other than the end of the year of income-at the end of the year of income instead of at the test time; and

(ii) on that assumption.


10 'entitled to acquire' has the same meaning as in Part XI.

"(8) A reference in this section to income, profits or gains having been distributed to a beneficiary of a trust estate is a reference to an amount included in such income, profits or gains having been paid or credited to, or applied for the benefit of, such a beneficiary.".

15 Payment of interest by taxpayer on distributions from certain non-resident trust estates

11.(1) Section 102AAM of the Principal Act is amended by inserting after subsection (1):

"(lA) For the purposes of subsection (l), unless the contrary is

20 established by the taxpayer:

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30

(a) a distributed amount in relation to a listed country trust estate in relation to a non-resident trust's year of income is taken to be wholly attributable to income and profits of the trust estate of that year of income that represent eligible designated concession income in relation to a listed country; and

(b) a distributed amount in relation to a trust estate that was not a listed country trust estate in relation to a non-resident trust's year of income is taken to be wholly attributable to income and profits of the trust estate of that year of income that have not been subject to tax in any listed country in a tax accounting period.

"(lB) This section does not apply to a distributed amount that is attributable to income or profits of the estate of a deceased person if the amount was paid to, or applied for the benefit of, the taxpayer

35 within 3 years after the death of that person.

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"( 1 C) This section does not apply to a distributed amount that was included in the assessable income of a taxpayer of a year of income under section 99B in relation to a trust estate if, at all times during the year of income, the trust:

(a) was a public unit trust; and

(b) was not a controlled foreign trust.".


No. ,1992

(2) The amendments made by subsection (1) apply to assessments in respect of income of the year of income commencing on 1 July 1992 and in respect of income of all subsequent years of income.

Interpretation

12. Section 160AE of the Principal Act is amended by inserting in 5 subsection (1):

" 'FIF' has the same meaning as in Part XI;

'FIF attributed tax account debit' has the same meaning as in .Part XI;

'FIF attribution account entity' has the same meaning as in Part XI;

'FIF attribution account payment' has the same meaning as in Part XI; 10

'foreign trust' has the same meaning as in Part XI;

'notional accounting period' has the same meaning as in Part XI;".

Passive income

13. Section 160AEA of the Principal Act is amended:

(a) by omitting from paragraph (1 )(n) "or 459A" and substituting 15

", 459A or 506";

(b) by omitting from subsection (1) "but does not include offshore banking income." and substituting:

"but does not include:

(0) offshore banking income; or

(p) an amount that arose from an asset necessarily held by the taxpayer in connection with an insurance business actively carried on by the taxpayer.".

20

14. After section 160AFCD of the Principal Act the following sections are inserted: 25

Foreign tax in respect of certain amounts assessable under section 506 from interest in foreign company

"160AFCE.( 1) If:

(a) an amount ('the section 506 amount') is included in the assessable income of a taxpayer, being a company, of a year of income 30 under section 506; and

(b) the section 506 amount was determined by the application of the calculation method set out in Subdivision D of Division 7 of Part XI in respect of a notional accounting period of a foreign company; and

(c) at the end of the notional accounting period the foreign company was related to the taxpayer; and

35

(d) an amount ('the gross deductible amount') is a notional deduction under that Subdivision from the foreign company's notional


No. ,1992

11 income of the notional accounting period because the foreign company paid an amount in respect of foreign tax; subsection (2) has effect.

"(2) The taxpayer is taken, for the purposes of this Division, to

5 have paid, and to have been personally liable for, in respect of the section 506 amount, in the year of income, an amount of foreign tax worked out using the formula:

Taxpayer's share of calculated profit of foreign company

The gross deductible amount X -------=--~--=-----

Calculated profit of foreign company

In the formula:

10 'Taxpayer's share of calculated profit of foreign company' means the share of the calculated profit of the foreign company in respect of the notional accounting period to which the taxpayer is entitled as determined under Subdivision D of Division 7 of Part XI;

'Calculated profit of foreign company' means the calculated profit of the

15 foreign company in respect of the notional accounting period as determined under Subdivision D of Division 7 of Part XI.

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Foreign tax in respect of certain amounts assessable under section 506 from interest in foreign trust

"160AFCF.(1) If:

(a) an amount ('the section 506 amount') is included in the assessable income of a taxpayer of a year of income under section 506; and

(b) the section 506 amount was determined by the application of the calculation method set out in Subdivision D of Division 7 of Part XI in respect of a notional accounting period of a foreign trust; and

(c) an amount ('the gross deductible amount') is a notional deduction under that Subdivision from the foreign trust's notional income of the notional accounting period because the foreign trust paid an amount in respect of foreign tax; subsection (2) has effect.

"(2) The taxpayer is taken, for the purposes of this Division, to have paid, and to have been personally liable for, in respect of the section 506 amount, in the year of income, an amount of foreign tax

40 worked out using the formula:


No. .1992

The gross deductible amount X

Taxpayer's share of calculated profit of foreign trust

Calculated profit of foreign trust

In the formula:

'Taxpayer's share of calculated profit of foreign trust' means the share of the calculated profit of the foreign trust in respect of the notional accounting period to which the taxpayer is entitled as determined under· 5

Subdivision D of Division 7 of Part XI;

'Calculated profit of foreign trust' means the calculated profit of the foreign trust in respect of the notional accounting period as determined under Subdivision D of Division 7 of Part XI.

Foreign tax in respect of amounts exempt under section 23AK

"160AFCG.(1) If a FIF attribution account payment made to a resident taxpayer by a FIF attribution account entity in a year of income is, in whole or in part ('the section 23AK exempt part'), exempt from tax under section 23AK, the following provisions have effect.

10

"(2) The section 23AK exempt part is taken, for the purposes of 15 paragraph 160AF(I)(a) but not (d), to be included in the taxpayer's assessable income of the year of income.

"(3) The taxpayer is taken for the purposes of this Division to have paid, and to have been personally liable for, in respect of the section

23AK exempt part, in the year of income, an amount of foreign tax 20 worked out using the formula:

(EP X DT)

+

(AEP X UT) - AT.

In the formula:

'EP' [Exempt Percentage] means the percentage of the FIF attribution account payment represented by the section 23AK exempt part; 25

'DT' [Direct Tax] means any foreign tax that, disregarding this section and section 160AFC, the taxpayer is taken for the purposes of this

Division to have paid, and to have been personally liable for, in respect of the FIF attribution account payment;

'AEP' [Adjusted Exempt Percentage] means the percentage that would 30 be formula component EP if the FIF attribution account payment were reduced by any part of that payment that is exempt under section

23AJ;

'UT' [Underlying Tax] means any foreign tax that, disregarding this section, the taxpayer is taken, for the purposes of this Division, to have 35 paid, and to have been personally liable for, under section 160AFC or under subparagraph 6AB(3)(a)(ii) in respect of the FIF attribution account payment;

'AT' [Attributed Tax] means the amount of any FIF attributed tax account debit arising for the FIF attribution account entity in relation 40 to the taxpayer on the making of the FIF attribution account payment,


No. ,1992

13

5

1 0

15

20

25

30

35

40 to the extent that the amount of the debit does not exceed the amount of the formula component AEP X UT.".

Attribution credit

15. Section 371 of the Principal Act is amended:

(a) by inserting after paragraph (l)(a):

"(aa) both the following conditions apply:

(i) an amount is included in the taxpayer's assessable income under section 456 in respect of the attributable income of another attribution account entity ('the other entity') for a statutory accounting period of the other entity;

(ii) that amount was calculated by reference to another amount that under Part XI was included in the attributable income of the other entity because the other entity had an interest in the eligible entity; or";

(b) by inserting in subsection (2) "(2A)," after "subsections";

(c) by inserting after subsection (2):

"(2A) If an attribution credit arises under paragraph (l)(aa) for an eligible entity, the amount of the attribution credit is to be worked out using the formula:

FIF income X Section 456 amount

Notional assessable income

In the formula:

'FIF income' means the amount of the foreign investment fund income included, in relation to the eligible entity, under Part

XI in the notional assessable income of the other entity for the statutory accounting period of the other entity referred to in paragraph (l)(aa);

'Section 456 amount' means the amount included in the taxpayer's assessable income under section 456 in respect of the statutory accounting period referred to in paragraph (l)(aa) of the other entity;

'Notional assessable income' means the notional assessable income of the other entity under Part X for the statutory accounting period referred to in paragraph (l)(aa).

"(2B) If subsection (2A) applies to a taxpayer in respect of one or more eligible entities in respect of a particular section

456 amount, the amount of the attribution credit arising under paragraph (l)(a) for the eligible entity referred to in paragraph

(l)(aa) is reduced by the attribution credit or the sum of the attribution credits arising from the eligible entity or eligible entities under subsection (2A).";

(d) by inserting after paragraph (5)(a):


No. , 1992

"(aa) in a paragraph (1)(aa) case-at the end of the statutory accounting period referred to in sub paragraph (i) of that paragraph; or".

Attributed tax account credit

16.

(a)

Section 375 of the Principal Act is amended: by inserting after paragraph (1)( d):

5

(b)

"(da) the following subparagraphs apply:

(i) an amount ('the section 456 amount') is included in the assessable income of the taxpayer under

. section 456 in respect of a statutory accounting 10 period of a CFC;

(ii). attribution credits arise in respect of a part of the section 456 amount for the CFC under paragraph 371(1)(a) and for the entity under paragraph 371(1)(aa); 15

(iii) the entity has a notional deduction under

Subdivision D of Division 7 of Part XI, for any foreign tax that has been paid by the entity, in calculating the amount of the foreign investment fund income in relation to the entity that was 20 included in the calculation of the section 456 amount;"; by inserting after "case" in paragraph (3)(a) "or a paragraph

(l)(da) case".

Exempting receipt of a section 6 resident company

17. Section 380 of the Principal Act is amended by omitting subparagraph (a)(i) and substituting:

25

"(i) if, on the making of the payment, an attribution debit, or a

FIF attribution debit within the meaning of Part XI, arises for the other company in relation to the Australian company-so 30 much (if any) of the dividend as exceeds the sum of those debits; or".

Basic assumptions

18. Section 383 of the Principal Act is amended by omitting from paragraph (c) "B to D" and substituting "B to E".

Additional assumption for unlisted country CFC 35


(a) by omitting from paragraphs (2)(a), (b) and (d) "B to D"

(wherever occurring) and substituting "B to E";

(b) by inserting after paragraph (2)(c):

"(ca) amounts included in the notional assessable income of 40 the eligible CFC for the eligible period under Part XI as so modified; and";


No. ,1992

15

(c) by adding at the end of paragraph (2)(d):

"; and (iv) amounts included under Part XI as so modified.".

5

10

15

20

25

Additional assumption for listed country CFC


(a) by omitting from paragraphs (2)(a), (b) and (d) "B to D"

(wherever occurring) and substituting "B to E";

(b) by inserting after paragraph (2)(c):

"(ca) amounts included in the notional assessable income of the eligible CFC for the eligible period under Part XI as so modified; and";

(c) by adding at the end of paragraph (2)(d):

"; and (v) amounts included under Part XI as so modified.";

(d) by omitting from subsection (4) "paragraph (2)(a)" and substituting "paragraphs (2)(a) and (ca)".

Certain provisions to be disregarded in calculating attributable income

21. Section 389 of the Principal Act is amended by omitting from paragraph (a) ", 38" and substituting "and 23AK, subsection 31(4), sections 38".

Modifications of net income of partnerships and trusts

22.(1) Section 399 of the Principal Act is amended:

(a) by omitting from subsection (2) "402(2)(a)";

(b) by inserting in subsection (2) "402(2)(c)" before "and 403(b)".

(2) The amendment made by paragraph (l)(a) applies to the calculation of a CFC's attributable income of any eligible period, whether beginning before or after the commencement of this section.

(3) The amendment made by paragraph (1 )(b) applies to the calculation of a CFC's attributable income in respect of a dividend received after 25 June 1992.

30

35

Additional notional exempt income-unlisted or listed country CFC

23.(1) Section 402 of the Principal Act is amended by omitting subsection (3) and substituting:

"(3) If:

(a) an attribution account entity makes an attribution account payment to the eligible CFC in the eligible period; and

(b) .apart from this subsection, the whole or part of the attribution account payment would be included in the notional assessable income of the eligible CFC in relation to the eligible taxpayer for the eligible period; and

(c) on the making of the attribution account payment, an attribution


No. ,1992 debit arises for the attribution account entity in relation to the eligible taxpayer; then so much (if any) of the whole or the part of the attribution account payment as does not exceed the grossed-up amount of the attribution debit is notional exempt income of the eligible CFC for the 5 eligible period.".

(2) The amendment made by subsection (1) applies to any attribution account payment made after 25 June 1992.

24. After section 431 of the Principal Act the following Subdivision is inserted in Division 7 of Part X: 10

"Subdivision E-Modi/ications Relating to Application of Part XI

Exemption of attributable taxpayer from Part XI

"431A.(1) For the purpose of applying this Act in calculating the attributable income of the eligible CFC, section 495 is to be disregarded and the following provisions have effect. 15

"(2) If:

(a) an amount of foreign investment fund income that accrued to the eligible CFC from a FIF in respect of a notional accounting period of the FIF would, apart from this subsection, be included in the eligible CFC's notional assessable income of the eligible 20 period; and

(b) the statutory accounting period of the FIF coincides with that notional accounting period of the FIF; and

(c) section 456 applies to the eligible taxpayer at the end of the statutory accounting period of the FIF; section 506 does not apply to the eligible CFC in relation to the FIF in respect of the notional accounting period of the FIF referred to in paragraph (a).

25

"(3) If:

(a) an amount of foreign investment fund income that accrued to 30 the eligible CFC from a FIF in respect of a notional accounting period of the FIF would, apart from this subsection, be included in the eligible CFC's notional assessable income of the eligible period; and

(b) each of 2 or more statutory accounting periods of the FIF 35 occurs partly within that notional accounting period of the FIF; and

(c) section 456 applies to the eligible taxpayer at the end of each of those statutory accounting periods of the FIF;


No. ,1992

17 section 506 does not apply to the eligible CFC in relation to the FIF in respect of the notional accounting period of the FIF referred to in paragraph (a).

Dividends paid before attribution credit arises

5 "431B. For the purpose of applying this Act in calculating the attributable income of the eligible CFC, section 507 has effect as if the reference in paragraph (a) of subsection (1) of that section to a FIF attribution account payment being made by a FIF to a taxpayer during a notional accounting period of the FIF were a reference to such a

10 payment being made by a FIF to the eligible CFC after the end of that period and before the end of the statutory accounting period of the eligible CFC that ends during the year of income in which that notional accounting period ended.".

