2004-2005-2006-2007 The Parliament of the Commonwealth of Australia HOUSE OF REPRESENTATIVES Presented and read a first time Tax Laws Amendment (2007 Measures No. 3) Bill 2007 No. , 2007 (Treasury) A Bill for an Act to amend the law relating to taxation, and for related purposes [Page Break] 1 Short title ........................................................................................... 1 2 Commencement ................................................................................. 1 3 Schedule(s) ........................................................................................ 2 Schedule 1--Distributions to entities connected with a private company and related issues 3 Part 1--Main amendments 3 Income Tax Assessment Act 1936 3 Income Tax Assessment Act 1997 13 Part 2--Other amendments 15 Fringe Benefits Tax Assessment Act 1986 15 Income Tax Assessment Act 1936 15 Income Tax Assessment Act 1997 16 Part 3--Time limit for making franking assessments 17 Income Tax Assessment Act 1997 17 Part 4--Application 18 Schedule 2--Transitional excess non-concessional contributions 20 Income Tax (Transitional Provisions) Act 1997 20 Schedule 3--Capital gains of testamentary trusts 21 Income Tax Assessment Act 1997 21 Schedule 4--Superannuation of deceased military and police 25 Income Tax Assessment Act 1997 25 Schedule 5--Thin capitalisation 27 Income Tax (Transitional Provisions) Act 1997 27 Schedule 6--Repeal of dividend tainting rules 28 Income Tax Assessment Act 1936 28 Income Tax Assessment Act 1997 28 Schedule 7--Interest withholding tax 30 Income Tax Assessment Act 1936 30 [Page Break] Part 1--Main amendments 37 Income Tax Assessment Act 1936 37 Income Tax Assessment Act 1997 38 Taxation Administration Act 1953 47 Part 2--Other amendments 50 Income Tax Assessment Act 1936 50 Income Tax Assessment Act 1997 51 Part 3--Application 55 Schedule 9--Non-resident trustee beneficiaries 56 Income Tax Assessment Act 1936 56 Income Tax Assessment Act 1997 61 Income Tax Rates Act 1986 64 Schedule 10--Distributions to foreign residents from managed investment trusts 69 Part 1--Main amendments 69 Taxation Administration Act 1953 69 Part 2--Consequential amendments 79 Income Tax Assessment Act 1936 79 Income Tax Assessment Act 1997 82 Taxation Administration Act 1953 82 Part 3--Application 87 [Page Break] 2 taxation, and for related purposes 3 The Parliament of Australia enacts: 4 1 Short title 5 This Act may be cited as the Tax Laws Amendment (2007 6 Measures No. 3) Act 2007. 7 2 Commencement 8 (1) Each provision of this Act specified in column 1 of the table 9 commences, or is taken to have commenced, in accordance with 10 column 2 of the table. Any other statement in column 2 has effect 11 according to its terms. 12 [Page Break] Column 1 Column 2 Column 3 Provision(s) Commencement Date/Details 1. Sections 1 to 3 The day on which this Act receives the and anything in Royal Assent. this Act not elsewhere covered by this table 2. Schedule 1 The day on which this Act receives the Royal Assent. 3. Schedule 2 Immediately after the commencement of 15 March 2007 Schedule 1 to the Tax Laws Amendment (Simplified Superannuation) Act 2007. 4. Schedules 3 to The day on which this Act receives the 7 Royal Assent. 5. Schedule 8 1 July 2007. 1 July 2007 6. Schedules 9 The day on which this Act receives the and 10 Royal Assent. 1 Note: This table relates only to the provisions of this Act as originally 2 passed by both Houses of the Parliament and assented to. It will not be 3 expanded to deal with provisions inserted in this Act after assent. 4 (2) Column 3 of the table contains additional information that is not 5 part of this Act. Information in this column may be added to or 6 edited in any published version of this Act. 7 3 Schedule(s) 8 Each Act that is specified in a Schedule to this Act is amended or 9 repealed as set out in the applicable items in the Schedule 10 concerned, and any other item in a Schedule to this Act has effect 11 according to its terms. [Page Break] 2 Schedule 1--Distributions to entities 3 connected with a private company and 4 related issues 5 Part 1--Main amendments 6 Income Tax Assessment Act 1936 7 1 Section 109B 8 Omit "and provides a basis for a debit arising in the company's franking 9 account (under item 8 of the table in section 205-30 of the Income Tax 10 Assessment Act 1997)". 11 2 At the end of subsection 109C(3A) 12 Add: 13 Note: Payments converted to loans before the private company's lodgment 14 day are treated as loans (see subsection 109D(4A)). 15 3 After subsection 109D(4) 16 Insert: 17 Payment converted to loan before lodgment day 18 (4A) If: 19 (a) a private company makes a payment to an entity at a time in a 20 year of income; and 21 (b) the payment is converted to a loan before the end of the 22 private company's lodgment day for the year of income; 23 for the purposes of this Division, treat the events mentioned in 24 paragraphs (a) and (b) as the private company making a loan to the 25 entity at the time mentioned in paragraph (a). 26 4 Paragraph 109E(1)(c) 27 Repeal the paragraph, substitute: 28 (c) the amount (if any) paid to the private company during the 29 current year in relation to the amalgamated loan falls short of 30 the minimum yearly repayment of the amalgamated loan 31 worked out under subsection (5) for the current year; and [Page Break] 2 5 Subsection 109E(2) 3 Omit "the amount of the amalgamated loan that has not been repaid at 4 the end of the current year", substitute "the amount of the shortfall 5 mentioned in paragraph (1)(c)". 6 6 After subsection 109E(3) 7 Insert: 8 (3A) Subsection (3B) applies if: 9 (a) a private company is taken to have made an amalgamated 10 loan (the old amalgamated loan) during a year of income 11 (the original year of income); and 12 (b) the maximum term of the old amalgamated loan under 13 subsection 109N(3) was 7 years; and 14 (c) in a later year of income (the later year of income): 15 (i) a constituent loan taken account of by the old 16 amalgamated loan becomes secured by a mortgage over 17 real property; and 18 (ii) the term of the constituent loan is extended; and 19 (d) as a result of the mortgage, the maximum term of the 20 constituent loan under subsection 109N(3) is 25 years; and 21 (e) the term of the constituent loan after the extension (including 22 the period before the extension during which the constituent 23 loan was in existence) does not exceed 25 years. 24 (3B) For the purposes of this Division in relation to the later year of 25 income and subsequent years of income: 26 (a) treat the constituent loan as a new amalgamated loan that 27 takes account of that constituent loan; and 28 (b) treat the new amalgamated loan as having been made just 29 before the start of the later year of income; and 30 (c) treat the amount of the new amalgamated loan just before the 31 start of the later year of income as the amount of the 32 constituent loan that had not been repaid at that time; and 33 (d) unless paragraph (e) applies--reduce the amount of the old 34 amalgamated loan just before the start of the later year of 35 income by the amount of the new amalgamated loan at that 36 time; and [Page Break] 2 account of by the old amalgamated loan--disregard the old 3 amalgamated loan. 4 7 Paragraph 109G(3)(a) 5 Omit "or 109E". 6 Note: The heading to subsection 109G(3) is altered by omitting "did give rise to dividend" and 7 substituting "gives rise to dividend under section 109D". 8 8 Paragraph 109G(3)(b) 9 Omit "subsection 108(1)", substitute "former subsection 108(1)". 10 9 After subsection 109G(3) 11 Insert: 12 Reduced dividend for forgiveness of loan debt if loan causes 13 dividend under section 109E 14 (3A) Subsection (3B) applies if: 15 (a) a private company is taken under section 109F to pay a 16 dividend at the end of a year of income because of the 17 forgiveness of an amount of a debt resulting from a loan; and 18 (b) the private company is taken under section 109E to pay a 19 dividend at the end of an earlier year of income in relation to 20 the loan. 21 (3B) The amount of the dividend mentioned in paragraph (3A)(a) is 22 reduced by the amount of the dividend mentioned in 23 paragraph (3A)(b) (but not below zero). 