25. After Part X of the Principal Act the following Part is inserted:

15 "PART XI-FOREIGN INVESTMENT FUNDS AND FOREIGN

LIFE ASSURANCE POLICIES

"Division l-Preliminary

"Subdivision A-Application of Part

Taxpayers to be taxed on share of income of certain foreign investment

20 funds and foreign life assurance policies

"469.(1) This Part applies to a taxpayer who has an interest or interests in what is referred to in this Part as a foreign investment fund

('FIF'). That expression refers to certain non-resident companies and non-resident trusts.

25 "(2) This Part also applies to a taxpayer who has an interest in a foreign life assurance policy ('FLP'). That expression refers to certain life assurance policies issued by a non-resident. A taxpayer is regarded as having an interest in a FLP if, and only if, the taxpayer paid, or is liable to pay, the premium or any of the premiums in respect of the

30 FLP.

"(3) The object of this Part is to include in a taxpayer's assessable income of a year of income an amount ('foreign investment fund income') that represents income attributable to an interest or interests in a FIF or a FLP held by the taxpayer during the accounting period ('notional

35 accounting period') of the FIF or FLP that ends in that year of income.

"(4) The provision of this Act ('the operative provision') that includes foreign investment fund income in a taxpayer's assessable income is section 506, which is contained in Division 6.


No. ,1992

"(5) The operative provision does not apply in certain circumstances, which are set out in sections 484 to 486 and Divisions 2, 3, 4 and 5.

"(6) Division 7 contains the provisions for determining whether any foreign investment fund income accrued from a FIF or a FLP to a taxpayer in respect of a notional accounting period. There are 3 methods 5 provided for making such a determination. These are called:

(a) the market value method;

(b) the deemed rate of return method;

(c) the calculation method.

The method available to the taxpayer in respect of a particular notional 10 accounting period of a FIF generally depends on the level of detailed information that the taxpayer has about the FIF's income and on the method used by the taxpayer to determine whether foreign investment fund income accrued from that FIF in previous notional accounting periods. In respect of a notional accounting period of a FLP, the only 15 method available to the taxpayer is the deemed rate of return method.

"(7) Division 8 provides for the keeping of accounts to avoid double taxation in respect of interests in FIFs.

"(8) Division 9 provides for the recording of the amount of the foreign tax credits allowed in respect of foreign investment fund income. 20

"(9) Division 10 contains provisions that apply in certain circumstances if an interest in a FIF is disposed of.

"(10) Division 11 provides for the keeping of records relating to interests in FIFs and FLPs.

"Subdivision B-Meaning 0/ Certain Expressions used in this Part 25

Definitions

"470. In this Part, unless the contrary intention appears:

'accounts' means ledgers, journals, profit and loss accounts and balancesheets and includes statements, reports and notes attached to, or intended to be read with, any of the above;

'acquisition', in relation to an interest in a FIF or a FLP, has the meaning given by section 489;

'approved stock exchange' means:

(a) a stock exchange specified in regulations made for the purposes of this definition; or

(b) until regulations are so made-a stock exchange specified in

Schedule 5;

'associate' has the meaning given by Subdivision E;

'Australian entity' has the meaning given by section 471;

'Australian partnership' has the meaning given by section 472;

30

35

40


No. ,1992

19

'Australian tax' means income tax or withholding tax;

'Australian trust' has the meaning given by section 473;

'balance-sheet' includes any similar statement and also includes statements, reports and notes attached to, or intended to be read with,

5 a balance-sheet or similar statement;

'calculation method' has the meaning given by paragraph 508(2)(c);

'CFC' has the same meaning as in Part X;

'CFT' has the same meaning as in Part X;

10

15

20

'convertible note':

(a) in relation to a foreign company, has the same meaning as in

Division 3A of Part Ill; or

(b) in relation to a foreign trust, means an instrument issued by the trustee of the trust, being an instrument that, if the trust were a company, would be a convertible note issued by the company, and includes an instrument that would be a convertible note within the meaning of Division 3A of Part III if:

(i) references in that Division to a company were references to the trust, or to the trustee of the trust, as the context requires; and

(ii) references in that Division to shares were references to interests in the trust;

'deemed rate of return method' has the meaning given by paragraph

508(2)(b);

25 'designated activities' has the meaning given by section 496;

'disposal', in relation to an interest in a FIF or a FLP, has the meaning given by section 489;

'distribution' has the meaning given by section 474;

'entitled to acquire' has the meaning given by section 475;

30 'entity' means any of the following:

(a) a company;

(b) a partnership;

(c) a person in the capacity of trustee;

(d) any other person;

35 'FIF' or 'foreign investment fund' has the meaning given to FIF by section 480;

'FLP' or 'foreign life assurance policy' has the meaning given to FLP by section 481;

'foreign company' has the meaning given by section 480;

40 'foreign trust' has the meaning given by section 480;

'interest', in relation to a FIF or a FLP, has the meaning given by section 482;


No. ,1992

'market value method' has the meaning given by paragraph 508(2)(a);

'notional accounting period':

(a) in relation to a FIF, has the meaning given by section 487; or

(b) in relation to a FLP, has the meaning given by section 488;

'Part XI Australian resident' means a resident within the meaning of 5 section 6 but does not include an entity if:

(a) there is a double tax agreement in force in respect of a foreign country; and

(b) that agreement contains a provision that is expressed to apply if, apart from the provision, the entity would, for the purposes 10 of the agreement, be both a resident of Australia and a resident of the foreign country; and

(c) that provision has the effect that the entity is, for the purposes of the agreement, a resident solely of the foreign country;

'profit and loss account' includes any similar statement and also includes 15 statements, reports and notes attached to, or intended to be read with, a profit and loss account or similar statement;

'quoted price' has the meaning given by section 476;

'resident Part IX entity' has the meaning given by section 477;

'share', in relation to a foreign company, includes any interest in the 20 capital of the company that is in the nature of a share or stock, including such an interest in the nature of a preference share (whether or not redeemable), a bonus share or a share with deferred rights;

'statutory accounting period' has the same meaning as in Part X;

25 'tax detriment' has the meaning given by section 478;

'the operative provision' means section 506;

'trading stock' does not include securities within the meaning of the

Corporations Law;

'trust' means:

(a) an entity in the capacity of trustee (including an entity that is 30 taken to be a trustee because of section 268); or

(b) as the case requires, a trust or a trust estate.

Australian entity

"471. For the purposes of this Part, each of the following is an

Australian entity:

(a) an Australian partnership;

(b) an Australian trust;

(c) an entity (other than a partnership or trust) that is a Part XI

Australian resident.

35


No. ,1992

21

Australian partnership

"472. For the purposes of this Part, a partnership is an Australian partnership at a particular time if at least one of the partners is an

Australian entity at that time.

5 Australian trust

"473. For the purposes of this Part, a trust is an Australian trust at a particular time ('the test time') if:

(a) at any time in the period of 12 months immediately preceding the test time:

10

15

(i) any trustee of the trust was a resident; or

(ii) the central management and control of the trust was in

Australia; or

(b) assuming that period had been a year of income:

(i) the trust would have been a corporate unit trust and a resident unit trust for the purposes of Division 6B of

Part III in relation to that year of income; or

(ii) the trust would have been a public trading trust and a resident unit trust for the purposes of Division 6C of

Part III in relation to that year of income.

20 Distributions by a FIF or a FLP

"474.(1) Some calculations made under this Part involve taking into account distributions made by a FIF or a FLP to a person who has an interest in the FIF or FLP.

"(2) A reference in this Part to a distribution made by a FIF or a

25 FLP to a person who has an interest in the FIF or FLP is a reference to any amount paid or credited, or any property distributed, to the person by the FIF or in relation to the FLP that constitutes income derived, or a receipt of capital, by the person and:

30

(a) without limiting the generality of the above, includes a reference to:

35

(i) the issue by a FIF to a person of a further interest in the

FIF in satisfaction of the person's entitlement to a payment by the FIF; and

(ii) in the case of a FLP-any payment to a person of a bonus or a refund of premium under or in respect of the

FLP; but

(b) does not include a reference to the issue by a FIF or a FLP to a person of a further interest in the FIF or FLP without any consideration being paid or given by the person for the interest.


No. ,1992

Entitlement to acquire

"475. For the purposes of this Part, a person is taken to be entitled to acquire anything that the person is absolutely or contingently entitled to acquire, whether because of any constituent document of a company, the exercise of any right or option or for any other reason. 5

Quoted price

"476.(1) It is necessary for the purposes of several provisions of this Part to value an interest in a FIF by reference to the quoted price on a particular day on a stock market of the class of interests in which the interest is included.

"(2) For the purposes of such a provision, that quoted price is:

(a) if there was more than one transaction on that stock market on that day in interests in that class-the last published price at which such an interest was traded on that stock market on that

~~m

(b) if information as to the price mentioned in paragraph (a) was not published or there were no transactions on that stock market on that day in such interests-the last price at which an offer was made on that day to buy such an interest. .

10

15

Resident Part IX entity

"477. For the purposes of this Part, a trust is a resident Part IX entity at a particular time ('the test time') if:

(a) the trust:

20

(i) was established in Australia; or

(ii) had its central management and control in Australia at 25 any time in the period of 12 months immediately preceding the test time; and

(b) assuming that period had been a year of income, the. trust would have been an eligible entity in relation to that year of income for the purposes of Part IX. 30

Tax detriment

"478.(1) For the purposes of this Part, each of the following is a tax detriment to a partner in a partnership:

(a) an increase in an amount included under section 92 in the partner's assessable income in respect of an interest in the net 35 income of the partners~ip;

(b) a reduction in an amount allowable under section 92 as a deduction to the partner in respect of the partner's interest in a partnership loss of the partnership;

(c) a combination of such a reduction to nil and such an increase. 40


No. ,1992

23

5

10

"(2) For the purposes of this Part, an increase in an amount included under section 97, 98A or 100 in the assessable income of a beneficiary in respect of a share of the net income of a trust is a tax detriment to the beneficiary.

"(3) For the purposes of this Part, an increase (including from nil) in an amount assessable to a trustee under section 98 in respect of a beneficiary's share of, or under section 99 or 99A in respect of the whole or' a part of, the net income of a trust is a tax detriment to the trustee.

"(4) The amount of the tax detriment is equal to the amount of the increase or reduction or, if paragraph (l)(c) applies, the sum of the amounts of the reduction and increase.

15

20

"Subdivision C-Key Concepts

Outline of Subdivision

"479. This Subdivision explains the meanings of certain key concepts as they are used for the purposes of this Part. For those purposes it is necessary to determine:

(a) what is meant by a FIF or a FLP (sections 480 and 481);

(b) what is meant by an interest in a PIF or a FLP (section 482);

(c) the taxpayers to whose interests in FIFs or FLPs this Part applies (section 483);

(d) what constitutes a notional accounting period of a PIF or a

FLP (sections 487 and 488).

25

What is a FIF

"480.(1) An entity is a PIF at a particular time if at that time the entity is:

(a) a foreign company; or

(b) a foreign trust.

"(2) A company is a foreign company at a particular time if at that

30 time the company is not a Part XI Australian resident.

35

40

"(3) A trust is a foreign trust at a particular time if:

(a) at that time the trust is neither an Australian trust nor a resident Part IX entity; and

(b) the trust did not result from:

(i) a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil; or

(ii) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate.


No. ,1992

What is a FLP

"481.(1) A reference in this Part to a FLP or to a foreign life assurance policy in relation to a taxpayer in relation to a year of income is a reference to a life assurance policy issued by an entity that was not a resident of Australia at any time in that year of income. 5

"(2) In subsection (1):

'life assurance policy' means a policy insuring payment of money:

(a) on death (other than death by accident or specified sickness only); or

(b) on the happening of any contingency dependent on the 10 termination or continuance of human life (either with or without provision for a benefit under a continuous disability insurance contract within the meaning of the Life Insurance Act 1945); and includes:

(c) an instrument evidencing a contract that is subject to payment 15 of premiums or instalments of premiums for a term dependent on the termination or continuance of human life; or

(d) an instrument securing the grant of an annuity for a term dependent upon human life; but does not include:

. (e) such a policy or instrument:

(i) that provides for the payment of money only on death and in respect of which the premium, or each of the instalments of premium, is calculated solely by reference to the period:

(A) for which the human life concerned is expected to continue; or

20

25

(B) within which the human life concerned is expected to terminate; or

(ii) that was issued before 1 July 1992 but which cannot be 30 cancelled, surrendered or redeemed on or after that day and the terms of which have not been altered in a material respect on or after that day; or

(0 a contract between a non-resident and a resident:

(i) under which the non-resident reinsures the resident 35 against the whole or a part of the liability of the resident under a policy ('the relevant policy') issued by the resident; and

(ii) in respect of which the premium, or each of the instalments of premium, is calculated solely by reference 40 to the period:

(A) for which the human life to which the relevant policy applies is expected to continue; or


No. ,1992

25

(B) within which the human life to which the relevant policy applies is expected to terminate.

5

10

What is an interest in a FIF or a FLP

"482.(1) An interest in a FIF that is a foreign company is:

(a) a share in the company; or

(b) an option, convertible note, or other instrument, that confers an entitlement to acquire such a share.

"(2) An interest in a FIF that is a foreign trust is:

(a) an interest in the corpus or income of the trust (including, in the case of a unit trust, an interest constituted by a unit in the unit trust); or

(b) an option, convertible note, or other instrument, that confers an entitlement to acquire an interest referred to in paragraph

(a).

15 "(3) A person has an interest in a FLP if the person paid, or is liable to pay, the premium or any of the premiums in respect of the

FLP, whether or not the person has an entitlement to receive any amount in relation to the FLP, and a reference in this Part to the person's interest or interests in the FLP is taken to be a reference to

20 the FLP.

Taxpayers to whose interests in FIFs and FLPs this Part applies

"483.(1) The operative provision applies to a taxpayer in relation to a FIF or a FLP in accordance with this section.

25

"(2) The application of the operative provision to a taxpayer in relation to a FIF or a FLP is to be worked out separately in relation to each notional accounting period of the FIF or FLP.

30

"(3) If:

(a) a taxpayer had an interest or interests in a FIF or a FLP at the end of a year of income; and

(b) that year of income ·is the year of income ending on 30 June

1993 or a subsequent year of income; and

(c) the taxpayer was a resident at any time in that year of income; the operative provision applies to the taxpayer in relation to the FIF or FLP in respect of the notional accounting period of that FIF or FLP

35 that ended in that year of income.

"(4) Without affecting the circumstances in which, apart from this subsection, a taxpayer would be taken to be a resident at a time in a year of income, a taxpayer in the capacity of a trustee of a trust that is an Australian trust or a resident Part IX entity at a time in a year of

40 income is taken for the purposes of subsection (3) to have been a resident at that time.


No. ,1992

"(5) The application of the operative provision to a taxpayer in relation to a FIF or a FLP is subject to sections 484 to 486 and to

Divisions 2, 3, 4 and 5.

Exclusion of interests in certain foreign trusts from operative provision

"484. The operative provision does not apply to a taxpayer in 5 respect of an interest or interests in:

(a) a foreign trust specified in regulations made for the purposes of this section; or

(b) until regulations are so made-a foreign trust that is specified in Schedule 3. 10

Exclusion of interests of less than $50,000 from operative provision

"485.(1) If:

(a) a taxpayer who is a natural person (otherwise than in the capacity of a trustee) had an interest or interests in a particular

FIF or FLP at the end of a notional accounting period of that 15

FIF or FLP; and

(b) the sum of:

(i) the values of all the interests of the taxpayer and any associates of the taxpayer in FIFs; and

(ii) the values of all FLPs in which the taxpayer and any 20 associates of the taxpayer had interests; at the end of the year of income in which that notional accounting period ended did not exceed $50,000; the operative provision does not apply to the taxpayer in relation to that FIF or FLP in respect of that notional accounting period of that 25

FIF or FLP.

"(2) For the purposes of subsection (1), the value at the end of the year of income of a person's interest in a FIF, or of a FLP in which a person has an interest, is taken to be:

(a) the cost incurred by the person in acquiring the interest in the 30

FIF or FLP, as the case may be; or

(b) the market value of the interest in the FIF or of the FLP, as the case may be, at the end of the year of income; whichever is the greater amount.

Exclusion of certain visitors to Australia from operative provision

"486.(1) If a taxpayer is an exempt visitor to Australia in relation to a year of income, the operative provision does not apply. to the taxpayer in relation to a FIF or FLP in respect of the notional accounting period of the FIF or FLP that ends in that year of income.

35


No: ,1992

27

5

10

"(2) For the purposes of this section, a person is an exempt visitor

~o Australia in relation to a year of income if at the end of the year of

Income:

(a) the person was lawfully in Australia because the person was the holder of a temporary entry permit granted under the Migration

Act 1958; and

(b) the period from the time when the permit was originally issued until it is due to expire does not exceed 4 years; and

(c) the person is not awaiting the determination of an application for the grant to the person of permanent residency in Australia under that Act; and

(d) having regard to all the circumstances it would be reasonable to conclude that the person intends to leave Australia before the permit expires.

15 Notional accounting period of a FIF

"487.(1) This section sets out what constitutes a notional accounting period of a FIF for the purposes of the application of this Part to a taxpayer in relation to the FIF.

"(2) Subject to the following provisions of this section, each period

20 that is a year of income of the taxpayer is a notional accounting period of the FIF.

"(3) If the accounts of a FIF are made out for periods not exceeding

12 months, the taxpayer may elect that the notional accounting periods of that FIF are to be the respective periods in respect of which the

25 accounts of the FIF are made out.

"(4) An election made under subsection (3) is irrevocable so long as the taxpayer continues to have an interest in the FIF.

30

35

40

(3):

"( 5) Subject to subsection (6), if an election is made under subsection

(a) the first period ('the first period') in respect of which the accounts of the FIF are made out that begins during the year of income of the taxpayer in which the election is made, and all subsequent such periods, are notional accounting periods of the FIF; and

(b) the period beginning at the commencement of that year of income and ending immediately before the commencement of the first period is a notional accounting period of the FIF.

"(6) If, after the making of an election under subsection (3), any accounts of the FIF are made out for a period exceeding 12 months:

(a) neither that period, nor any succeeding period exceeding

12 months for which accounts of the FIF are made out, is a notional accounting period of the FIF; and

(b) the period:


No. ,1992

(i) beginning at the end of the last period in respect of which accounts of the FIF were made out for a period not exceeding 12 months; and

(ii) ending at the end of the taxpayer's year of income in which that last period ends; is a notional accounting period of the FIF; and

(c) all subsequent years of income of the taxpayer are notional accounting periods of the FIF.

5

"(7) Despite the preceding provisions of this section, the first notional accounting period of a FIF is the period that:

(a) in the case of a foreign company:

10

(i) if the company was incorporated or established or otherwise came into existence before 1 July 1992commenced on that day; or

(ii) if the company was incorporated or established or 15 otherwise came into existence on or after that day-

> commenced on the day of incorporation or establishment; or

(b) in the case of a foreign trust:

(i) if the trust was in existence immediately before 1 July 20

1992-commenced on that day; or

(ii) if the trust came into existence on or after that daycommenced on the day on which the trust came into existence; and ended on the next day that is the last day of a notional accounting 25 period of the FIF under whichever of the preceding provisions of this section is applicable.

Notional accounting period of a FLP

"488.(1) This section sets out what constitutes a notional accounting period of a FLP. 30

"(2) Subject to subsection (3), a notional accounting period of a

FLP is the period of 12 months ending on 30 June.

"(3) Despite subsection (2), the first notional accounting period of a FLP is the period that:

(a) if the FLP was in existence immediately before 1 July 199235 commenced on that day; or

(b) if the FLP came into existence on or after that day-commenced on the day on which the FLP came into existence; and ended on the next following 30 June.


No. ,1992

29

"Subdivision D-The Disposal and Acquisition of Interests

5

What constitutes a disposal or acquisition of an interest in a FIF or a FLP

"489.(1) Some of the provisions of this Part refer to an interest in a FIF or a FLP having been disposed of or acquired and this section determines what constitutes such a disposal or acquisition for the purposes of those provisions.

"(2) Subject to this section, if a change has occurred in the ownership of an interest in a FIF or a FLP, the change is taken to have effected lOa disposal of the interest by the person who owned it immediately before the change and an acquisition of the interest by the person who owned it immediately after the change.

15

, "(3) A change in· the legal ownership of an interest does not constitute a change in the ownership of the interest for the purposes of this section unless there is also a change in the beneficial ownership of the interest.

20

25

30

35

40

"(4) A reference in subsection (2) to a change in the ownership of an interest is a reference to a change that has occurred in any way, including any of the following ways:

(a) by the execution of an instrument;

(b) by the entering into of a transaction;

(c) by the transmission of the interest by operation of law;

(d) by the doing of any other act or thing;

(e) by the occurrence of any event.

"(5) Without limiting the generality of subsection (4), a change is taken to have occurred in the ownership of an interest by:

(a) a declaration of trust in relation to the interest under which the beneficiary is absolutely entitled to the interest as against the trustee; or

(b) the release, discharge, satisfaction, surrender, forfeiture, expiry, abandonment or extinction, at law or in equity, of the interest; or

(c) the redemption or buy-back in whole or in part, or the cancellation, of the interest.

"(6) An issue to a person of an interest in a FIF or a FLP constitutes an acquisition of the interest by the person.

"(7) The following do not constitute an acquisition or disposal of an interest in a FIF or a FLP:

(a) the conversion of a convertible note issued by a FIF into another interest in the FIF pursuant to a right conferred by the


No .. ,1992

(b) convertible note if no consideration is paid or payable in respect of the exercise of that right; the exercise of any other right in relation to an interest in a

FIF or a FLP if no. consideration is paid or payable in respect of the exercise of that right;

(c) the exchange of an interest in a PIF or a FLP for a different interest in the PIF or FLP of the same value~

Time of disposal or acquisition of interest

"490. If an interest in a FIF or a FLP has been disposed of or acquired, the time of disposal or acquisition is:

(a) if the interest was disposed of or acquired under a contractthe time of making of the contract; or

(b) otherwise-the time when the change in the ownership of the interest that constituted or gave rise to the disposal or acquisition occurred.

5

10

15

Consideration for disposal or acquisition

"491.(1) In the circumstances referred to in subsections (2) and (3) it is necessary for the purposes of this Part to make special provision for the calculation of the consideration in respect of the disposal or acquisition of an interest in a FIF or a FLP. 20

"(2) If a person' disposed of an interest in a FIF or a FLP and:

(a) the person did not receive any consideration in respect of the disposal; or

(b) both of the following subparagraphs apply:

(i) the amount that, apart from this subsection, would be 25 taken to be the consideration received by the person in respect of the disposal is greater or less than the market value of the interest at the time of the disposal;

(ii) the person, and the person to whom the interest was disposed of, were not dealing with each other at arm's 30 length in connection with the disposal; the person is taken to have received as consideration in respect of the disposal an amount equal to the market value of the interest at the time of the disposal.

"(3) If a person acquired an interest in a FIF or a FLP and:

(a) the person did not payor give any consideration in respect of the acquisition; or

(b) both of the following subparagraphs apply:

35

(i) the amount that, apart from this subsection, would be taken to be the consideration paid or given by the person 40 in respect of the acquisition was greater or less than the market value of the interest at the time of the acquisition;


No. ,1992

31

(ii) the person, and the person from whom the person acquired the interest, were not dealing with each other atarm's length in connection with the acquisition; the person is taken to have paid or given as consideration in respect of

5 the acquisition an amount equal to the market value of the interest at the time of the acquisition.

10

15

20

25

30

"Subdivision E-Associates

Associates of an entity to be determined in accordance with section 318 as modified

"492.(1) For the purposes of this Part, the associates of an entity are to be determined in accordance with section 318 subject to the modifications made by subsection (2) of this section.

"(2) The modifications are as follows:

(a) 'relative', in relation to a person, means:

(i) a spouse of the person other than a spouse who is legally married to the person but is living separately and apart from the person and has been so living for at least

12 months; or

(ii) a child of the person; or

(iii) if the person has not reached the age of 18 years:

(A) a parent of the person; or

(B) a brother or sister of the person;

(b) 'child', in relation to a person, means:

(i) a child (other than a step-child) of the person; or

(ii) a child (other than a child referred to in subparagraph

(i» of a spouse of the. person, being a child who lives with the person;

(c) 'trust' does not include a public unit trust;

(d) subsections 318( 5) and (7) are to be disregarded;

(e) for the purposes of the application of paragraphs 318(6)(a) and

(b) in relation to an entity, the references in those paragraphs to interposed companies, partnerships or trusts are taken to be references to any such companies, partnerships or trusts that are associates of the entity.

35 "Division 2-Exemption for Interests in· Certain FIFs

Object of Division

"493. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from certain FIFs.


No. ,1992

Exemption of attributable taxpayer in relation to certain trusts

"494. If an amount of foreign investment fund income that accrued to a taxpayer from a foreign trust in respect of a notional accounting period of the trust would, apart from this section, be included in the taxpayer's assessable income of a year of income and: 5

(a) the taxpayer is an attributable taxpayer for the purposes of

Division 6AAA in relation to the year of income and in relation to a trust estate and the trust to which the trust estate relates is the same entity as the foreign trust; or

(b) the foreign trust is a CFT and the taxpayer is an attributable 10 taxpayer in relation to that CFT at any time during the year of income; the operative provision does not apply to the taxpayer in relation to the foreign trust in respect of the notional accounting period of the foreign trust that ends in the year of income. 15

Exemption of attributable taxpayer referred to in section 456'

"495.(1) If:

(a) an amount of foreign investment fund income that accrued to a taxpayer from a FIF in respect of a. notional accounting period of the FIF would, apart from this subsection, be included 20 in the taxpayer's assessable income of a year of income; and

(b) a statutory accounting period. of a CFC coincides with that notional accounting period of the FIF; and

(c) section 456 applies to the taxpayer at the end of the statutory accounting period of the CFC; and 25

(d) the CFC is the same entity as the FIF; the operative provision does not apply to the taxpayer in relation to the FIF in respect of the notional accounting period of the FIF referred to in paragraph (a).

"(2) If: 30

(a) an amount of foreign investment fund income that accrued to a taxpayer from a FIF in respect of a notional accounting period of the FIF would, apart from this subsection, be included in the taxpayer's assessable income of a year of inoome; and

(b) each of 2 or more statutory accounting periods of a CFC occurs 35 partly within that notional accountiilg period of the FIF; and

(c) section 456 applies to the taxpayer at the end of each of those statutory accounting periods of the CFC; and

(d) the CFC is the same entity as the FIF; the operative provision does not apply to the taxpayer in relation to 40 the FIF in respect of the notional accounting period of the FIF referred to in paragraph (a).


No. ,1992

33

"Division 3-Exemption for Interest in Foreign Company that is

Principally Engaged in Designated Activities

Object of Division

"496. The object of this Division is to exempt a taxpayer from

5 taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a foreign company that was principally engaged in anyone or more of the activities ('designated activities'):

10

(a) specified in regulations made for the purposes of this section; or

(b) until regulations are so made-specified in Schedule 4.

Exemption

"497.(1) The operative provision does not apply to a taxpayer in relation to a foreign company in respect of a notional accounting period

15 of the foreign company if the foreign company was principally engaged in designated activities at the time ('the test time') applicable under subsection (2).

20

25

30

"(2) The test time is:

(a) if the taxpayer uses the stock exchange listing method referred to in section 500-the end of the notional accounting period; or

(b) if the taxpayer uses the balance-sheet method referred to in section 501:

(i) if the notional accounting period is a period in respect of which the accounts of the company are made outthe end of that period; or

(ii) if the notional accounting period is the taxpayer's year of income-the end of the last period in respect of which the accounts of the company were made out that ended before the end of that year of income.

The extent to which life assurance business is a designated activity

"498. For the purposes of any regulations specifying life assurance business as a designated activity, or for the purposes of paragraph (n) of Schedule 4, activities of a foreign company constitute the conduct

35 of life assurance business at the test time in relation to a notional accounting period of the company if, and only if, a balance-sheet of the company prepared as at that time shows that at least 50% of the gross value of the company's assets were for use in carrying on life insurance business as defined by section 4 of the Life Insurance Act

40 1945.


No. ,1992

How to determine whether a foreign company was principally engaged in designated activities

"499.(1) There are 2 methods for determining the question whether a foreign company was principally engaged in designated activities at the test time in relation to a notional accounting period. Those methods 5 are the stock exchange listing method applicable under section 500 and the balance-sheet method applicable under section 501.

"(2) If both of those methods are capable of being applied, the question is to be determined in relation to a particular taxpayer by whichever method the taxpayer chooses.

"(3) If one only of those methods is capable of being applied, the question is to be determined by that method.

10

"(4) If neither of those methods is capable of being applied, section

497 does not exempt the taxpayer from the application of the operative provision in relation to the company in respect of the notional 15 accounting period.

Stock exchange listing method

"500.(1) The stock exchange listing method may be applied only if the taxpayer's interest or any of the taxpayer's interests in the foreign company at the test time in relation to a notional accounting period 20 was included in a class of interests in the company that were quoted on the stock market of an approved stock exchange.

"(2) If the stock exchange listing method applies and at the test time:

(a) one of the following subparagraphs applies:

(i) the company was included by an approved stock exchange in a class of companies designated by the stock exchange as principally engaged in activities of a particular kind;

(ii) the company was included:

25

(A) by an international sectoral classification system 30 specified in regulations made for the purposes of this section; or

(B) until regulations are so made-by an international sectoral classification system specified to in

Schedule 6; in a class of companies designated by the system as principally engaged in activities of a particular kind; and

35

(b) activities of that kind are designated activities; then the company is taken, for the purposes of the application of section 497 in relation to the taxpayer, to have been principally engaged 40 in designated activities at that time.