24 Note: There may be more than one reduction under this subsection if the 25 private company has been taken under section 109E to pay more than 26 one dividend in relation to the loan. 27 10 After subsection 109N(3) 28 Insert: 29 (3A) Reduce the maximum term under paragraph (3)(a) for a loan (the 30 new loan) in accordance with subsection (3B) if: 31 (a) the new loan results from the refinancing of another loan (the 32 old loan); and [Page Break] 2 years; and 3 (c) the maximum term of the new loan under subsection (3) is 25 4 years (disregarding this subsection). 5 (3B) The amount of the reduction is equal to the length of the period: 6 (a) starting when the old loan was made; and 7 (b) ending when the old loan was refinanced. 8 (3C) Reduce the maximum term under paragraph (3)(b) for a loan (the 9 new loan) in accordance with subsection (3D) if: 10 (a) the new loan results from the refinancing of another loan (the 11 old loan); and 12 (b) the maximum term of the old loan under subsection (3) was 13 25 years; and 14 (c) the maximum term of the new loan under subsection (3) is 7 15 years (disregarding this subsection); and 16 (d) the length of the period: 17 (i) starting when the old loan was made; and 18 (ii) ending when the old loan was refinanced; 19 exceeds 18 years. 20 (3D) The amount of the reduction is the excess mentioned in 21 paragraph (3C)(d). 22 11 Section 109P (note) 23 Repeal the note, substitute: 24 Note: A shortfall in a minimum yearly repayment of an amalgamated loan 25 may be treated as a dividend under section 109E. 26 12 At the end of section 109R 27 Add: 28 (5) Subsection (2) does not apply to a payment if: 29 (a) the payment is made to refinance the loan mentioned in 30 subsection (1) (the old loan); and 31 (b) the entity to which the old loan was made has another loan 32 (the primary loan) from another entity; and 33 (c) the old loan becomes subordinated to the primary loan; and [Page Break] 2 took place in connection with that subordination; and 3 (e) that subordination arose as a result of circumstances beyond 4 the control of the entity to which the old loan was made; and 5 (f) the entity to which the old loan was made and the other entity 6 dealt with each other at arm's length in relation to that 7 subordination; and 8 (g) the private company and the other entity dealt with each 9 other at arm's length in relation to that subordination. 10 (6) Subsection (2) does not apply to a payment if: 11 (a) the payment is made to refinance the loan mentioned in 12 subsection (1) (the old loan); and 13 (b) the refinancing results in another loan (the new loan); and 14 (c) the maximum term of the old loan under subsection 109N(3) 15 was 7 years; and 16 (d) the maximum term of the new loan under subsection 109N(3) 17 is 25 years (reduced in accordance with subsection 18 109N(3B)). 19 (7) Subsection (2) does not apply to a payment if: 20 (a) the payment is made to refinance the loan mentioned in 21 subsection (1) (the old loan); and 22 (b) the refinancing results in another loan (the new loan); and 23 (c) the maximum term of the old loan under subsection 109N(3) 24 was 25 years; and 25 (d) the maximum term of the new loan under subsection 109N(3) 26 is: 27 (i) unless subparagraph (ii) applies--7 years; or 28 (ii) if subsection 109N(3D) applies--7 years reduced in 29 accordance with that subsection. 30 13 After Subdivision DA of Division 7A 31 Insert: [Page Break] 2 109RB Commissioner may disregard operation of Division or allow 3 dividend to be franked 4 (1) The Commissioner may make a decision under subsection (2) if: 5 (a) this Division (disregarding this section) operates with the 6 result that: 7 (i) a private company is taken to pay a particular dividend 8 to a particular entity (the recipient) under this Division; 9 or 10 (ii) a particular amount is included, as if it were a dividend, 11 in the assessable income of a particular entity (also the 12 recipient) in relation to a private company under 13 Subdivision EA; and 14 (b) the result mentioned in paragraph (a) arises because of an 15 honest mistake or inadvertent omission by any of the 16 following entities: 17 (i) the recipient; 18 (ii) the private company; 19 (iii) any other entity whose conduct contributed to that 20 result. 21 (2) The Commissioner may decide in writing that: 22 (a) the result mentioned in paragraph (1)(a) should be 23 disregarded (see subsection (4)); or 24 (b) the dividend mentioned in subparagraph (1)(a)(i) may be 25 franked in accordance with Part 3-6 of the Income Tax 26 Assessment Act 1997 (see subsection (6)). 27 (3) In making a decision under subsection (2) (or refusing to make 28 such a decision), the Commissioner must have regard to the 29 following: 30 (a) the circumstances that led to the mistake or omission 31 mentioned in paragraph (1)(b); 32 (b) the extent to which any of the entities mentioned in 33 paragraph (1)(b) have taken action to try to correct the 34 mistake or omission and if so, how quickly that action was 35 taken; [Page Break] 2 any of the entities mentioned in paragraph (1)(b), and if so, 3 the circumstances in which this occurred; 4 (d) any other matters that the Commissioner considers relevant. 5 (4) The Commissioner may make a decision under subsection (2) 6 subject to any of the following kinds of condition: 7 (a) a condition that the recipient or another entity must make 8 specified payments to the private company or another entity 9 within a specified time; 10 (b) a condition that a specified requirement in this Division must 11 be met within a specified time. 12 (5) This Division is taken not to operate with the result mentioned in 13 paragraph (1)(a) if: 14 (a) the Commissioner makes a decision under paragraph (2)(a); 15 and 16 (b) if the Commissioner makes the decision subject to a 17 condition under subsection (4)--the condition is satisfied. 18 (6) If the Commissioner makes a decision under paragraph (2)(b), 19 subparagraph 202-45(g)(i) of the Income Tax Assessment Act 1997 20 does not make the dividend mentioned in subparagraph (1)(a)(i) 21 unfrankable. 22 (7) Despite subsection 33(3A) of the Acts Interpretation Act 1901, 23 each decision made under subsection (2) must relate only to one 24 amount that would (disregarding this section): 25 (a) be taken to be a dividend paid by the private company; or 26 (b) be included, as if it were a dividend, in the assessable income 27 of an entity. 28 109RC Dividend may be franked if taken to be paid because of 29 family law obligation 30 (1) This section applies if a dividend is taken to be paid under this 31 Division because of a family law obligation. 32 (2) Subparagraph 202-45(g)(i) of the Income Tax Assessment Act 1997 33 does not make the amount of the dividend unfrankable. [Page Break] 2 Income Tax Assessment Act 1997 only if: 3 (a) the dividend is franked at the private company's benchmark 4 franking percentage for the franking period in which the 5 dividend is taken to be paid; or 6 (b) if the private company does not have a benchmark franking 7 percentage for the period--the dividend is franked at a 8 franking percentage of 100%. 9 (4) For the purposes of subsection (3), if the recipient of the dividend 10 is not a member of the private company for the purposes of 11 Part 3-6 of the Income Tax Assessment Act 1997, treat that 12 recipient as such a member. 13 109RD Commissioner may extend period for repayments of 14 amalgamated loan 15 (1) The Commissioner may make a decision under subsection (2) if: 16 (a) section 109E operates with the result that a private company 17 is taken to pay a particular dividend to a particular entity (the 18 recipient); and 19 (b) the shortfall mentioned in paragraph 109E(1)(c) arises 20 because the recipient is unable to pay the private company 21 the minimum yearly repayment mentioned in that paragraph 22 because of circumstances beyond the recipient's control. 23 (2) The Commissioner may decide in writing that the result mentioned 24 in paragraph (1)(a) should be disregarded (see subsection (4)) if the 25 recipient pays the private company the amount of the shortfall 26 within a specified time. 27 (3) In making a decision under subsection (2) (or refusing to make 28 such a decision), the Commissioner must have regard to the 29 following: 30 (a) the nature of the circumstances mentioned in 31 paragraph (1)(b); 32 (b) any other matters that the Commissioner considers relevant. 