No. ,1992

35

Balance-sheet method

"501.(1) The balance-sheet method involves determining the extent to which a foreign company's assets were for use in designated activities by reference to a relevant balance-sheet of the company and, if

5 appropriate, of its subsidiaries prepared as at the test time in relation to a notional accounting period.

"(2) If, at the test time, the gross value of the foreign company's assets for use in designated activities was 50% or more of the gross value of all of the company's assets, the company is taken, for the

10 purposes of the application of section 497 in relation to the taxpayer, to have been principally engaged in designated activities at that time.

"(3) If, at the test time, the foreign company ('the holding company') was the owner of 50% or more of the paid-up share capital of another company ('the subsidiary company'), whether the other company's place

15 of incorporation or establishment is the same as, or different from, the holding company's place of incorporation or establishment but not including another company that is a resident of Australia, then the following paragraphs apply:

20

(a) the gross value at the test time of the holding company's assets for use in designated activities includes the amount worked out using the formula:

Gross value of subsidiary's designated X Interest in share capital; assets Total share capital

25

(b) the gross value at the test time of all the holding company's assets does not include the gross value of the shares in the subsidiary company owned by the holding company but includes the amount worked out using the formula:

Interest in share capital.

Gross value of subsidiary's assets X -------~

Total share capital

In the formulas:

'Gross value of subsidiary's designated assets' means the gross value at

30 the test time of the subsidiary company's assets for use in one or more designated activities;

'Gross value of subsidiary's assets' means the gross value at the test time of all the subsidiary company's assets;

'Interest in share capital' means the amount of the share capital of the

35 subsidiary company that was owned by the holding company;

'Total share capital' means the total amount of the share capital of the subsidiary company.

40

"(4) If a company had, at the test time, an interest, as a partner in a partnership, in any assets of the partnership:

(a) the gross value at that time of all of the company's assets does


No. ,1992 not include the value of the company's interest in the partnership as shown in the company's balance-sheet but includes the gross value of the company's interest in each of the partnership's assets; and

(b) if the company's interest in the partnership at that time was 5

50% or more of the total of all the interests in the partnershipthe company's assets at that time that were for use in designated activities are taken to have included the company's interests in the assets of the partnership that were for use in one or more designated activities; and 10

(c) if the company's interest in the partnership at that time was less than 50% of the total of all the interests in the partnershipthe company's assets at that time that were for use in designated activities are taken not to have included the company's interests in the assets of the partnership that were for use in one or more 15 designated activities.

"(5) A reference in this section to the gross value of an asset of a company at the test time is a reference to that value as shown in a balance-sheet of the company that:

(a) was prepared in accordance with commercially accepted 20 accounting principles; and

(b) gives a true and fair view of the company's financial position as at that time.

"(6) For the purposes of this section, the gross value, at the test time, of an asset in which a company has an interest as a partner in a 25 partnership is to be that value as shown in a balance-sheet of the partnership that:

(a) was prepared in accordance with commercially accepted accounting principles; and

(b) gives a true and fair view of the partnership's financial position 30 as at that time.

"(7) If, at the test time, any of a company's assets ('the relevant assets') are for use partly in one or more designated activities and partly for other purposes, a reference in this section to the gross value at that time of the company's assets for use in one or more designated 35 activities is a reference to so much only of the gross value at that time of the relevant assets as· is proportionate to the extent to which they are for use at that time in one or more designated activities. in:

"(8) If an amount that, under subsection (3) or (4), is to be included

(a) the gross value, at the test time, of all the assets of a foreign company; or

40


No. ,1992

37

(b) the gross value, at that time, of such of those assets as were for use at that time in one or more designated activities; is not expressed in the currency in which the balance-sheet applicable under subsection (5) in relation to the foreign company is expressed,

5 the amount to be so included is the equivalent amount expressed in that currency, being the equivalent am(;mnt obtained by reference to the appropriate rate of exchange between those two currencies in force at that time.

"(9) A reference in this section to an asset of a company being for

10 use in a designated activity is a reference to the asset being for use by the company in engaging in that activity through its directors or employees in the performance of their duties as directors or employees, but does not include a reference to the asset being for use by a person engaging in that activity on behalf of the company pursuant to a

15 contract or arrangement.

20

25

30

"Division 4-Exemption for Interest in Foreign.Bank

Object of Division

"~02. The object of this Division is to exempt certain taxpayers from· taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a foreign company that is a bank.

Exemption

"503. If, at the end of the notional accounting period of a foreign company that ended during a year of income: .

(a) a taxpayer had an interest or interests in the foreign company that consisted solely of shares included in a class of shares that were quoted on th~ stock market of an approved stock exchange; and

(b) the persons who held shares in the foreign company included not less than 10,000 persons none of whom was an associate of any of the others; and

(c) the foreign company was authorised under the law of its place of residence to carry on banking business; the operative provision does not apply to the taxpayer in relation to that. foreign company in respect of that notional accounting period.

35 "Division 5-Exemption for Interest in an Employer-sponsored

. Superannuation Fund

40

Object of Division

"504. The object of this Division is to exempt a taxpayer from taxation in respect of foreign investment fund income that would otherwise be taken to accrue from a FIF thai is an employer-sponsored superannuation fund.


No. ,1992

Interests of employees and former employees to be exempt

"505.(1) If:

(a) a taxpayer who is a natural person had an interest or interests in a particular FIF at the end of a notional accounting period of that FIF; and

(b) that FIF was a superannuation fund maintained by an employer, or by an associate of an employer, for the benefit of employees of the employer; and

(c) the taxpayer had the interest or interests because he or she was such an employee; the operative provision does not apply to the taxpayer in relation to that FIF in respect of that notional accounting period.


'employee', in relation to an employer, includes:

(a) a former employee of the employer; or .

(b) if the employer is a company-a director or former director of the company.

5

10

15

"Division 6~Assessable Income to Include Foreign Investment Fund

Income

Foreign investment fund income to be included in assessable income

"506.(1) The circumstances in which this section applies to a taxpayer in relation to a FIF orFLP in respect of a notional accounting period of the FIF or FLP are as set out in section 483.

20

"(2) If foreign investment fund income accrued to a taxpayer to whom this section applies from a FIF or a FLP in respect of a notional 25 accounting period of the FIF or FLP, the taxpayer's assessable income of the year of income in which that notional accounting period ended includes that foreign investment fund income.

Reduction of foreign investment fund income because of interim dividend or interim distribution of trust income 30

"507.(1) If:

(a) a FIF attribution account payment is made by a FIF to a taxpayer during a notional accounting period of the FIF; and

(b) under section 506 an amount of foreign investment fund income that is taken to have accrued to the taxpayer from that FIF in 35 respect of that period would be included in the taxpayer's assessable income of the year of income in which that period ended; the amount to be included under that sectioninthat assessable income is reduced by so much of· the payment as is included in that assessable 40 income.


No. ,1992

39

"(2) If:

5

10

(a) an amount of foreign investment fund income that accrued to a taxpayer from a FIF in respect of a notional accounting period of the FIF is included in the taxpayer's assessable income of a year of income; and

(b) a residence-change time (within the meaning of section 457) in relation to a CFC occurs in that notional accounting period of the FIF; and

(c) section 457 applies to the taxpayer in respect of the taxpayer's assessable income of the year of income in which the residencechange time occurs; and

(d) the CFC is the same entity as the FIF; the amount included in the taxpayer's assessable income under section

457 is taken for the purposes of subsection (1) of this section to be a

15 FIF attribution account payment made by the FIF to the taxpayer.

20

25

"Division 7-How to Determine whether Foreign Investment Fund

Income Accrued to a Taxpayer from a FIF or a FLP

"Subdivision A-Preliminary

Object of Division

"508.(1) The object of this Division is to prescribe methods for determining whether any foreign investment fund income accrued from a particular FIF or FLP in respect of a notional accounting period to a taxpayer to whom the operative provision applies in relation to the

FIF or FLP in respect of that period.

"(2) Subject to this Subdivision, there are 3 alternative methods for making such a determination, as follows:

(a) the method set out in Subdivision B ('the market value method');

(b) the method set out in Subdivision C ('the deemed rate of return method');

(c) the method set out in Subdivision D ('the calculation method'). 30

Methods applicable in relation to a FIF

"509.(1) Subject to this section, if it is practicable to apply the market value method in respect of the taxpayer's interest, or all of the taxpayer's interests in a particular class or classes, in a FIF in respect

35 of the notional accounting period, the market value method is to be so applied.

"(2) Subject to this section, if it is not practicable to apply the market value method in respect of the taxpayer's interest, or all of the taxpayer's interests in a particular class, in a FIF in respect of the

40 notional accounting period, the deemed rate of return method is to be applied in respect of the interest or the interests in that class.


No. ,1992

"(3) Subject to subsection (5), the taxpayer may elect to apply the calculation method, in respect of all of the taxpayer's interests in a FIF in respect of a notional accounting period, and if such an election is made, the calculation method is to be so applied.

"(4) An election under subsection (3) relates to the first period in 5 respect of which the accounts of the PIF are made out that begins after the day on which the election is made.

"(5) The taxpayer is not entitled to make an· election under subsection _ ~akes an election in relation to the FIF under subsection 487(3). 10

Deemed rate of return method to be applied in relation to a FLP

"510. The deemed rate of return method is the only method to be applied for determining whether any foreign investment fund income accrued from a FLP.

"Subdivision B-Market Value Method 15

Procedure for determining foreign investment fund income by market value method

"511.(1) This Subdivision applies only if it is possible to ascertain, as at the relevant times referred to in this Subdivision, the market value of the interest, or the market values of all the interests in a 20 particular class or classes, of a person. ('the taxpayer') in a FIP. For the purposes of this Subdivision as so applying, a reference to an interest in a FIF is a reference to an interest of which it is possible to ascertain the market value as at the relevant time.

"(2) Accordingly, this Subdivision sets out the procedure for 25 determining by the market value method whether, in respect of the interest, or the interests in the class or classes concerned, any foreign investment fund income accrued to the taxpayer from the FIF in respect of a notioIlal accounting period ('the relevant period'). There are

2 steps in this procedure, which are set out in sections 512 and 516, 30 respectively.

Step 1 ~culation of foreign investment fund amount

"512.(1) The first step in the procedure is to work out the foreign investment fund amount in relation to the taxpayer in respect of the relevant period. . 35

"(2) This is done as follows:

(a) first, determine the market value of the taxpayer's interest, or the sum of the market values of all the taxpayer's interests in the relevant class or classes, on the last day of the period;

(b) secondly, add the amount or value of each distribution (if any) 40


No. ,1992

41

5

10

15 in respect of any interest or interests referred to in paragraph

(a) made by the FIF to the taxpayer during the period;

(c) thirdly, if the taxpayer disposed of any interest or interests in the FIF during the period, add:

(i) the amount or value of each distribution (if any) in respect of that interest or those interests made by the

FIF to the taxpayer during the period; and

(ii) the amount or value of any consideration received or receivable by the taxpayer in respect of the disposal;

(d) fourthly, if the taxpayer had the interest or any of the interests in the FIF on the day immediately preceding the first day of the period, deduct the market value of the interest or interests on that day;

(e) fifthly, if the taxpayer acquired the interest or any of the interests during the period, deduct the amount or value of the consideration paid or given by the taxpayer in respect of the acquisition.

"(3) Each amount resulting from the application of one of the paragraphs of subsection (2) is to be expressed in the currency used in

20 determining the market value referred to in paragraph (2)(a).

How market value is ascertained

"513.(1) For the purposes of the application of section 512 in relation to the taxpayer in respect of the relevant period, the market value of an interest in the FIF on a particular day ('the relevant day')

25 is to be determined in accordance with this section.

"(2) If the interest is included in a class of interests that were quoted on the relevant day on the stock market of an approved stock exchange, the market value of the interest on that day is the amount worked out on the basis of the quoted price of such an interest on that

30 day on that stock market.

"(3) In the case of an interest in a trust that is included in a class of interests which were not quoted on the relevant day on the stock market of an approved stock exchange but for which there was on that day a buy-back or redemption price offered by the trustee or manager

35 of the trust, the market value of the interest on that day is the amount worked out on the basis of that price.

40

"( 4) If:

(a) the relevant period started on 1 July 1992; and

(b) the relevant day is the day immediately preceding the first day of the relevant period; and

(c) the class of interests in which the interest is included were not quoted on the relevant day on the stock market of an approved


No. ,1992 stock exchange and, in the case of an interest in a trust, there was no buy-back or redemption price for such an interest offered on the relevant day by the trustee or manager of the trust; and

(d) that class of interests were quoted on the stock market of an 5 approved stock exchange, or in the case of an interest in a trust, there was a buy-back or redemption price so offered for such an interest:

(i) on the last reporting day for the FIF before 1 July 1992; and 10

(ii) on the next reporting day for the FIF on or after 1 July

1992, being a reporting day that is not more than 12 months after 1 July 1992 and not more than 12 months after the reporting day referred to in subparagraph (i); the market value of the interest on the relevant day is:

( e) one-half of the sum of the quoted price on that last reporting day, and the quoted price on that next reporting day, of such an interest on that stock market; or

15

(f) one-half of the sum of the buy-back or redemption price offered by the trustee or manager of the trust on that last reporting 20 day, and the buy-back or redemption price so offered on that next reporting day, for such an interest; as the case may be.

"(5) A reference in this section to a quoted price on a particular

. day of a class of interests on the stock market of an approved stock 25 exchange is, if the class of interests is quoted on that day on 2 or more such stock markets, taken to be a reference to the quoted price on that day of that class of interests on whichever of those stock markets is nominated by the taxpayer.

"( 6) If the taxpayer has nominated a particular stock market for 30 the purposes of the application of this section in respect of the taxpayer's interest in a particular FIF, that stock market is taken to continue to be so pominated by the taxpayer unless and until it is no longer practicable to use that stock market for those purposes as, for example, if that stock market ceases to exist or the class of interests in the FIF 35 in which the taxpayer's interest is included ceases to be quoted on that stock market.

"(7) A reference in subsection (4) to a reporting day for a FIF is a reference to a day on which:

(a) in the case of a foreign company-the directors reported to the 40 members on the financial position of the company; or

(b) in the case of a foreign trust-the trustee or manager of the trust reported to the holders of interests in the trust on the financial position of the trust.


No. ,1992

43

Gross foreign investment fund income

"514. If the foreign investment fund amount as worked out under section 512 is a positive amount, that amount constitutes gross foreign investment fund income in relation to the taxpayer from the FIF in

5 respect of the relevant period.

Foreign investment fund loss

"515. If the foreign investment fund amount as worked out under section 512 is a minus amount, that amount constitutes a foreign investment fund loss incurred by the taxpayer from the FIF in respect

10 of the relevant period.