33 (4) This Division is taken not to operate with the result mentioned in 34 paragraph (1)(a) if: 35 (a) the Commissioner makes a decision under subsection (2); 36 and [Page Break] 2 shortfall within the specified time. 3 (5) Despite subsection 33(3A) of the Acts Interpretation Act 1901, 4 each decision made under subsection (2) must relate only to one 5 amount that would be taken to be a dividend paid by the private 6 company (disregarding this section). 7 14 At the end of section 109UA 8 Add: 9 (5) Subsection (1) does not apply if: 10 (a) as a result of the first entity's liability mentioned in that 11 subsection, the target entity has a liability (other than a 12 contingent liability) to make a payment to the first entity; and 13 (b) because of section 109N, the liability to make a payment to 14 the first entity is not treated under this Division as giving rise 15 to a dividend paid to the first entity. 16 15 Subsection 109X(2) 17 Repeal the subsection, substitute: 18 (2) Subsections (3) and (4) apply if a notional loan arises under 19 section 109W because an entity interposed between the private 20 company and the target entity makes a loan (the actual loan) to the 21 target entity. 22 (3) For the purposes of section 109N, treat the agreement under which 23 the actual loan was made as the agreement under which the 24 notional loan was made. 25 (4) For the purposes of section 109E: 26 (a) treat the notional loan as an amalgamated loan from the 27 private company to the target entity; and 28 (b) treat the amount of the notional loan worked out under 29 subsection 109W(1) as the amount of the amalgamated loan; 30 and 31 (c) treat the agreement under which the actual loan was made as 32 the agreement under which the amalgamated loan was made; 33 and 34 (d) treat repayments by the target entity of the amount of the 35 notional loan worked out under subsection 109W(3) as [Page Break] 2 relation to the amalgamated loan. 3 Note: The heading to section 109X is replaced by the heading "Operation of Subdivision D 4 in relation to payment or loan". 5 16 Subsection 109Y(2) (definition of net assets) 6 Omit "undervalue", substitute "undervalue or overvalue". 7 17 Subsection 109Y(2) (definition of net assets) 8 Omit "overvalue", substitute "undervalue or overvalue". 9 18 Subsection 109Y(2) (paragraph (a) of the definition of 10 repayments of non-commercial loans) 11 After "loans", insert "or amounts". 12 19 After subsection 109ZC(1) 13 Insert: 14 (1A) This section also sets out special rules for dealing with a dividend 15 (also the later dividend) distributed by a private company if: 16 (a) the private company distributes the later dividend to a 17 shareholder in the company; and 18 (b) the shareholder applies the amount of the dividend to repay 19 all or part of a loan: 20 (i) that was obtained from the private company by an 21 associate of the shareholder; and 22 (ii) in relation to which a dividend was previously taken 23 under this Division to have been paid by the private 24 company. 25 20 Subsection 109ZC(2) 26 After "set off" (wherever occurring), insert "or applied". 27 21 Section 109ZD 28 Insert: 29 benchmark franking percentage has the same meaning as in the 30 Income Tax Assessment Act 1997. 31 22 Section 109ZD [Page Break] 2 deficit has the same meaning as in the Income Tax Assessment Act 3 1997. 4 23 Section 109ZD 5 Insert: 6 family law obligation means an order, agreement or award 7 mentioned in paragraph 126-5(1)(a), (b), (c), (d), (e) or (f) of the 8 Income Tax Assessment Act 1997. 9 24 Section 109ZD 10 Insert: 11 franking account has the same meaning as in the Income Tax 12 Assessment Act 1997. 13 25 Section 109ZD 14 Insert: 15 franking percentage has the same meaning as in the Income Tax 16 Assessment Act 1997. 17 26 Section 109ZD 18 Insert: 19 franking period has the same meaning as in the Income Tax 20 Assessment Act 1997. 21 27 Section 109ZD 22 Insert: 23 unfrankable has the same meaning as in the Income Tax 24 Assessment Act 1997. 25 Income Tax Assessment Act 1997 26 28 Subparagraph 202-45(g)(i) 27 Before "Division", insert "unless subsection 109RB(6) or 109RC(2) 28 applies in relation to the amount--". [Page Break] 2 Repeal the item. [Page Break] 2 Part 2--Other amendments 3 Fringe Benefits Tax Assessment Act 1986 4 30 At the end of subsection 16(1) 5 Add: 6 Note: A loan benefit that is taken under this subsection to be provided in 7 respect of a year of tax may not be provided as a fringe benefit if: 8 (a) the loan was made in that year of tax or a previous year of tax; 9 and 10 (b) a dividend is not taken to be paid under section 109D of the 11 Income Tax Assessment Act 1936 in relation to the loan, because 12 of section 109N of that Act. 13 See paragraph (s) of the definition of fringe benefit in subsection 14 136(1) of this Act. 15 31 Subsection 136(1) (paragraph (r) of the definition of fringe 16 benefit) 17 Omit "dividend.", substitute "dividend; or". 18 32 Subsection 136(1) (at the end of the definition of fringe 19 benefit) 20 Add: 21 (s) a loan (within the meaning of section 109D of the Income 22 Tax Assessment Act 1936), if: 23 (i) a dividend is not taken to be paid under that section in 24 relation to the loan, but would be if section 109N of that 25 Act were disregarded; or 26 (ii) an amount is not included, as if it were a dividend, in 27 the assessable income of an entity under section 109XB 28 of that Act in relation to the loan, but would be if 29 section 109N of that Act were disregarded. 30 Income Tax Assessment Act 1936 31 33 Section 108 32 Repeal the section. [Page Break] 2 Omit "section 108", substitute "former section 108". 3 35 Subsection 109Y(2) (definition of repayments of 4 non-commercial loans) 5 Omit "section 108" (wherever occurring), substitute "former 6 section 108, or section". 7 36 Subsection 109Y(2) (subparagraph (b)(i) of the definition 8 of repayments of non-commercial loans) 9 Omit "subsection 108(2)", substitute "former subsection 108(2)". 10 37 Paragraph 160AEA(1)(d) 11 Omit "or 108". 12 38 Paragraph 268-40(5)(b) in Schedule 2F 13 Repeal the paragraph. 14 Income Tax Assessment Act 1997 15 39 Section 10-5 (table item headed "shareholders") 16 Omit "108,". 17 40 Paragraph 165-60(5)(b) 18 Repeal the paragraph. 19 41 Subparagraph 202-45(g)(ii) 20 Repeal the subparagraph. [Page Break] 2 Part 3--Time limit for making franking assessments 3 Income Tax Assessment Act 1997 4 42 After subsection 214-60(1) 5 Insert: 6 (1A) However, the Commissioner must not make an assessment under 7 subsection (1) for an entity for an income year if: 8 (a) the entity is not required under Subdivision 214-A to give the 9 Commissioner a *franking return for the income year; and 10 (b) the entity is not required under Division 214 of the Income 11 Tax (Transitional Provisions) Act 1997 to give the 12 Commissioner a franking return for the balancing period 13 ending within the income year; and 14 (c) the entity was required to lodge an *income tax return for the 15 income year by a particular time; and 16 (d) the entity has lodged that income tax return; and 17 (e) 3 years have passed since the later of the following: 18 (i) the time mentioned in paragraph (c); 19 (ii) the time when the entity lodged that income tax return. [Page Break] 2 Part 4--Application 3 43 Application 4 (1) The amendments made by this Schedule apply to assessments for the 5 income year in which 1 July 2006 occurred and later income years. 6 (2) Despite subitem (1), the amendments made by this Schedule to the 7 Fringe Benefits Tax Assessment Act 1986 apply to benefits provided in 8 a year of tax that begins on or after 1 April 2007. 9 (3) If: 10 (a) a loan was made in a year of tax that began before 1 April 11 2007; and 12 (b) the loan is covered under paragraph (s) of the definition of 13 fringe benefit in the Fringe Benefits Tax Assessment Act 14 1986 (as added by this Schedule); and 15 (c) because of the loan, a loan benefit is taken under subsection 16 16(1) of the Fringe Benefits Tax Assessment Act 1986 to be 17 provided in respect of a year of tax that begins on or after 18 1 April 2007; 19 treat the loan benefit as not being a fringe benefit for the purposes of 20 that Act. 21 (4) Despite subitem (1), the following rules apply: 22 (a) the amendments made by this Schedule, to they extent that 23 they relate to section 109RB of the Income Tax Assessment 24 Act 1936, apply in relation to the 2001-02 income year and 25 later income years; 26 (b) the Commissioner may make decisions under that section on 27 and after the commencement of that section in relation to 28 events that occurred before that commencement; 29 (c) however, the Commissioner cannot make a decision under 30 paragraph 109RB(2)(b) of that Act if the dividend mentioned 31 in subparagraph 109RB(1)(a)(i) of that Act is taken to have 32 been paid before 1 July 2002; 33 (d) the Commissioner may amend a franking assessment made 34 before the commencement of this item for the purpose of 35 giving effect to a decision under section 109RB of that Act, if [Page Break] 2 commencement. 