Step 2-calculation of foreign investment fund income

"516.(1) The second step in the procedure is to work out in accordance with this section the amount of any foreign investment fund income in relation to the taxpayer in respect of the relevant

15 period.

20

"(2) If:

(a) there is, under section 514, any gross foreign investment fund income in relation to the taxpayer from the FIF in respect of the relevant period; and

(b) that gross foreign investment fund income exceeds the total of any unapplied previous foreign investment fund losses incurred by the taxpayer from the FIF; the following provisions have effect.

"(3) The excess referred to in paragraph (2)(b) is to be converted

25 to the corresponding amount in Australian currency in accordance with the rate of exchange applicable at the end of the relevant period.

30

"(4) Foreign investment fund income equal to that corresponding amount is taken to have accrued to the taxpayer from the FIF in respect of the relevant period.

"(5) For the purposes of paragraph (2)(b), the total of any unapplied previous foreign investment fund losses incurred by the taxpayer from the FIF is the amount (if any) by which any previous foreign investment fund losses exceed any previous foreign investment fund income.

"( 6) In this section:

35 'previous foreign investment fund loss' means:

40

(a) a foreign investment fund loss under section 515 incurred by the taxpayer from the FIF in respect of any notional accounting period of the FIF that preceded the relevant period; or

(b) if the operative provision did not apply to the taxpayer in respect of a notional accounting period of the FIF that preceded the relevant period because of the operation of section 485 or


No. ,1992

486 or Division 2, 3, 4 or 5-a foreign investment fund loss under section 515 that would have been incurred by the taxpayer from the FIF in respect of that preceding period if the operative provision had applied to the taxpayer in respect of that period; other than any part of such a loss as is mentioned in paragraph (a) or 5

(b) that has been, or will be, taken into account in ascertaining the amount of any capital loss incurred by the taxpayer for the purposes of Part IlIA during any year of income;

'previous foreign investment fund income' means:

(a) any amount that under section 514 constituted gross foreign 10 investment fund income in relation to the taxpayer from the

FIF in respect of a notional accounting period of the FIF that preceded the relevant period; or

(b) if the operative provision did not apply to the taxpayer in respect of a notional accounting period of the FIF that preceded 15 the relevant period because of the operation of section 485 or

486 or Division 2, 3, 4 or 5-any amount that under section

514 would have constituted gross foreign investment fund income in relation to the taxpayer from the FIF in respect of that preceding period if the operative provision had applied to 20 the taxpayer in respect of that period.

"Subdivision C-Deemed Rate of Return Method


Procedure for determining foreign investment fund income by deemed rate of return method 25

"517. This Subdivision sets out in several steps the procedure for determining by the deemed rate of return method whether any foreign investment fund income accrued to a person ('the taxpayer') from a particular FIF or FLP in respect of a notional accounting period ('the relevant period'). In following the procedure it is necessary to determine 30 the value of an interest in a FIF or the value of a FLP on a day called

'the relevant day', which has the meaning given by section 520, and then to apply a specified rate of return to that value.

Step I-groups of interests in a FIF

"518.(1) For interests in a PIP, the first step in the procedure is to 35 determine:

(a) whether the taxpayer had only one interest, or had 2 or more interests, in the PIP during the relevant period; and

(b) if the taxpayer had 2 or more such interests-whether any of the interests constitute a group or groups within the meaning 40 of subsection (4) or (5).


No. ,1992

45

"(2) If the taxpayer had only one interest in a FIF during the relevant period, the procedure applies in respect of the interest and so applies as if the interest were a group.

"(3) If the taxpayer had 2 or more interests in a FIF during the

5 relevant period, the procedure:

(a) applies separately in respect of each interest (if any) that is not included in a group and so applies as if each such interest were a separate group; and

10

(b) if any of the interests constitute a group or groups-applies separately in respect of the group or each of the groups.

"(4) Interests in a FIF which are of the same class and which the taxpayer had throughout the relevant period constitute a group.

"(5) Interests in a FIF which are of the same class and which the taxpayer had throughout the same part of the relevant period constitute

15 a group.

20

Step I-interests in a FLP

"519.(1) For interests in a FLP, the first step in the procedure is to determine whether the taxpayer had only one interest, or had 2 or more interests, in the FLP during the relevant period.

"(2) If the taxpayer had 2 or more interests that were acquired at different times during the relevant period, all those interests are taken to have been acquired when the first of those interests was acquir~d.

"(3) The following provisions that are applicable to aFLP involve determining the value of the FLP at the relevant times referred to in

25 those provisions.

Determination of Opening Value

Step 2-determination of opening value of interests in FIF or opening value of FLP

"520. The second step is to determine the value of the interests in

30 the group or the respective values of the interests in each group, or the value of the FLP, as the case may be, as at the day ('the relevant day') referred to in whichever of the following paragraphs applies:

35

(a) if the taxpayer had the interests in the FIF or FLP at the commencement of the relevant period-. the day immediately preceding the first day of the relevant period; or

(b) if the interests in the FIF or FLP were acquired by the taxpayer during the relevant period-the day on which they were acquired.


No. , 1992

H relevant period starts on 1 July 1992

"521. If the interests in the group or the interests in the FLP were acquired before the start of the relevant period and that period started on 1 July 1992:

(a) in the case of interests in a FIF-the value of the interests on 5 the relevant day is to be determined in accordance with section

522, 523 or 524, as the case requires; or

(b) in the case of interests in a FLP-the value of the FLP on the relevant day is to be determined in accordance with section

525. 10


1 July 1992)-quoted prices

"522.(1) If the interests in the group are included in a class of interests that were quoted on the relevant day on the stock market of an approved stock exchange, the value of the interests on that day is 15 the amount worked out on the basis of the quoted price of such an interest on that day on that stock market.

"(2) If the interests in the group are included in a class of interests that were not quoted on the relevant day on the stock market of an approved stock exchange but were quoted on such a stock market 20 within the period of 12 months immediately before that day, the value of the interests on that day is the amount worked out on the basis of the quoted price of such an interest on the latest day in that period on which the class of interests were so quoted.

"(3) If the interests in the group are interests in a trust that are 25 included in a class of interests that were not quoted on a stock market of an approved stock exchange on the relevant day or within the period of 12 months immediately before that day:

(a) if there was on that day a buy-back or redemption price offered by the trustee or manager of the trust for such interests-the 30 value of the interests on that day is the amount worked out on the basis of that price; or

(b) if paragraph (a) does not apply but there was within that period of 12 months such a buy-back or redemption price-the value of the interests on that day is the amount worked out on the 35 basis of the latest such price that was offered within that period.

"(4) A reference in this section t6 a quoted price on the stock market of an approved stock exchange on a particular day of a class of interests is, if the class of interests are quoted on that day on 2 or more such stock markets, taken to be a reference to the quoted price 40 on that day of that class of interests on whichever of those stock markets is nominated by the taxpayer.


No. ,1992

47

5


1 July 1992}-fair market value •

"523.(1) This section applies in relation to interests in a FIF if it . is impracticable to value the interests in accordance with section 522.

"(2) The value of the interests in the group on the relevant day is the amount certified in writing by an independent valuer to have been the fair market value of the interests on a day specified in the certificate, being any day within the period of 3 months ending on the relevant day or the period of 3 months starting on the relevant day.

0 Value of interests in a FIF at start of relevant period (being

1 July 1992)-notional past application of deemed rate of return method

"524.(1) This section applies in relation to interests in a FIF if it is impracticable to value the interests in accordance with section 522

15 or 523.

20

25

"(2) The value of the interests in the group on the" relevant day is the amount that would be that value if:

(a) this Part had been in force at all times since the interests were acquired; and

(b) the value of each interest at the date on which it was acquired was the consideration paid or given in respect of the acquisition by the taxpayer; and

(c) subject to paragraph (b), the deemed rate of return method had been used to determine whether any foreign investment fund income accrued to the taxpayer from the FIF in respect of each notional accounting period of the FIF before the relevant period.

30

Value of a FLP at start of relevant period (being 1 July 1992)

"525. In the case of interests in a FLP, the value of the FLP on the relevant day is whichever is th~ greater of the following:

(a) the consideration paid or given by the taxpayer in respect of the acquisition of the interests in the FLP;

(b) the surrender value of the FLP on that day.

H relevant period starts after 1 July 1992

"526. If the interests in the group or the interests in the FLP were

35 acquired before the start of the relevant period and that period starts on a day later!han 1 July 1992:

40

(a) in the case of interests in a FIF-the value of the interests on the relevant day is to be determined in accordance with section

527, 528 or 529, as the case requires; or

(b) in the case of interests in a FLP-the value of the FLP on the


No. ,1992 relevant day is to be determined in accordance with section

530 .•

Valoe of interests in a FIF at start of relevant period (being later than

1 July 1992)-:-deemed rate of return method applied for previous period

"527. In the case of interests in a FIF, if the deemed rate of return 5 method was' applied in respect of the notional accounting period immediately preceding the relevant period, the value of the interests in the group on the relevant day is to be determined as follows:

(a) first, ascertain the value, as previously determined under this

Subdivision, of the interests in the group at the commencement 10 of the immediately preceding period or, if any of the interests were acquired after that commencement, at the date or dates of the acquisition of the interest or interests concerned;

(b) secondly, add so much of the foreign investment fund income determined in relation to the taxpayer in respect of .the 15 immediately preceding period as was attributable to the interests in the group;

(c) thirdly, deduct the amount or value of so much (if any) of any distribuiions made by the FIF to the taxpayer during the immediately preceding period as were attributable to the 20 interests in the group.

Value of interests in a FIF at start of relevant period (being later than

1 July 1992)-calculation method applied, or interests exempt, for previous period

"528.(1) In the case of interests in aFIF, if:

(a) the calculation method was applied in respect of the notional accounting period immediately preceding the relevant· period; or

25

(b) the operative provision did not apply to the taxpayer in respect of that immediately preceding period because of the operation 30 of section 485 ot 486 or Division 2, 3, 4 or 5; the value of the interests in the group on the relevant day is to be determined in accordance with this section.

"(2) If the interests are included in a class of interests for which there were quoted prices on an approved stock exchange at any time 35 during the immediately preceding period, the value of the interests in the group oti,the relevant day is the amount worked out on the basis of the quoted price fotsuch an interest on the· latest day during the immediately preceding period on which there was a quoted price for such an interest on s\lch. a stock exchange. 40

~'(3) If it is not practicable to determine the value of the' interests in a group on the relevant day under subsection (2), that value is taken to be the amount that would be that value if:

5


No. ,1992

49

(a) this Part had been in force at all times since the interests were acquired; and

(b) the value of each interest in the group at the date on which it was acquired was the consideration paid or given in respect of the acquisition by the taxpayer; ahd

(c) subject to paragraph (b), the deemed rate of return method had been used to determine whether any foreign investment fund income accrued to the taxpayer from the FIF in respect of each notional accounting period of the FIF before the relevant period.

10 Value of interests in a FIF at start of relevant period (being later than

1 July 1992)-market value method applied for previous period

"529. In the case of interests in a FIF, if the market value method was applied in respect of the notional accounting period immediately preceding the relevant period, the value of the interests in the group

15 on the relevant day is the value of the interests at the end of that immediately preceding period as determined in accordance with that method.

20

25

30

Value of interests in a FLP at start of relevant period

(being later than 1 JUly 1992)

"530. In the case of interests in a FLP, the value of the FLP on the relevant day is to be determined as follows:

(a) first, ascertain the value, as previously determined under this

Subdivision, of the FLP at the commencement of the notional accounting period immediately preceding the relevant period;

(b) secondly, add so much of the foreign investment fund income determined in relation to the taxpayer in respect of the immediately preceding period as was attributable to the FLP;

(c) thirdly, add the amount of any premium or instalment of premium (excluding the first premium or an instalment of the first premium) paid by the taxpayer in respect of the FLP in the immediately preceding period;

(d) fourthly, deduct the amount or value of so much (if any) of any distributions made to the taxpayer during the immediately preceding period in relation to the FLP. •

35 Value of interests in a FIF at time of acquisition (after start of relevant period)

"531. In the case of interests in a FIF, if the interests in the group were acquired by the taxpayer during the relevant period, the value of the interests on the relevant day is the consideration paid or given by

AO the taxpayer in respect of the acquisition.


No. ,1992

Value of a FLP at time of acquisition (after start of relevant period)

"532. In the case of interests in a FLP, if the interests were acquired by the taxpayer during the relevant period, the value of the FLP on the relevant day is:

(a) if the taxpayer had paid the whole of the consideration in' respect of the acquisition-the amount of that consideration; or

(b) otherwise-the amount of the first premium paid by the taxpayer in respect of the FLP.

5

Application of Rate of Return to Opening Value 10

Step 3-determination of foreign investment fund amount

"533.(1) The third step is to determine, in relation to the taxpayer in respect of the relevant period, the foreign investment fund amount in respect of the taxpayer's interests in the group or in the FLP.

"(2) The foreign investment fund amount, in relation to the 15 taxpayer's interests in the group or in the FLP, is the amount worked out using the formula:

Opening value X (Deemed rate of return + 4%) X

Number of days held


In the formula:

'Opening value' means the value of the interests in the group or the 20 value of the FLP on the relevant day;

'Deemed rate of return', in relation to the relevant period, means:

(a) if there is only one basic statutory interest rate in relation to the year of income in which the relevant period ends-that rate; or

(b) if there are 2 or more basic statutory interest rates in relation to that year of income-the weighted average of those rates;

25

'basic statutory interest rate', in relation to a year of income, means the interest rate, or each of the interest rates, applicable for the purposes of section 10 of the Taxation (Interest on Overpayments) Act 1983 for 30 the year of income or for periods included in the year of income, as the case may be;

'Number of days' held' means the number of days in the relevant period in which the taxpayer had the interests in the group or in the FLP;

'Total number of days' means the number of days in the relevant period. 35

Step 4-conversion of foreign investment fund amount to Australian currency

"534.(1) If the taxpayer's interests in the FIF during the relevant period constitute one group only, the foreign investment fund amount determined in respect of the taxpayer's interests in the group is to be 40


No. ,1992

51

"(2) If the taxpayer's interests in the FIF during the relevant period

5 constitute 2 or more groups, the sum of the foreign investment fund amounts respectively determined in respect of the taxpayer's interests in each of those groups is to be converted to the corresponding amount in Australian currency in accordance with the rate of exchange applicable at the end of that period. .

10 converted to the corresponding amount in Australian currency in accordance with the rate of exchange applicable at the end of that period.

"(3) In the case of the taxpayer's interests in a FLP during the relevant period, the foreign investment fund amount determined in respect of the interests is to be converted to the corresponding amount in Australian currency in accordance with the rate of exchange applicable at the end of that period.