3 (5) Section 170 of the Income Tax Assessment Act 1936 does not prevent 4 the amendment of an assessment if: 5 (a) the assessment was made before the commencement of this 6 item; and 7 (b) the amendment is made within 4 years after that 8 commencement; and 9 (c) the amendment is made for the purpose of giving effect to a 10 decision of the Commissioner under section 109RB of that 11 Act. 12 (6) Despite subitem (1), the amendment made by Part 3 of this Schedule 13 applies to franking assessments for the income year in which 1 July 14 2006 occurred and later income years. [Page Break] 2 Schedule 2--Transitional excess 3 non-concessional contributions 4 5 Income Tax (Transitional Provisions) Act 1997 6 1 At the end of paragraph 292-80(3)(b) 7 Add: 8 (iii) included each contribution covered under subsection (7) 9 in respect of the person; and 10 2 At the end of section 292-80 11 Add: 12 (7) A contribution is covered under this subsection if: 13 (a) the contribution is made in respect of the person mentioned 14 in subparagraph (3)(b)(iii) by another entity; and 15 (b) the person is not an employee of the other entity; and 16 (c) under Division 295 of the Income Tax Assessment Act 1997 17 (as that Division applies for the purposes of subsection (3)), 18 the contribution is included in the assessable income of the 19 superannuation provider in relation to the superannuation 20 plan to which the contribution is made; and 21 (d) the contribution is made after 6 December 2006. 22 (8) For the purposes of paragraph (7)(b), treat the person as an 23 employee of the other entity if the person would be treated as an 24 employee of the other entity under Division 290 of the Income Tax 25 Assessment Act 1997 (as that Division applies for the purposes of 26 subsection (3)). [Page Break] 2 Schedule 3--Capital gains of testamentary 3 trusts 4 5 Income Tax Assessment Act 1997 6 1 Before paragraph 103-25(3)(a) 7 Insert: 8 (aa) subsection 115-230(3) (relating to assessment of *capital 9 gains of resident testamentary trusts) requires a trustee to 10 make a choice by the time specified in subsection 11 115-230(5); and 12 2 At the end of Subdivision 115-C 13 Add: 14 115-230 Assessing capital gains of resident testamentary trusts 15 Purpose 16 (1) The purpose of this section is to allow a trustee of a resident 17 testamentary trust to make a choice that has the effect that the 18 trustee will be assessed on *capital gains of the trust in situations 19 where: 20 (a) the gains would otherwise form part of a share of the net 21 income of the trust estate that would be included in the 22 assessable income of a beneficiary who could not benefit 23 from them; or 24 (b) the trustee would otherwise be liable to tax on the gains on 25 behalf of such a beneficiary under section 98 of the Income 26 Tax Assessment Act 1936. 27 Trusts for which choice can be made 28 (2) A trustee can only make a choice under this section in relation to a 29 trust estate: 30 (a) that results from: 31 (i) a will, a codicil or an order of a court that varied or 32 modified the provisions of a will or a codicil; or [Page Break] 2 modified the application, in relation to the estate of a 3 deceased person, of the provisions of the law relating to 4 the distribution of the estates of persons who die 5 intestate; and 6 (b) that is, in the income year in respect of which the choice is 7 made, a resident trust estate within the meaning of Division 6 8 of Part III of the Income Tax Assessment Act 1936. 9 Circumstances in which choice can be made 10 (3) If: 11 (a) apart from this section: 12 (i) a share of the net income of a trust estate that is 13 attributable to *capital gains would be included in the 14 assessable income of a beneficiary for an income year 15 under section 97 of the Income Tax Assessment Act 16 1936; or 17 (ii) a trustee would, on behalf of a beneficiary, be assessed 18 and liable to pay tax for an income year under 19 section 98 of the Income Tax Assessment Act 1936 in 20 respect of a share of the net income of a trust estate that 21 is attributable to capital gains; and 22 (b) the beneficiary does not have a vested and indefeasible 23 interest in trust property representing that share; and 24 (c) trust property representing that share has not been paid to or 25 applied for the benefit of the beneficiary; 26 the trustee may, no later than the deadline in subsection (5), make a 27 choice that subsection (4) applies in respect of the beneficiary's 28 share. 29 Consequences if trustee makes choice 30 (4) These are the consequences if the trustee makes a choice that this 31 subsection applies in respect of a beneficiary's share: 32 (a) for the purposes of sections 97, 98A and 100 of the Income 33 Tax Assessment Act 1936, the share is taken not to be 34 included in the assessable income of the beneficiary; 35 (b) the trustee is not assessed, and is not liable to pay tax, in 36 respect of the share under section 98 of the Income Tax 37 Assessment Act 1936. [Page Break] 2 Income Tax Assessment Act 1936, the trustee will be assessed on the 3 beneficiary's share under section 99A or (at the Commissioner's 4 discretion) 99 of that Act. 5 Note 2: Section 115-215 does not apply in relation to an amount to which this 6 subsection applies. 7 Deadline for making choice 8 (5) The deadline for the purposes of subsection (3) is: 9 (a) the day 2 months after the last day of the income year; or 10 (b) a later day allowed by the Commissioner. 11 Note: This deadline is an exception to the general rule about choices in 12 section 103-25. 13 3 Application 14 (1) The amendments made by this Schedule apply in relation to the 15 2005-2006 income year and later income years. 16 (2) Despite subsection 115-230(5) of the Income Tax Assessment Act 1997, 17 a choice under subsection 115-230(3) of that Act may be made no later 18 than 2 years after the commencement of section 115-230 (or a later time 19 allowed by the Commissioner) if the choice is in respect of the 20 2005-2006 income year. 21 (3) Despite subsection 115-230(5) of the Income Tax Assessment Act 1997, 22 a choice under subsection 115-230(3) of that Act may be made no later 23 than 2 years after the commencement of section 115-230 (or a later time 24 allowed by the Commissioner) if: 25 (a) section 115-230 commences after the end of the 2006-2007 26 income year; and 27 (b) the choice is in respect of the 2006-2007 income year. 28 4 Amendment of assessments 29 Section 170 of the Income Tax Assessment Act 1936 does not prevent 30 the amendment of an assessment if: 31 (a) the assessment was made before the commencement of this 32 item; and 33 (b) an application to amend the assessment is made, in the form 34 approved for the purposes of subsection 170(5), within 2 35 years of the commencement of this item; and [Page Break] 2 choice under subsection 115-230(3) of the Income Tax 3 Assessment Act 1997. [Page Break] 2 Schedule 4--Superannuation of deceased 3 military and police 4 5 Income Tax Assessment Act 1997 6 1 Section 302-195 7 Before "A", insert "(1)". 8 2 At the end of section 302-195 9 Add: 10 (2) For the purposes of this Division, treat an individual who receives 11 a *superannuation lump sum because of the death of another person 12 as a death benefits dependant of the deceased person in relation to 13 the lump sum if the deceased person *died in the line of duty (see 14 subsection (3)) as: 15 (a) a member of the Defence Force; or 16 (b) a member of the Australian Federal Police or the police force 17 of a State or Territory; or 18 (c) a protective service officer (within the meaning of the 19 Australian Federal Police Act 1979). 20 (3) For the purposes of subsection (2), a person died in the line of duty 21 if the person died in the circumstances specified in the regulations. 22 3 Subsection 995-1(1) 23 Insert: 24 died in the line of duty has the meaning given by subsection 25 302-195(3). 26 4 Application 27 The amendments made by this Schedule apply in relation to the 28 2007-08 income year and later income years. 29 5 Payments by Commissioner in relation to lump sums paid 30 before 1 July 2007 [Page Break] 2 Income Tax Assessment Act 1997) prevents the Commissioner of 3 Taxation (on behalf of the Commonwealth) from making an ex-gratia 4 payment in relation to the tax treatment of a superannuation lump sum 5 received in an income year ending before 1 July 2007 if: 6 (a) the lump sum is received by a person because of the death of 7 another person; and 8 (b) the person who received the lump sum is not a dependant of 9 the deceased person. [Page Break] 2 Schedule 5--Thin capitalisation 3 4 Income Tax (Transitional Provisions) Act 1997 5 1 Subsection 820-45(1) 6 Omit "3", substitute "4". [Page Break] 2 Schedule 6--Repeal of dividend tainting rules 3 4 Income Tax Assessment Act 1936 5 1 Sections 46G to 46M 6 Repeal the sections. 7 2 After paragraph 177EA(17)(g) 8 Insert: 9 (ga) whether a distribution that is made or that flows indirectly 10 under the scheme to the relevant taxpayer is sourced, directly 11 or indirectly, from unrealised or untaxed profits; 12 Income Tax Assessment Act 1997 13 3 Subsection 197-50(1) (note) 14 Repeal the note, substitute: 15 Note: If a company's share capital account is tainted, then a distribution 16 from the account is taxed as a dividend in the hands of the 17 shareholder. This is because a tainted share capital account does not 18 count as a share capital account for the purposes of paragraph (d) of 19 the definition of dividend in subsection 6(1) of the Income Tax 20 Assessment Act 1936 (see subsection 975-300(3) of this Act). 21 However, although the distribution is taxed as a dividend, the 22 company cannot pass on to the shareholder the benefit of the tax it has 23 paid, because a distribution from a share capital account (whether or 24 not tainted) is unfrankable (see paragraphs 202-45(e) and 25 975-300(3)(ba) of this Act). 26 4 Paragraph 202-45(e) 27 Repeal the paragraph, substitute: 28 (e) a distribution that is sourced, directly or indirectly, from a 29 company's *share capital account; 30 5 Subsection 375-872(4) 31 Repeal the subsection, substitute: [Page Break] 2 (4) Paragraph 202-45(e) does not apply to a payment that is taken to be 3 a dividend under this section. 4 Note: Paragraph 202-45(e) provides that a distribution that is sourced, 5 directly or indirectly, from a company's share capital account is 6 unfrankable. 7 6 After paragraph 975-300(3)(b) 8 Insert: 9 (ba) paragraph 202-45(e); and 10 7 Paragraph 975-300(3)(e) 11 Repeal the paragraph. 12 8 Application 13 The amendments made by this Schedule apply in relation to 14 distributions made on or after 1 July 2004. [Page Break] 2 Schedule 7--Interest withholding tax 3 4 Income Tax Assessment Act 1936 5 1 Paragraph 128F(1)(e) 6 Repeal the paragraph, substitute: 7 (c) for a debt interest other than a debenture--the debt interest: 8 (i) is a non-equity share; or 9 (ii) consists of 2 or more related schemes (within the 10 meaning of the Income Tax Assessment Act 1997) where 11 one or more of them is a non-equity share; or 12 (iii) is a syndicated loan; or 13 (iv) is prescribed by the regulations for the purposes of this 14 section; and 15 (d) either: 16 (i) the issue of the debenture or debt interest satisfies the 17 public offer test set out in subsection (3) or (4); or 18 (ii) for a syndicated loan--the invitation to become a lender 19 under the relevant syndicated loan facility satisfies the 20 public offer test set out in subsection (3A). 21 2 Paragraph 128F(1A)(d) 22 Repeal the paragraph, substitute: 23 (d) for a debt interest other than a debenture--the debt interest: 24 (i) is a non-equity share; or 25 (ii) consists of 2 or more related schemes (within the 26 meaning of the Income Tax Assessment Act 1997) where 27 one or more of them is a non-equity share; or 28 (iii) is a syndicated loan; or 29 (iv) is prescribed by the regulations for the purposes of this 30 section; and 31 (e) either: 32 (i) the issue of the debenture or debt interest satisfies the 33 public offer test set out in subsection (3) or (4); or 34 (ii) for a syndicated loan--the invitation to become a lender 35 under the relevant syndicated loan facility satisfies the 36 public offer test set out in subsection (3A). [Page Break] 2 Repeal the paragraph, substitute: 3 (b) for a debt interest other than a debenture--the debt interest: 4 (i) is a non-equity share; or 5 (ii) consists of 2 or more related schemes (within the 6 meaning of the Income Tax Assessment Act 1997) where 7 one or more of them is a non-equity share; or 8 (iii) is a syndicated loan; or 9 (iv) is prescribed by the regulations for the purposes of this 10 section; and 11 (c) either: 12 (i) the issue of the debenture or debt interest satisfies the 13 public offer test set out in subsection (3) or (4); or 14 (ii) for a syndicated loan--the invitation to become a lender 15 under the relevant syndicated loan facility satisfies the 16 public offer test set out in subsection (3A); 17 4 After subsection 128F(3) 18 Insert: 19 (3A) An invitation to become a lender under a syndicated loan facility 20 by a company satisfies the public offer test if the invitation was 21 made: 22 (a) to at least 10 persons each of whom: 23 (i) was carrying on a business of providing finance, or 24 investing or dealing in securities, in the course of 25 operating in financial markets; and 26 (ii) was not known, or suspected, by the company to be an 27 associate (see subsection (9)) of any of the other persons 28 covered by this paragraph; or 29 (b) publicly in electronic form, or in another form, that was used 30 by financial markets for dealing in debentures or debt 31 interests; or 32 (c) to a dealer, manager or underwriter, in relation to the 33 placement of debentures or debt interests, who, under an 34 agreement with the company, made the invitation to become 35 a lender under the facility within 30 days in a way covered by 36 paragraph (a) or (b). [Page Break] 2 Insert: 3 (5AA) An invitation to become a lender under a syndicated loan facility is 4 taken never to have satisfied the public offer test if, at the time the 5 invitation is made, the company knew, or had reasonable grounds 6 to suspect, that: 7 (a) an associate of the company is or will become a lender under 8 the facility; and 9 (b) either: 10 (i) the associate is a non-resident and the associate is not or 11 would not become a lender under the facility in carrying 12 on a business in Australia at or through a permanent 13 establishment of the associate in Australia; or 14 (ii) the associate is a resident of Australia and the associate 15 is or would become a lender under the facility in 16 carrying on a business in a country outside Australia at 17 or through a permanent establishment of the associate in 18 that country; and 19 (c) the associate is not or would not become a lender under the 20 facility in the capacity of: 21 (i) a dealer, manager or underwriter in relation to the 22 invitation; or 23 (ii) a clearing house, custodian, funds manager or 24 responsible entity of a registered scheme. 25 Note: The heading to subsection 128F(5) is altered by omitting "Issues" and substituting 26 "Issues and invitations". 27 6 Subsection 128F(9) 28 Insert: 29 syndicated loan means a loan or other form of financial 30 accommodation that is provided under a syndicated loan facility, 31 being a facility that has 2 or more lenders. 32 7 Subsection 128F(9) 33 Insert: 34 syndicated loan facility has the meaning given by subsections (11), 35 (12) and (13). [Page Break] 2 Add: 3 (11) A written agreement is a syndicated loan facility if: 4 (a) the agreement describes itself as a syndicated loan facility or 5 syndicated facility agreement; and 6 (b) the agreement is between one or more borrowers and at least 7 2 lenders; and 8 (c) under the agreement each lender severally, but not jointly, 9 agrees to lend money to, or otherwise provide financial 10 accommodation to, the borrower or borrowers; and 11 (d) the amount to which the borrower or borrowers will have 12 access at the time the first loan or other form of financial 13 accommodation is to be provided under the agreement is at 14 least $100,000,000 (or a prescribed amount). 