15 Foreign investment fund income

"535. Foreign investment fund income equal to the corresponding amount calculated under subsection 534 (1), (2) or (3), as the case requires, is taken to have accrued to the taxpayer from the FIF or FLP in respect of the relevant period.

20 "Subdivision D-Calculation Method


Procedure for determining foreign investment fund income by calculation method

"536.(1) This Subdivision sets out the procedure for determining

25 by the calculation method whether any foreign investment fund income accrued to a person ('the taxpayer') from a particular FIF in respect of a notional accounting period ('the relevant period').

30

35

"(2) The procedure is to be applied separately for each taxpayer.

"(3) The procedure involves:

(a) determining whether, for the purposes of the application of this

Subdivision in relation to the taxpayer, there is any calculated profit or calculated loss in respect of the FIF in respect of the relevant period; and

(b) if there is such a calculated profit, determining the share of that calculated profit to which the taxpayer is entitled; and

(c) if there is such a calculated loss, taking the calculated loss into account in respect of subsequent notional accounting periods as provided in section 551.


No. ,1992

Determination of calculated profit or calculated loss of FIF

"537.(1) The first step in the procedure referred to in paragraph

536(3)(a) is to work out the notional income of the FIF of the relevant period.

"(2) The second step in that procedure is to work out the notional 5 deductions from that notional income.

"(3) If the notional income exceeds the notional deductions, the excess constitutes a calculated profit in respect of the FIF in respect of the relevant period.

"(4) If the notional income is less than the notional deductions, the 10 difference constitutes a calculated loss in respect of the FIF in respect of the relevant period.

"(5) All calculations for the purpose of determining whether there is a calculated profit or a calculated loss in respect of the FIF in respect of the relevant period are to be made in the currency in which the 15 accounts of the FIF are made out.

"( 6) If an amount that is to be included in the notional income of the FIF of the relevant period or is to be a notional deduction from that notional income is expressed in a currency other than the currency referred to in subsection (5), that amount is to be converted into the 20 corresponding amount in the currency referred to in subsection (5) at such rate of exchange as is reasonable and appropriate.

"(7) After any calculated profit in respect of the FIF in respect of the relevant period is determined, the amount of that calculated profit is to be converted into the corresponding amount in Australian currency 25 at the rate of exchange applicable at the end of the relevant period.

What is included in notional income

Notional income-general provision

"538.(1) The notional income of the FIF of the relevant period includes the gross income, and the profits or gains of a capital nature, 30 derived by the FIF during that period.

"(2) For the purposes of the application of this Subdivision to the taxpayer in relation to a FIF, an amount ('the excluded amount') is not to be taken into account in determining whether an amount is to be included in the notional income of the FIF of the relevant period, or 35 in calculating an amount to be so included, to the extent (if any) to which the excluded amount:

(a) has been, or is to be, allowed as a notional deduction, or taken into account in the calculation of a notional deduction, from the notional income of the FIF in respect of the relevant period 40 or a previous notional accounting period; or

5


No. ,1992

53

(b) would have been, or would be, allowed as a notional deduction, or taken into account in the calculation of a notional deduction, from the notional income of· the FIF in respect of a previous notional accounting period if the taxpayer had been required for the purposes of this Part to work out the. notional deductions from that notional income.

10

Section 538 to be subject to subsequent provisions

. "539. Section 538 is subject to sections 540 to 545, but those sections do not limit by implication the application of section 538 in circumstances to which those sections do not apply.

15

20

25

Notional income-discounted securities

"540.(1) Subject to subsection (2), if the FIF was the holder of a qualifying security within the meaning of Division 16E of Part III during the relevant period, that Division applies, so far as it is capable of application, for the purpose of determining whether an amount is included in the notional income of the FIF of the relevant period in respect of that security as if the FIF were a taxpayer that is a resident and that period were the year of income in which that period ends.

"(2) If the accounting standards applicable during the relevant period in the country in which the FIF is incorporated or established require part of any discount or deferred interest in respect of the qualifying security to be treated in the accounts of the FIF as having been derived by the FIF during that period on an accruing basis, and an amount is shown in those accounts as having been so derived, the amount to be included in the notional income of the FIF of that period in respect of that security is the amount so shown in those accounts.

30

Notional income-interest in net income from partnership

"541.(1) If:

. (a) the FIF was a partner in a partnership at the end of the accounting period of the partnership; and

(b) that accounting period of the partnership ends in the relevant period; the notional income of the FIF of the relevant period includes the interest of the FIF in any net income of the partnership of that

35 accounting period.

40


(a) a partnership has a net income in relation to an accounting period of the partnership if the amount that, if the partnership were a FIF and that accounting period were a notional accounting period, would be the notional income of the partnership of that accounting period under this section exceeds


No. ,1992 the notional deductions that would be allowable from that notional income; and

(b) the excess is taken to be the amount of that net income.

Notional income-foreign investment income from another· FIF

"542.(1) This section applies if a FIF ('the first tier FIF') had an 5 interest in another FIF ('the second tier FIF') during the whole or a part of the notional accounting period of the second tier FIF that ended in the relevant period.

"(2) The notional income of the first tier FIF includes any amount of foreign investment fund income that would be taken under this Part 10 to have accrued to the first tier FIF from the second tier FIF in respect of the relevant period if:

(a) the relevant period were a year of income, being the year of income of the taxpayer in relation to whom the notional income of the first tier FIF is being calculated; and

(b) the first tier FIF were a taxpayer that was a resident in relation to that year of income; and

15

(c) sections 484 to 486 and Divisions 2, 3,4 and 5 were disregarded; and

(d) references in this Part to assessable income were references to 20 notional income.

"(3) In calculating the foreign investment fund income referred to in subsection (2):

(a) any declaration, election or selection that could be made, any notice that could be given, or any option that could be exercised, 25 by the first tier FIF apart from this subsection is not to be made, given or exercised by the first tier FIF but instead may be made, given or exercised by the taxpayer referred to in paragraph (2)(a); and

(b) that taxpayer is taken not to have made an election to use the 30 calculation method in respect of the second tier FIF.

Notional income-~xclusion of certain dividends and trust distributions

"543. The notional income of the FIF in respect of the relevant period does not include any dividend or distribution paid to the FIF by another FIF. 35

Derivation of income, profits or gains

"544. Income, profits or gains are taken to have been derived by a

FIF although the income, profits or gains are not actually paid to the

FIF but are reinvested, accumulated, capitalised, carried to a reserve, sinking fund or insurance fund (however designated), or are otherwise 40 dealt with on behalf of the FIF or as the FIF directs.


No. ,1992

55

Notional income to be pre-tax

"545. An amount included in the notional income of a FIF is an amount before the payment of any foreign tax or Australian tax in respect of that amount.

5 What are notional deductions

Notional deductions-general provision

"546. Subject to sections 547 to 553, any losses or outgoings of a revenue or capital nature incurred by the FIF during the relevant period, to the extent to which they relate to income, or to profits or

10 gains of a revenue nature, are notional deductions from the notional income of the FIF of that period.

Notional deductions-expenditure in acquiring trading stock

"547. Without limiting the generality of section 546, expenditure incurred by the FIF during the relevant period in the acquisition of

15 trading stock is, subject to section 553, a notional deduction from the notional income of the FIF of that period.

Notional deductions-exclusion of expenditure in acquiring securities or partnership interest

"548. Expenditure incurred by the FIF during the relevant period

20 in the acquisition of shares or interests in shares in a company, an interest in a trust, other securities, or an interest in a partnership, is not a notional deduction from the notional income of the FIF of that period.

25

30

35

Notional deductions-amortisation of expenditure in acquiring property

"549.(1) If:

(a) the accounts of the FIF in respect of the relevant period include an amount in respect of the amortisation of the expenditure incurred in the acquisition of:

(i) plant or articles within the meaning of section 54; or

(ii) industrial property within the meaning of Division lOB of Part Ill; or

(iii) any other prescribed class of property; and

(b) the amortisation is based on the effective life of the plant, articles or industrial or other property; and

(c) the accounts were prepared in accordance with generally accepted accounting principles and give a true and fair view of the financial position of the FIF; the amount so included is, subject to section 553, a notional deduction from the notional income of the FIF of the relevant period.


No. ,1992

"(2) Except as provided in subsection (1), no amount in respeCt of the amortisation of expenditure in the acquisition of any property is a notional deduction from the notional income of the FIF of the relevant period.

Notional deductions-interest in partnership loss

"550.(1) If:

(a) the FIF was a partner in a partnership at the end of an accounting period of the partnership; and

(b) that accounting period of the partnership ends in the relevant period; the interest of the FIF in a partnership loss of the partnership of that accounting period is, subject to section 553, a notional deduction from the notional income of the FIF of the relevant period.

5

10


(a) a partnership has a partnership loss in relation to an accounting 15 period of the partnership if the amount of the deductions that, if the partnership were a FIF and that accounting period were a notional accounting period, would be notional deductions under this section from the notional income of the FIF of that period exceeds that notional income; and 20

(b) the excess is taken to be the amount of that partnership loss.

Notional deductions-past calculated losses .

"551.(1) I(there was any calculated loss, or there were any calculated losses, in respect of the FIF under subsection 537(4) in respect of any notional accounting period or notional accounting periods of the FIF 25 that preceded the relevant period (other than such a preceding notional accounting period that ended before the taxpayer first acquired an interest in the FIF), so much of that calculated loss or of those calculated losses as has not been allowed as a notional deduction from the notional income of the FIF of any of those preceding notional 30 accounting periods is a notional deduction from the notional income of the FIF of the relevant period.

"(2) If 2 or more calculated losses are· notional deductions under subsection (1), the calculated losses are to be taken into account in the order in which they were incurred. 35

"552. An amount paid by the FIF in respect of Australian tax or foreign tax is a notional deduction from the notional income of the

FIF in respect of the relevant period to the extent to which the tax or foreign tax relates to an amount or amounts included in that notional 40 income.


No. ,1992

57

5

10

15

20

25

30

Notional deductions-certain amounts to be excluded

"553.(1) The following expenditure incurred by the FIF during the relevant period is not a notional deduction from the notional income of the FIF of that period:

(a) expenditure incurred in the acquisition of:

(i) plant, articles or industrial or other property referred to in paragraph 549(1 )(a); or

(ii) land or buildings; or

(iii) goodwill; or

(iv) gold, silver or other precious metals; or

(v) any other capital asset; except to the extent that the expenditure is incidental to the acquisition;

(b) repayments of debts;

(c) any other prescribed expenditure.

"(2) For the purposes of the application of this Subdivision to the taxpayer in relation to a FIF, an amount is not to be a notional deduction from the notional income of the FIF of the relevant period to the extent (if any) to which the amount:

(a) has been, or is to be, taken into account in the calculation, in relation to the taxpayer, of an amount included, or to be included, in the notional income of the FIF in respect of the relevant period or in respect of a previous notional accounting period; or

(b) would have been, or would be, taken into account in the calculation, in relation to the taxpayer, of an amount that would have been, or would be, included in the notional income of the

FIF in respect of a previous notional accounting period if the taxpayer had been required for the purposes of this Part to work out that notional income.

How to determine taxpayer's share of calculated profit of foreign company

Procedure to be followed

"554.(1) The procedure for determining the share of the calculated

35 profit of a foreign company in respect of the relevant period to which the taxpayer is entitled is to work out in accordance with this section:

40

(a) the part of the taxpayer's share of the calculated profit that is attributable to any interest or interests that the taxpayer had in the company throughout the whole of the relevant period; and

(b) the part or parts of the taxpayer's share of the calculated profit that is or are attributable to any interest or interests that the


No. ,1992 taxpayer had throughout a particular part or particular parts of the relevant period; and to add up the amounts so worked out.

"(2) If the taxpayer had an interest or interests in the company throughout the whole of the relevant period, the part of the taxpayer's 5 share of the calculated profit that is attributable to that interest or those interests is the amount worked out using the formula:

Calculated profit X Attribution percentage.

"(3) If the taxpayer had an interest or interests in the company throughout a particular part of the relevant period, the part of the taxpayer's share of the calculated profit that is attributable to that 10 interest or those interests is the amount worked out using the formula:

. . Number of days held

Calculated profit X Attribution percentage X - - - - - : : . . - - -


"(4) In the formulas in this section:

'Calculated profit' means the calculated profit of the company in respect of the relevant period;

'Attribution percentage' means the attribution percentage applicable to 15 the taxpayer in respect of the company:

(a) if the taxpayer had the interest or interests at the end of the relevant period-at the end of the relevant period; or

(b) otherwise-at the time immediately before the taxpayer ceased to have the interest or interests; 20

'Number of days held' means the number of days in the part of the relevant period throughout which the taxpayer had the interest or interests;

'Total number of days' means the number of days in the relevant period.

How to work out attribution percentage applicable to taxpayer in respect of interest or interests in foreign company

25

"555.(1) The attribution percentage applicable to the taxpayer in respect of the taxpayer's interest or interests in a foreign company at a particular time ('the test time') is the percentage that, because of that interest or those interests, as the case may be, the taxpayer had, or was 30 entitled to acquire, at that time of:

(a) the total paid-up share capital of the company; or

(b) the total rights of shareholders to vote, or participate in any decision-making, concerning any of the following:

(i) the making of distributions of capital or profits of the 35 company to its shareholders;

(ii) the constituent document of the company;

(iii) any variation of the share capital of the company; or

~


No. ,1992

59

(c) the total rights to distributions of capital or profits of the company to its shareholders on winding-up; or

(d) the total rights to distributions of capital or profits of the company to its shareholders, otherwise than on winding-up;

5 or, if different percentages are applicable under the preceding paragraphs, the greater or greatest of those percentages.

"(2) If the percentage of total rights to vote or participate in decision-making differs as between differing types of decision-making, the highest of those percentages applies for the purposes of paragraph

10 (l)(b).

"(3) For the purposes of subsection (1), the percentage that the taxpayer had, or was entitled to acquire, at the test time, because of an interest or interests in the company, of the total rights to distributions of capital or profits of the company to its shareholders on winding-up,

15 or of the total rights to distributions of capital or profits of the company to its shareholders otherwise than on winding-up, is to be worked out in either case by:

20

(a) ascertaining whichever of the following is applicable:

(i) the capital of the company as at the end of the relevant period;

25

(ii) the profits of the company for the relevant period; and

(b) assuming that the rights to such distributions that the taxpayer had, or was entitled to acquire, at the test time because of the interest or interests were the same at all other times during the relevant period; and

30

(c) ascertaining the percentage concerned:

(i) if the test time is a time other than the end of the relevant period-at the end of that period instead of at the test time; and


How to determine taxpayer's share of calculated profit of foreign trust


"556.(1) The share of the calculated profit of a foreign trust in respect of the relevant period to which the taxpayer is entitled is to be

35 worked out in accordance with this section.

40

"(2) If all of the income, profits or gains derived by the trust during the relevant period consisted of either or both of the following:

(a) income, profits or gains to which beneficiaries of the trust were presently entitled; or

(b) income, profits or gains to which beneficiaries of the trust were not presently entitled but which were distributed to beneficiaries


No. ,1992 of the trust during the relevant period or within 2 months after the end of that period; the share of the calculated profit of the trust in respect of the relevant period to which the taxpayer is entitled is the amount worked out using the formula: 5


In the formula:

'Calculated profit' means the calculated profit of the trust of the relevant period;

'Attribution percentage' means the percentage of the total income, profits and gains derived by the trust during the relevant period to which the 10 taxpayer was presently entitled or to which the taxpayer was not presently entitled but which was distributed to the taxpayer during the relevant period or within 2 months after the end of the relevant period.

"(3) If subsection (2) does not apply, the share of the calculated profit of the trust in respect of the relevant period to which the taxpayer 15 is entitled is the amount determined by calculating:

(a) the part of the share of the calculated profit to which the taxpayer is entitled that is attributable to any interest or interests that the taxpayer had in the trust throughout the whole of the relevant period; and 20

(b) the part or parts of the share of the calculated profit to which the taxpayer is entitled that is or are attributable to any interest or interests that the taxpayer had in the trust throughout a particular part or particular parts of the relevant period; and adding up the amounts so calculated. 25

"(4) The part of the share of the calculated profit of the trust in respect of the relevant period to which the taxpayer is entitled that is attributable to an interest or interests that the taxpayer had in the trust throughout the whole of the relevant period is the amount worked out using the formula: 30


"(5) The part of the share of the calculated profit of the trust in respect of the relevant period to which the taxpayer is entitled that is attributable to an interest or interests that the taxpayer had in the trust throughout a particular part of the relevant period is the amount worked out using the formula:

. .

Calculated profit X AttrIbution percentage X

Number of days held f d

Total number

0 ays

"(6) For the purposes of the formulas in subsections (4) and (5):

35

5

10

15

20

25

30

35

40


No. ,1992

61

'Calculated profit' means the calculated profit of the trust of the relevant period;

'Attribution percentage' means:

(a) the percentage of the income of the trust represented by the share of the income to which the taxpayer was entitled, or was entitled to acquire, at the test time because of:

(i) the taxpayer's interest or interests in the trust; and

(ii) any interest or interests in the trust that the taxpayer was entitled to acquire; or

(b) the percentage of the corpus of the trust represented by the share of the corpus to which the taxpayer was entitled, or was entitled to acquire, at the test time because of:

(i) the taxpayer's interest or interests in the trust; and

(ii) any interest or interests in the trust that the taxpayer was entitled to acquire; or, if those percentages differ, the greater of those percentages;

'Number of days held' means the number of days in the part of the relevant period throughout which the taxpayer had the interest;

'Total number of days' means the number of days in the relev~nt period;

'the test time' means:

(a) if the taxpayer had an interest or interests in the trust at the end of the relevant period-the end of the relevant period; or

(b) if the taxpayer ceased during the relevant period to have any interest in the trust-the time immediately before the taxpayer ceased to have such an interest.


(a) the percentage of the income of the trust represented by the share of the income to which the taxpayer was entitled, or was entitled to acquire, at the test time because of the interest or interests referred to in subparagraph (a)(i) or (ii) of the definition of 'attribution percentage' in that subsection; or

(b) the percentage of the corpus of the trust represented by the share of the corpus to which the taxpayer was entitled, or was entitled to acquire, at the test time because of the interest or interests referred to in subparagraph (b )(i) or (ii) of the definition of 'attribution percentage' in that subsection; is to be worked out by:

(c) ascertaining whichever of the following is applicable:

(i) the income of the trust for the year of income;

(ii) the corpus of the trust as at the end of the year of income; and

(d) assuming that the share to which the taxpayer is entitled, or became entitled to acquire, at the test time because of the


No. ,1992 interest or interests was the same at all other times during the year of income; and

(e) ascertaining the percentage concerned:

(i) if the test time is a time other than the end of the year of income-at the end of the year of income instead of 5 at the test time; and


"(8) A reference in this section to income, profits or gains having been distributed to a taxpayer is a reference to an amount included in such income, profits or gains having been paid or credited to, or applied 10 for the benefit of, the taxpayer.


"557. If the taxpayer is entitled to a share of the calculated profit of the FIF in respect of the relevant period, foreign investment fund income equal to the amount of that share is taken to have accrued to 15 the taxpayer from the FIF in respect of that period.

"Division 8-FIF Attribution Accounts

FIF attribution account entity

"558. Each of the following is a FI~ attribution account entity:

(a) a company that is not a resident of Australia;

(b) a partnership;

(c) a trust.

20

FIF attribution account percentage

"559. The FIF attribution account percentage of a taxpayer in relation to a FIF attribution account entity is the interest· that the 25 taxpayer has in the income or profits of the entity, whether directly, or indirectly through one or more interposed partnerships or trusts (but not companies).

FIF attribution account payments

"560.(1) Each of the following is a FIF attribution account payment: 30

(a) a dividend paid by a company to a shareholder;

(b) the individual interest of a partner in the net income (within the meaning of section 90) of a partnership of a year of income;

(c) if a beneficiary of a trust is presently entitled to a share of the income of the trust-that share of the net income (within the 35 meaning of section 95) of the trust of a year of income;

(d) the whole or part of the net income of a trust of a year of income that is assessable to the trustee under section 99 or

99A;

5


No. ,1992

63

(e) an amount of trust property that would be included in the assessable income of a beneficiary of a year of income under section 99B if:

(i) the beneficiary were a resident, within the meaning of section 6, at a time during the year of income; and

(ii) paragraph 99B(2)(c) were replaced by a paragraph referring to any FIF attribution account payment under paragraph (c) or (d) of this subsection. .

10

"(2) The FIF attribution account payment is taken to be made:

(a) in a paragraph (1)(b) case-by the partnership to the partner; and

(b) in a paragraph (1)( c )or (e) case-by the trust to the beneficiary; and

(c) in a paragraph (d) case-by the trust to the trustee;

15 and, in any such case, to be made at the end of the year of income.


"561. A FIF attribution surplus for a FIF attribution account entity in relation to a taxpayer exists at a particular time if the entity's total

FIF attribution credits arising before that time in relation to the

20 taxpayer exceed its total FIF attribution debits arising before that time in relation to the taxpayer.

25

30

FIF attribution credit

"562.(1) A FIF attribution credit arises for a FIF attribution account entity ('the eligible entity') in relation to a taxpayer if:

(a) an amount is included in the taxpayer's assessable income under section 506 in respect of the foreign investment fund

. income of the eligible entity in respect of a notional accounting period of the eligible entity; or

(b) a FIF attribution account payment that requires a FIF attribution debit for another entity in relation to the taxpayer is made to the eligible entity.

"(2) Subject to subsections (4) to (7), the amount of the FIF attribution credit is equal to the amount included in the assessable income or to the amount of the FIF attribution debit, as the case may

35 be.

40

"(3) The FIF attribution credit arises:

(a) in a paragraph (1)(a) case-at the end of the notional accounting period referred to in that paragraph; or

(b) in a paragraph (1 )(b) case-when the FIF attribution account payment referred to in that paragraph is made.


No. ,1992

"(4) If, apart from this subsection, a FIF attribution credit would arise in relation to. a FIF attribution account entity for an Australian partnership or an Australian trust in respect of an amount included in the assessable income of the partnership or trust of a year of income under section 506, then, subject to subsection (7):

(a) the FIF attribution credit does not arise for the partnership or trust; and

(b) a FIF attribution credit arises in relation to the FIF attribution account entity for:

5

(i) any taxpayer for whom, as a result of the amount being 10 so included, a tax detriment would arise in circumstances set out in subsection (5); and

(ii) any taxpayer if, as a result of the amount being so included, a tax detriment would arise for the trustee of a trust in which the taxpayer is a beneficiary, in respect of 15 an amount assessable to the trustee under section 98 in respect of the taxpayer's share of the net income of the trust, in circumstances set out in subsection (6); and

(iii) any taxpayer in the capacity of trustee of a trust if, as a result of the amount being so included, a tax detriment 20 would arise for the taxpayer in respect of an amount assessable to the taxpayer under section 99 or 99A, in circumstances set out in subsection (6); and

(c) the amount of the FIF attribution credit referred to in paragraph

(b) equals the amount of the tax detriment; and 25

(d)' the FIF attribution credit referred to in paragraph (b) arises at the time when the FIF attribution credit referred to in paragraph

(a) would, apart from this subsection, have arisen.

"(5) The circumstances referred to in subparagraph (4)(b)(i) ~re:

(a) the circumstances set out in the following subparagraphs:

(i) as a result of the amount being included as mentioned in subsection (1), there is a tax detriment for:

(A) a partner in the Australian partnership; or

30

(B) a partner in another partnership ('the ultimate partnership'), if the tax detriment occurred because 35 there were one or more partnerships or trusts (but not companies) interposed between the partner and the Australian partnership or the Australian trust; and

(ii) the partner is not, in respect of his or her interest in the 40 net income or partnership loss of the Australian partnership or the ultimate partnership, in the capacity of trustee of a trust; or

(b) the circumstances set out in the following subparagraphs:


No. ,1992

65

5

10

25

30

(i) as a result of the amount being included as mentioned in subsection (1), there is a tax detriment for:

(A) a beneficiary in the Australian trust; or

(B) a beneficiary in another trust ('the ultimate trust'), if the tax detriment occurred because there were one or more partnerships or trusts (but not companies) interposed between the beneficiary and the Australian partnership or the Australian trust; and

(ii) the beneficiary is not a partnership and is not, in respect of his or her share of the net income of the Australian trust or the ultimate trust, in the capacity of trustee of another trust.

"(6) The circumstances referred to in subparagraph (4)(b)(ii) or (iii)

15 are that, as a result of the amount being included as mentioned in subsection (1), there is a tax detriment for:

20

(a) the trustee of the Australian trust; or

(b) the trustee of another trust ('the ultimate trust'), if the tax detriment occurred because there were one or more partnerships or trusts (but not companies) interposed between the trustee and the Australian partnership or the Australian trust.

"(7) Subsection (4) does not apply to an Australian trust that is, in relation to the year of income referred to in that subsection:

(a) a corporate unit trust within the meaning of Division 6B of

Part Ill; or

(b) a public trading trust within the meaning of Division 6C of that Part; or

(c) an eligible entity within the meaning of Part IX; or

(d) a resident public unit trust within the meaning of subsection

96A(4).

35

I 40

FIF attribution debit

"563.(1) A FIF attribution debit arises for a FIF attribution account entity ('the eligible entity') in relation to a taxpayer if:

(a) the eligible entity makes a FIF attribution account payment to the taxpayer, an Australian trust or an Australian partnership; and

(b) immediately before the eligible entity makes the FIF attribution account payment, there is a FIF attribution surplus for the eligible entity in relation to the taxpayer.

"(2) The amount of the FIF attribution debit is the lesser of:

(a) the FIF attribution surplus; and

(b) whichever of the following is applicable:


No. ,1992

(i) if the attribution account payment is made to the taxpayer-the FIF attribution account payment;

(ii) in any other case-the taxpayer's FIF attribution account percentage (for the FIF attribution account entity to which the payment is made) of the FIF attribution 5 account payment.

"(3) The FIF attribution debit arises when the FIF attribution account payment is made.

"Division 9-FIF Attributed Tax Accounts

FIF attributed tax account surplus

"564. A FIF attributed tax account surplus for a FIF in relation to a taxpayer exists at a particular time if the FIF's total attributed tax account credits arising before that time in relation to the taxpayer exceed its total FIF attributed tax account debits arising before that time in relation to the taxpayer. .

10

15

FIF attributed tax account credit

"565.(1) A FIF attributed tax account credit arises for a FIF in relation to a taxpayer if, on the assumption that the references in sections 160AFCE and 160AFCF to a notional deduction under

Subdivision D of Division 7 of this Part did not include a reference to 20 a deduction in respect of Australian tax, the taxpayer would be taken by those sections to have paid, and to have been personally liable for, an amount of foreign tax in respect of an amount included in the taxpayer's assessable income under section 506 in respect of a notional accounting period of the FIF. 25 tax.

"(2) The amount of the credit is equal to the amount of the foreign

"(3) The FIF attributed tax account credit arises at the end of the notional accounting period referred to in subsection (1).

FIF attributed tax account debit

"566.(1) A FIF attributed tax account debit arises for a FIF in relation to a taxpayer if:

30

(a) the FIF makes a FIF attribution account payment to the taxpayer; and

(b) the FIF attribution account payment requires a FIF attribution 35 debit for the FIF in relation to the taxpayer.

"(2) The amount of the FIF attributed tax account debit . is the amount worked out using the formula:


No. ,1992

67

FIF attribution debit


X FIF attributed tax account surplus.

In the formula:

'FIF attribution debit' means the amount of the FIF attribution debit;

'FIF attribution surplus' means the amount of the FIF attribution surplus, for the FIF making the FIF attribution account payment, in

5 relation to the taxpayer immediately before the FIF attribution debit arose;

'FIF attributed tax account surplus' means the amount of the FIF attributed tax account surplus.

"(3) The FIF attributed tax account debit arises when the FIF

10 attribution account payment is made.

15

20

25

30

35

"Division lO-Post-attribution Asset Disposals

Reduction of disposal consideration if FIF attributed income not distributed

"567.(1) If:

(a) it is necessary, for the purposes of applying a provision of this

Act in the assessment of a taxpayer for a year of income, to take into account the amount of consideration received, entitled to be received or taken to have been received, by the taxpayer in respect of the disposal of an asset, being an interest in a FIF attribution account entity; and

C

(b) immediately before the disposal takes place there is aFIF attribution surplus for the FIF attribution account entity in relation to the taxpayer; then, for the purposes of this Act:

(c) the consideration that, apart from this section, would be taken into account under the provision referred to in paragraph (a) in respect of the disposal is taken to be reduced by so much of the amount of the FIF attribution surplus as does not exceed the consideration; and

(d) a FIF attribution debit is taken to arise at the time of the disposal under section 563, in relation to the taxpayer, for the

FIF attribution account entity; and

(e) the amount of the FIF attribution debit is equal to so much of the surplus as is taken into account under paragraph (c).

"(2) For the purposes of this section, if the provision referred to in paragraph (1)(a) is in Part IlIA, references in this section to the disposal of an asset are references to the disposal of an asset within the meaning of that Part.


No. ,1992

"(3) For the purposes of paragraph (1)(c), if the disposal of the asset causes the taxpayer's FIF attribution account percentage for the

FIF attribution account entity to be reduced by a proportion, then only that proportion of the FIF attribution surplus for the entity is to be taken into account under that paragraph. 5

"Division ll-Keeping of Records

Application of Division

"568. This Division applies to a taxpayer who had an interest or interests in a FIF or a FLP at the end of a year of income ending on or after 1 July 1992. 10

Records of acts, transactions etc.