15 (12) A written agreement is also a syndicated loan facility if: 16 (a) the agreement describes itself as a syndicated loan facility or 17 syndicated facility agreement; and 18 (b) the agreement is between one or more borrowers and one 19 lender where the agreement provides for the addition of other 20 lenders; and 21 (c) the agreement provides that, when other lenders are added, 22 each lender severally, but not jointly, agrees to lend money 23 to, or otherwise provide financial accommodation to, the 24 borrower or borrowers; and 25 (d) the amount to which the borrower or borrowers will have 26 access at the time the first loan or other form of financial 27 accommodation is to be provided under the agreement is at 28 least $100,000,000 (or a prescribed amount). 29 (13) However, an agreement under which there are 2 or more borrowers 30 is a syndicated loan facility only if all of them are: 31 (a) members of the same wholly-owned group (within the 32 meaning of the Income Tax Assessment Act 1997); or 33 (b) parties to the same joint venture; or 34 (c) associates of each other. 35 (14) For the purposes of this section, a change (including by novation) 36 to the lenders under a syndicated loan facility does not result in a 37 different agreement. [Page Break] 2 (within the meaning of the Income Tax Assessment Act 1997) 3 where one or more of them is a non-equity share, this section 4 applies only to interest paid in respect of the non-equity share. 5 Note: Subsection 128A(1AB) defines interest for the purposes of this 6 Division. Under that subsection, dividends paid in respect of a 7 non-equity share are treated as being interest. 8 (16) The rule in subsection (15) does not apply to the extent that interest 9 in respect of the other related scheme or schemes would be interest 10 to which this section applies in respect of a debenture or debt 11 interest. 12 9 Subsection 128FA(1) 13 Omit all the words after "issued by the trustee", substitute: 14 if: 15 (a) for a debt interest other than a debenture--the debt interest: 16 (i) is a syndicated loan; or 17 (ii) is prescribed by the regulations for the purposes of this 18 section; and 19 (b) either: 20 (i) the issue of the debenture or debt interest satisfies the 21 public offer test set (see subsection (6)); or 22 (ii) for a syndicated loan--the invitation to become a lender 23 under the relevant syndicated loan facility satisfies the 24 public offer test (see subsection (6A)). 25 10 Paragraph 128FA(2)(b) 26 Repeal the paragraph, substitute: 27 (b) for a debt interest other than a debenture--the debt interest: 28 (i) is a syndicated loan; or 29 (ii) is prescribed by the regulations for the purposes of this 30 section; and 31 (c) either: 32 (i) the issue of the debenture or debt interest satisfies the 33 public offer test set (see subsection (6)); or 34 (ii) for a syndicated loan--the invitation to become a lender 35 under the relevant syndicated loan facility satisfies the 36 public offer test (see subsection (6A)); [Page Break] 2 Insert: 3 (6A) For the purposes of working out under this section whether an 4 invitation to become a lender under a syndicated loan facility 5 satisfies the public offer test, subsections 128F(3A) and (5AA) 6 apply to the trustee of the eligible unit trust in a corresponding way 7 to the way in which those subsections apply to a company, subject 8 to subsection (7) of this section. 9 Note: The heading to subsection 128FA(6) is replaced by the heading "Public offer test". 10 12 Subsections 128FA(7) 11 Omit "subsections 128F(3) to (5) as mentioned in subsection (6) of this 12 section", substitute "subsection 128F(3), (3A), (4), (5) or (5AA) as 13 mentioned in subsection (6) or (6A) of this section". 14 13 After subsection 128FA(7) 15 Insert: 16 (7A) For the purposes of this section, a change (including by novation) 17 to the lenders under a syndicated loan facility does not result in a 18 different agreement. 19 14 Subsection 128FA(8) 20 Insert: 21 syndicated loan has the same meaning as in section 128F. 22 15 Subsection 128FA(8) 23 Insert: 24 syndicated loan facility has the same meaning as in section 128F. 25 16 Application 26 (1) The amendments made by this Schedule apply to interest paid in respect 27 of debt interests issued on or after 7 December 2006 (the start day). 28 (2) For the purposes of subitem (1), a debt interest is treated as being issued 29 before the start day if it is issued under or results from a written 30 agreement entered into on or after 21 March 2005 and before the start 31 day. [Page Break] 2 referred to in that subitem is altered after the start day to extend its term. [Page Break] 2 Schedule 8--Forestry managed investment 3 schemes 4 Part 1--Main amendments 5 Income Tax Assessment Act 1936 6 1 After section 82KZMG 7 Insert: 8 82KZMGA Deductions for certain forestry expenditure 9 (1) A taxpayer cannot deduct expenditure in relation to which the 10 requirements in section 82KZMG are met if: 11 (a) the taxpayer holds the taxpayer's interest in the agreement 12 mentioned in section 82KZMG as an initial participant in the 13 agreement; and 14 (b) a CGT event happens in relation to that interest within 4 15 years after the end of the year of income in which the 16 taxpayer first incurred expenditure under the agreement. 17 (2) Despite section 170, the Commissioner may amend the taxpayer's 18 assessment at any time within 2 years after the end of the year of 19 income in which the CGT event happens, for the purpose of giving 20 effect to this section. 21 82KZMGB CGT event in relation to interest in 82KZMG agreement 22 (1) This section applies if: 23 (a) a taxpayer holds an interest in an agreement mentioned in 24 section 82KZMG as an initial participant in the agreement; 25 and 26 (b) at least one of these conditions is satisfied: 27 (i) the taxpayer can deduct or has deducted an amount for a 28 year of income in relation to the interest; 29 (ii) the condition in subparagraph (i) would be satisfied if 30 section 82KZMGA were disregarded; and [Page Break] 2 deduction (or would apply if section 82KZMGA were 3 disregarded); and 4 (d) a CGT event happens in relation to the interest, other than a 5 CGT event that happens in respect of thinning. 6 (2) The taxpayer's assessable income for the year of income in which 7 the CGT event happens includes: 8 (a) if, as a result of the CGT event, the taxpayer no longer holds 9 the interest--the market value of the interest (worked out as 10 at the time of the event); or 11 (b) otherwise--the decrease (if any) in the market value of the 12 interest as a result of the CGT event. 13 (3) Any amount that the taxpayer actually receives because of the CGT 14 event is not included in the taxpayer's assessable income (nor is it 15 exempt income). 16 Income Tax Assessment Act 1997 17 2 After Division 392 18 Insert: 19 Division 394--Forestry managed investment schemes 20 Guide to Division 394 21 394-1 What this Division is about 22 This Division sets out rules about deductions for contributions to 23 forestry managed investment schemes. It also sets out the tax 24 treatment of proceeds from the sale of interests in such schemes, 25 and of proceeds from harvesting trees under such schemes. 26 Table of sections 27 394-5 Object of this Division 28 394-10 Deduction for amounts paid under forestry managed investment schemes 29 394-15 Forestry managed investment schemes and related concepts 30 394-20 Payments on behalf of participant in forestry managed investment scheme [Page Break] 2 scheme--initial participant 3 394-30 CGT event in relation to forestry interest in forestry managed investment 4 scheme--subsequent participant 5 394-35 70% DFE rule 6 394-40 Payments under forestry managed investment scheme 7 394-45 Direct forestry expenditure 8 394-5 Object of this Division 9 The object of this Division is to encourage the expansion of 10 commercial plantation forestry in Australia through the 11 establishment and tending of new plantations for felling. This is 12 achieved by: 13 (a) permitting investors to deduct amounts paid under a forestry 14 scheme in the year of payment, if certain conditions are met 15 (for example, that it is reasonable to expect that the manager 16 of the scheme will spend at least 70% of investors' 17 contributions, on a market value basis, on activities that 18 establish, tend, fell and harvest trees); and 19 (b) allowing secondary market trading of interests in such 20 schemes, while minimising tax arbitrage and providing tax 21 certainty for investors. 22 394-10 Deduction for amounts paid under forestry managed 23 investment schemes 24 (1) You can deduct an amount if: 25 (a) you hold a *forestry interest in a *forestry managed 26 investment scheme; and 27 (b) you pay the amount under the scheme; and 28 (c) the scheme satisfies the *70% DFE rule (see section 394-35) 29 on 30 June in the income year in which a *participant in the 30 scheme first pays an amount under the scheme; and 31 (d) you do not have day to day control over the operation of the 32 scheme (whether or not you have the right to be consulted or 33 give directions); and 34 (e) at least one of these conditions is satisfied: 35 (i) there is more than one participant in the scheme; [Page Break] 2 the forestry manager, manages, arranges or promotes 3 similar schemes; and 4 (f) the condition in subsection (4) is satisfied. 5 (2) You deduct the amount for the income year in which you pay it. 6 (3) For the purposes of this Division, do not treat an amount as being 7 paid under a *forestry managed investment scheme if: 8 (a) you pay the amount in connection with a *CGT event in 9 relation to a *forestry interest in the scheme; and 10 (b) as a result of the CGT event: 11 (i) another *participant in the scheme no longer holds the 12 forestry interest; and 13 (ii) you start to hold the forestry interest. 14 (4) For the purposes of paragraph (1)(f), the condition in this 15 subsection is satisfied unless: 16 (a) 18 months have elapsed since the end of the income year in 17 which an amount is first paid under the *forestry managed 18 investment scheme by a *participant in the scheme; and 19 (b) the trees intended to be established in accordance with the 20 scheme have not all been established before the end of those 21 18 months. 22 (5) You cannot deduct an amount under subsection (1) if: 23 (a) you hold the *forestry interest mentioned in paragraph (1)(a) 24 as an *initial participant; and 25 (b) a *CGT event happens in relation to the forestry interest 26 within 4 years after the end of the income year in which you 27 first pay an amount under the scheme. 28 If you have already deducted it, your assessment may be amended 29 to disallow the deduction. 30 (6) Despite section 170 of the Income Tax Assessment Act 1936, the 31 Commissioner may amend your assessment at any time within 2 32 years after the *CGT event, for the purpose of giving effect to 33 subsection (5). 34 (7) Sections 82KZMD and 82KZMF of the Income Tax Assessment 35 Act 1936 do not affect the timing of a deduction under this section. [Page Break] 2 (1) A *scheme is a forestry managed investment scheme if the 3 purpose of the scheme is for establishing and tending trees for 4 felling in Australia. 5 (2) The entity that manages, arranges or promotes a *forestry managed 6 investment scheme is the forestry manager of the scheme. 7 (3) A forestry interest in a *forestry managed investment scheme is a 8 right to benefits produced by the scheme (whether the right is 9 actual, prospective or contingent and whether it is enforceable or 10 not). 11 (4) An entity that holds a *forestry interest in a *forestry managed 12 investment scheme (other than the *forestry manager of the 13 scheme) is a participant in the scheme. 14 (5) A *participant in a *forestry managed investment scheme holds a 15 *forestry interest in the scheme as an initial participant if: 16 (a) the participant obtains the forestry interest from the *forestry 17 manager of the scheme; and 18 (b) the payment by the participant to obtain the forestry interest 19 results in the establishment of trees. 20 394-20 Payments on behalf of participant in forestry managed 21 investment scheme 22 For the purposes of this Division, treat a payment to the *forestry 23 manager of a *forestry managed investment on behalf of a 24 *participant in the scheme as a payment by the participant to the 25 forestry manager. 26 394-25 CGT event in relation to forestry interest in forestry 27 managed investment scheme--initial participant 28 (1) This section applies if: 29 (a) you hold a *forestry interest in a *forestry managed 30 investment scheme as an *initial participant in the scheme; 31 and 32 (b) at least one of these conditions is satisfied: [Page Break] 2 income year under section 394-10 in relation to the 3 forestry interest; 4 (ii) the condition in subparagraph (i) would be satisfied if 5 subsection 394-10(5) were disregarded; and 6 (c) a *CGT event happens in relation to the forestry interest, 7 other than a CGT event that happens in respect of thinning. 8 (2) Your assessable income for the income year in which the *CGT 9 event happens includes: 10 (a) if, as a result of the CGT event, you no longer hold the 11 *forestry interest--the *market value of the forestry interest 12 (worked out as at the time of the event); or 13 (b) otherwise--the decrease (if any) in the market value of the 14 forestry interest as a result of the CGT event. 15 (3) Any amount that you actually receive because of the *CGT event is 16 not included in your assessable income (nor is it *exempt income). 17 394-30 CGT event in relation to forestry interest in forestry 18 managed investment scheme--subsequent participant 19 (1) This section applies if: 20 (a) you hold a *forestry interest in a *forestry managed 21 investment scheme otherwise than as an *initial participant in 22 the scheme; and 23 (b) at least one of these conditions is satisfied: 24 (i) you can deduct or have deducted an amount for an 25 income year under section 394-10 in relation to the 26 forestry interest; 27 (ii) you could deduct an amount for an income year under 28 section 394-10 if you had paid the amount under the 29 scheme in that year; and 30 (c) a *CGT event happens in relation to the forestry interest, 31 other than a CGT event that happens in respect of thinning. 32 (2) Your assessable income for the income year in which the *CGT 33 event happens includes the lesser of the following: 34 (a) the *market value of the forestry interest (worked out as at 35 the time of the event); [Page Break] 2 deductions in relation to the forestry interest exceeds the 3 *incidental forestry scheme receipts in relation to the forestry 4 interest. 5 (3) The total forestry scheme deductions in relation to the *forestry 6 interest is the total of each amount that you can deduct or have 7 deducted under section 394-10 for each income year in relation to 8 the forestry interest. 9 (4) The incidental forestry scheme receipts in relation to the *forestry 10 interest is the total of each amount that you have received under the 11 scheme in each income year in relation to the forestry interest for a 12 reason otherwise than because of the *CGT event. 13 (5) However, if you still hold the forestry interest despite the *CGT 14 event, work out the amount included in your assessable income 15 under subsection (2) using this formula (instead of using the 16 amount worked out under subsection (2)): Decrease (if any) in the *market value of the *forestry interest Amount worked as a result of the CGT event 17 × out under subsection (2) *Market value of the *forestry interest just before the CGT event 18 (6) If this section has operated previously in relation to the *forestry 19 interest, disregard an amount for the purposes of subsections (3) 20 and (4) to the extent that it has already been reflected in your 21 assessable income under that previous operation in relation to the 22 forestry interest. 23 (7) These provisions do not apply to the *CGT event: 24 (a) section 6-5 (about *ordinary income); 25 (b) any other provision that includes an amount in assessable 26 income, other than the following: 27 (i) a provision in Part 3-1 or 3-3; 28 (ii) subsection (2) of this section; 29 (c) section 8-1 (about amounts you can deduct); 30 (d) any other provision that allows you to deduct an amount from 31 your assessable income; [Page Break] 2 (8) However, the provisions referred to in subsection (7) can apply to 3 the *CGT event if a *capital gain or *capital loss from the event is 4 disregarded because of section 118-25. 5 (9) Just before the *CGT event, increase the *cost base and *reduced 6 cost base of the *forestry interest by the amount included in your 7 assessable income under subsection (2). 