"569. The taxpayer must make and keep records in Australia containing particulars of:

(a) the acts, transactions and other circumstances that resulted in the taxpayer having the interest or interests in the FIF or FLP 15 at the end of the year of income; and

(b) except in the case of a taxpayer who, because of section 484,

485 or 486 or Division 2, 3, 4 or 5, is exempt from taxation in respect of the interest or interests in respect of the notional accounting period of the FIF or FLP that ended in the year of 20 income-the basis of the calculation of the interest or the interests at that time.

Interest in FIF -if market value method was applied

"570. If, in the case of an interest or interests in a FIF, the market value method was applied to determine whether foreign investment 25 fund income accrued to the taxpayer from the FIF in respect of the notional accounting period of the FIF that ended in the year of income, the taxpayer must make and keep records in Australia containing particulars of:

(a) if any foreign investment fund income accrued to the taxpayer 30 from the FIF in respect of that notional accounting periodthe basis of the calculation of:

(i) that foreign investment fund income; and

(ii) any previous foreign investment fund loss, and any previous foreign investment fund income, within the 35 meaning of subsection 516(6); or

(b) if any foreign investment fund loss was incurred by the taxpayer from the FIF in respect of that notional accounting periodthat foreign investment fund loss.


No. ,1992

69

Interest in FIF -if deemed rate of return method was applied

"571. If, in the case of an interest or interests in a FIF, the deemed rate of return method was applied to determine whether foreign investment fund income accrued to the taxpayer from the FIF in

5 respect of the notional accounting period of the FIF that ended in the year of income, the taxpayer must make and keep records in Australia containing particulars of the basis of the calculation of the foreign investment fund income that accrued to the taxpayer from the FIF in respect of that period.

10 Interest in FIF -if calculation method was applied

15

"572. If, in the case of an interest or interests in a FIF, the calculation method was applied to determine whether foreign investment fund income accrued to the taxpayer from the FIF in respect of the notional accounting period of the FIF that ended in the year of income, the taxpayer must make and keep records in Australia containing particulars of:

20

(a) if there is a calculated profit in respect of the FIF in respect of that notional accounting period-the basis of the calculation of:

(i) that calculated profit; and

25

(ii) so much (if any) of any calculated loss or calculated losses in respect of a preceding notional accounting period or preceding notional accounting periods of the FIF as was taken into account under section 551 in determining that calculated profit; and

(b) the basis of the calculation of any foreign investment fund income that accrued to the taxpayer from the FIF in respect of that period.

30

Interest in FLP

"573. In the case of an interest or interests in a FLP, the taxpayer must make and keep records in Australia containing particulars of the basis of the calculation of the foreign investment fund income that accrued to the taxpayer from the FLP in respect of the notional accounting period of the FLP that ended in the year of income.

35 Interest in FIF or FLP-if exemption applied

"574. If the taxpayer is exempt from taxation under this Part in respect of the interest or interests in a FIF or a FLP in respect of the notional accounting period of the FIF or FLP that ended in the year of income, the taxpayer must make and keep records in Australia

40 containing particulars of the basis on which the exemption applied, including any acts, transactions, calculations and other circumstances relevant to the application of the exemption.


No. ,1992

Offence of failing to keep records

"575. A person who contravenes section 569, 570, 571, 572, 573 or 574 is guilty of an offence punishable on conviction by a fine not exceeding $3,000.

Manner in which records required to be kept

"576. A person who is required by this Division to make and keep records must:

(a) make and keep the records in writing in the English language or so as to enable the records to be readily accessible and convertible into writing in the English language; and

(b) make and keep the records so as to enable the person's liability under this Act to be readily ascertained.

5

10

If calculation method was applied-defence for failing to keep records if information unobtainable

"577. In a prosecution of a person for an offence against section 15

5 72 for failing to keep a record containing particulars of the basis of a calculation, it is a defence if the person proves that the calculation was based on information that the person believed to be contained in the accounts (other than published accounts) of a FIF and that the person made all reasonable efforts to obtain particulars of the accounts or the 20 relevant parts of the accounts but was unable to obtain them.

Treatment of partnerships

"578.(1) Subject to subsections (2) and (3), the following provisions apply to a partnership as if the partnership were a person:

(a) sections 568 to 577;

(b) subsections 262A(4) and (5), in so far as those subsections apply to records kept under or for the purposes of this Division;

(c) Part III of the Taxation Administration Act 1953, in so far as that Part of that Act relates to the provisions covered by paragraph (a) or (b) of this subsection.

25

30

"(2) If, because of subsection (1), an offence is taken to have been committed by a partnership, that offence is taken to have been committed by each of the partners.

"(3) In a prosecution of a person for an offence because of subsection

(2), it is a defence if the person proves that the person:

(a) did not aid, abet, counsel or procure the act or omission because of which the offence was taken to have been committed; and

35

(b) was not in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, an act or omission because 40 of which the offence is taken to have been committed.".


No. ,1992

New Schedules 3 to 6

26. The Principal Act is amended by adding after Schedule 2:

71

"SCHEDULE 3 Section 484

EXEMPT FOREIGN TRUSTS ESTABLISHED IN COUNTRIES

THAT PROHIBIT DIRECT FOREIGN INVESTMENT ON STOCK

EXCHANGES IN THOSE COUNTRIES

India

Himalaya Fund

India Fund

India Growth Fund

India Magnum Fund

Korea, Republic of

Baring Korea Fund

Daechan Korea Trust

GT Korea Fund

Korea Emerging Company Trust

Korea Equity Trust

Korea-Euro Fund

Korea Growth

Korea International Trust

Kotea Liberalisation Fund Ltd

Korea Nineteen Ninety Trust

Korea Small Company Fund

Korea Trust

Seoul International

Seoul Trust

Taiwan

Formosa Fund

Taipei Fund

Taiwan Fund

Taiwan (RoC) Fund

"SCHEDULE 4

Section 496

DESIGNATED ACTIVITIES FOR THE PURPOSES

OF DIVISION 3 OF PART XI

(a) The development of agricultural, pastoral, horticultural or viticultural resources.

(b) Forest operations.

(c) Fishing operations.


No. ,1992

SCHEDULE 4-continued

(d) Manufacturing or processing.

(e) The exploration or development of mineral resources.

(f) The selling, by wholesale or retail, of products of an activity referred to in paragraph (a), (b), (c), (d) or (e).

(g) The provision of accounting, actuarial, architectural, engineering, legal or medical services.

(h) The provision of advertising services.

(i) Construction.

(j) The generation of electricity.

(k) The supply of electricity or gas.

(1) The provision of health services.

(m) The provision of hospitality services.

(n) The conduct of life assurance business in accordance with section 498.

(0) Publishing or printing.

(p) Sound broadcasting or television.

(q) The provision of telecommunications services.

(r) The selling, by wholesale or retail, of equipment or services for use in connection with telecommunications services.

(s) The provision of facilities or services in connection with tourism.

(t) Transportation by land, sea or air. ~

(u) The supply of water or of sewerage services.

(v) Funds management, or other financial services, effectively connected with an activity referred to in any of the preceding paragraphs.

"SCHEDULE 5

Section 470

APPROVED STOCK EXCHANGES FOR THE PURPOSES OF

PART XI

Argentina

Buenos Aires stock exchange

Cordoba stock exchange

La Plata stock exchange

Medoza stock exchange

Rusario stock exchange

Austria

Vienna stock exchange


No. ,1992

SCHEDULE S-continued

Belgium

Antwerp stock exchange

Brussels stock exchange

Liege stock exchange

Brazil

Belo Horizonte stock exchange

Curtiba stock exchange

Fortalezo stock exchange

Porto Alegro stock exchange

Recife stock exchange

Rio de Janeiro stock exchange

Salvador stock exchange

Santos stock exchange

Sao Paulo stock exchange

Canada

Calgary stock exchange

Montreal stock exchange

Toronto stock exchange

Vancouver stock exchange

Winnipeg stock exchange

Chile

Santiago stock exchange

Valparaiso stock exchange

China

Shanghai stock exchange

Shenzen stock exchange

Denmark

Copenhagen stock exchange

Finland

Helsinki stock exchange

France

Bordeaux stock exchange

Lille stock exchange

Lyons stock exchange

Marseilles stock exchange

Paris stock exchange

73


No. ,1992


Germany

Berlin stock exchange

Dusseldorf stock exchange

Frankfurt stock exchange

Hamburg stock exchange

Hanover stock exchange

Munich stock exchange

Stuttgart stock exchange

Greece

Athens stock exchange

Hong Kong

Hong Kong stock exchange

Hungary

Budapest stock exchange

India

Bombay stock exchange

Calcutta stock exchange

Delhi stock exchange

Madras stock exchange

Indonesia

Jakarta stock exchange

Surabaya stock exchange

Ireland

Dublin stock exchange

Israel

Tel A viv stock exchange

Italy

Bologna stock exchange

Florence stock exchange

Genoa stock exchange

Milan stock exchange

Naples stock exchange

Palermo stock exchange

Rome stock exchange

Trieste stock exchange

Turin stock exchange

Venice stock exchange


No. ,1992


Jamaica

Jamaica stock exchange

Japan

Hiroshima stock exchange

Kyoto stock exchange

Nagoya stock exchange

Niigata stock exchange

Osaka stock exchange

Pukvoka stock exchange

Sapparo stock exchange

Tokyo stock exchange

Korea, Republic of

Seoul stock exchange

Luxembourg

Luxembourg stock exchange

Malaysia

Kuala Lumpur stock exchange

Mexico

Mexican stock exchange

Netherlands

Amsterdam stock exchange

New Zealand

New Zealand stock exchange

Nigeria

Nigerian stock exchange

Norway

Oslo stock exchange

Pakistan

Philippines

Makati stock exchange

Manila stock exchange

Portugal

Lisbon stock exchange

Oporto stock exchange

75


No. ,1992

SCHEDULE 5--continued

Singapore

Singapore stock exchange

Slovenia

Ljubljana stock exchange

South Africa

Johannesburg stock exchange

Spain

Barcelona stock exchange

Bilbao stock exchange

Madrid stock exchange

Valencia stock exchange

Sweden

Stockholm stock exchange

Switzerland

Basle stock. exchange

Geneva stock exchange

Zurich stock exchange

Taiwan

Taiwan stock exchange

Thailand

Thailand stock exchange

Trinidad and Tobago

Trinidad and Tobago stock exchange

Turkey

Istanbul stock exchange

United Kingdom

London stock exchange

United States

American stock exchange

Boston stock exchange

Cincinnati stock exchange

Midwest stock exchange

NASDAQ stock exchange

New York stock exchange

Pacific stock exchange

Philadelphia stock exchange


No. ,1992


Uruguay

Montevideo stock exchange

Venezuela

Caracas stock exchange

Maracaibo stock exchange

Yugoslavia

Belgrade stock exchange

77

"SCHEDULE 6

APPROVED INTERNATIONAL SECTORAL

CLASSIFICATION SYSTEMS

Bloomberg's Information Systems

Financial Times-Actuaries World Index

Morgan Stanley Capital International Index

Solomon Brothers Frank Russell Index

Standard and Poor's Composite Index (S&P 500)".

Section 500

NOTE

1. No. 27, 1936, as amended. For previous amendments, see No. 88, 1936; No.

5, 1937; No. 46, 1938; No. 30, 1939; Nos. 17 and 65, 1940; Nos. 58 and 69,

1941; Nos. 22 and 50, 1942; No. 10, 1943; Nos. 3 and 28, 1944; Nos. 4 and

37, 1945; No. 6, 1946; Nos. 11 and 63, 1947; No. 44, 1948; No. 66, 1949; No.

48, 1950; No. 44, 1951; Nos. 4, 28 and 90, 1952; Nos. 1,28,45 and 81, 1953;

No. 43, 1954; Nos. 18 and 62, 1955; Nos. 25, 30 and 101, 1956; Nos. 39 and

65, 1957; No. 55, 1958; Nos. 12,70 and 85, 1959; Nos. 17, 18,58 and 108,

1960; Nos. 17,27 and 94,1961; Nos. 39 and 98,1962; Nos. 34 and 69,1963;

Nos. 46, 68,110 and 115, 1964; Nos. 33,103 and 143, 1965; Nos. 50 and 83,

1966; Nos. 19, 38, 76 and 85, 1967; Nos. 4, 70, 87 and 148, 1968; Nos. 18,93 and 101, 1969; No. 87, 1970; Nos. 6, 54 and 93, 1971; Nos. 5,46,47, 65 and

85, 1972; Nos. 51, 52, 53, 164 and 165, 1973; No. 216, 1973 (as amended by

No. 20, 1974); Nos. 26 and 126, 1974; Nos. 80 and 117, 1975; Nos. 50, 53,

56,98, 143, 165 and 205, 1976; Nos. 57, 126 and 127, 1977; Nos. 36, 57, 87,

90,123,171 and 172, 1978; Nos. 12,19,27,43,62,146,147 and 149, 1979;

Nos. 19,24, 57, 58, 124, 133, 134 and 159, 1980; Nos. 61, 92, 108, 109, 110,

111, 154 and 175, 1981; Nos. 29, 38, 39, 76, 80, 106 and 123, 1982; Nos. 14,

25, 39, 49, 51, 54 and 103, 1983; Nos. 14, 42, 47, 63, 76, 115, 124, 165 and

174, 1984; No. 12, 1984 (as amended by No. 65, 1985); Nos. 47, 49, 104, 123,

168 and 174, 1985; No. 173, 1985 (as amended by No. 49, 1986); Nos. 41, 46,

48,51, 109, 112 and 154, 1986; No. 49, 1986 (as amended by No. 141, 1987);

No. 52, 1986 (as amended by No. 141, 1987); No. 90, 1986 (as amended by


No. ,1992

NOTE-continued

No. 141, 1987); Nos. 23, 58, 61, 120, 145 and 163, 1987; No. 62, 1987 (as amended by No. 108, 1987); No. 108, 1987 (as amended by No. 138, 1987);

No. 138, 1987 (as amended by No. 11, 1988); No. 139, 1987 (as amended by

Nos. 11 and 78, 1988); Nos. 8, 11, 59, 75, 78, 80, 87, 95, 97, 127 and 153,

1988; Nos. 2, 11, 56, 70, 73, 105, 107, 129, 163 and 167, 1989; No. 97, 1989

(as amended by No. 105, 1989); Nos. 20, 35, 45, 57, 58, 60, 61, 87, 119 and

135, 1990; Nos. 4, 5,6,48, 55 and 100, 1991; and No.

##,

1992.

Printed by Authority by the Commonwealth Government Printer (120/92)

income tax assessment amendment (foreign investment) bill 1992

A BILL

Act to amend the law relating to income tax

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A BILL

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