8 394-35 70% DFE rule 9 (1) A *forestry managed investment scheme satisfies the 70% DFE 10 rule on 30 June in an income year if it is reasonable to expect on 11 that 30 June that the amount of DFE under the scheme (see 12 subsection (2)) is no less than 70% of the amount of the payments 13 under the scheme (see subsection (3)). 14 (2) The amount of DFE under the scheme is the amount of the net 15 present value (on that 30 June) of all *direct forestry expenditure 16 under the scheme that the *forestry manager of the scheme has paid 17 or will pay under the scheme. 18 (3) The amount of payments under the scheme is the amount of the net 19 present value (on that 30 June) of all amounts that all current and 20 future *participants in the scheme have paid or will pay under the 21 scheme. 22 (4) In working out the net present value of an amount paid before that 23 30 June: 24 (a) unless paragraph (b) applies--treat the amount as having 25 been paid on that 30 June; or 26 (b) if the amount was paid in an income year ending before that 27 30 June--treat the amount as having been paid on the 28 30 June in that income year. 29 (5) In working out the net present value of an amount expected to be 30 paid after that 30 June, treat the amount as having been paid on 31 1 January in the income year in which it is expected to be paid. 32 (6) Reduce an amount worked out under subsection (2) or (3) to the 33 extent (if any) to which that amount can reasonably be expected to 34 be recouped. [Page Break] 2 of this section, use the yield on Australian Government Treasury 3 Bonds with the maturity closest to 10 years (as published by the 4 Reserve Bank of Australia). 5 (8) For the purposes of subsection (2), if: 6 (a) the *forestry manager of the scheme has paid or will pay an 7 amount under the scheme in a transaction; and 8 (b) the forestry manager and at least one other party to the 9 transaction did not or will not deal at *arm's length in relation 10 to the transaction; and 11 (c) the amount is or will be more or less than the *market value 12 of what it is for; 13 treat the amount as that market value. 14 394-40 Payments under forestry managed investment scheme 15 For the purposes of this Division, do not treat the following 16 payments as payments under a *forestry managed investment 17 scheme by a *participant in the scheme: 18 (a) payments for *borrowing money; 19 (b) payments of interest and payments in the nature of interest; 20 (c) payments of stamp duty; 21 (d) payments of *GST; 22 (e) payments that relate to one or more of the matters mentioned 23 in paragraphs 394-45(4)(a), (b) or (c). 24 394-45 Direct forestry expenditure 25 (1) Direct forestry expenditure under a *forestry managed investment 26 scheme means: 27 (a) an amount paid under the scheme that is attributable to 28 establishing, tending, felling and harvesting trees; and 29 (b) notional amounts reflecting the *market value of goods, 30 services or the use of land, provided by the *forestry manager 31 of the scheme, for establishing, tending, felling and 32 harvesting trees. 33 Example 1: Notional amounts reflecting the value of the use of land 34 owned by the forestry manager that is provided for establishing, 35 tending, felling and harvesting trees. [Page Break] 2 services provided by the forestry manager. 3 (2) Treat *direct forestry expenditure covered by paragraph (1)(b) as 4 paid annually for each income year of the *forestry manager of the 5 scheme based on the *market value of the goods, services, or the 6 use of the land. Treat the day on which it is paid as: 7 (a) unless paragraph (b) or (c) applies--1 January in the income 8 year; or 9 (b) if the first time an amount is paid under the scheme is later 10 than the first day of the income year--the last day of the 11 income year; or 12 (c) if the scheme comes to an end on a day before the end of the 13 income year--that day. 14 Exclusions--general 15 (3) However, direct forestry expenditure under the scheme does not 16 include amounts paid under the scheme to the extent that they 17 relate to any of the following: 18 (a) marketing of the scheme; 19 Example: Advertising, sales, sponsorship and entertainment. 20 (b) insurance, contingency funds or provisions (other than 21 provisions for employee entitlements); 22 (c) financing; 23 (d) lobbying; 24 (e) general business overheads (but not overheads directly 25 related to forestry); 26 (f) subscriptions to industry bodies; 27 (g) commissions for financial planners or financial advisers; 28 (h) compliance with requirements related to the structure and 29 operations of the *forestry manager of the scheme; 30 Example: Product design and preparation of product disclosure statements. 31 (i) supervision and auditing of contracts, other than direct 32 supervision of direct forestry activities (such as establishing 33 trees for felling); 34 (j) legal fees relating to any matter mentioned in this subsection. [Page Break] 2 (4) Also, direct forestry expenditure under the scheme does not 3 include amounts paid under the scheme to the extent that they 4 relate to any of the following: 5 (a) transportation and handling of felled trees that happens after 6 the earliest of the following: 7 (i) sale of the trees; 8 (ii) arrival of the trees at the mill door; 9 (iii) arrival of the trees at the port; 10 (iv) arrival of the trees at the place of processing (other than 11 where processing happens in-field); 12 (b) processing; 13 (c) stockpiling (other than in-field stockpiling); 14 (d) marketing and sale of forestry produce. 15 Taxation Administration Act 1953 16 3 At the end of Part 5-25 in Schedule 1 17 Add: 18 Division 394--Reporting about forestry managed 19 investment schemes 20 Guide to Division 394 21 394-1 What this Division is about 22 A forestry manager of a forestry managed investment scheme must 23 give the Commissioner information about initial contributions by 24 participants in the scheme. The forestry manager must also inform 25 the Commissioner if the trees are not established under the scheme 26 within 18 months of the first investment in the scheme. 27 Table of sections 28 394-5 Statements about initial contributions to scheme 29 394-10 Statements about failure to establish trees within 18 months [Page Break] 2 (1) The *forestry manager of a *forestry managed investment scheme 3 must give the Commissioner a statement in relation to the scheme 4 if: 5 (a) the scheme satisfies the requirement in paragraph 6 394-10(1)(c) of the Income Tax Assessment Act 1997 (the 7 *70% DFE rule); and 8 (b) the forestry manager (or an *associate of the forestry 9 manager) receives an amount under the scheme that is 10 included in the forestry manager's (or the associate's) 11 assessable income under section 15-46 of that Act; and 12 (c) that amount is the amount that is first paid under the scheme 13 by a *participant in the scheme. 14 Note: Section 286-75 provides an administrative penalty for breach of this 15 subsection. 16 (2) A statement under subsection (1) must be in the *approved form. 17 (3) The statement must be given to the Commissioner within 3 months 18 after the end of the income year in which the *forestry manager (or 19 the *associate) receives the amount. 20 Note: Section 388-55 allows the Commissioner to defer the time for giving 21 an approved form. 22 (4) The *approved form may require the statement to contain the 23 following information: 24 (a) the name of the scheme; 25 (b) information relating to the identity of the *forestry manager 26 (or the *associate); 27 (c) information relating to the amounts paid or payable under the 28 scheme by *participants in the scheme. 29 (5) Subsection (4) does not limit the information that the *approved 30 form may require the statement to contain. 31 394-10 Statements about failure to establish trees within 18 months 32 (1) If: 33 (a) a *forestry managed investment scheme satisfies the 34 requirement in paragraph 394-10(1)(c) of the Income Tax 35 Assessment Act 1997 (the *70% DFE rule); and [Page Break] 2 satisfied in relation to the scheme; 3 the *forestry manager of the scheme must give the Commissioner a 4 statement in relation to the reasons why that condition was not 5 satisfied. 6 Note: Section 286-75 provides an administrative penalty for breach of this 7 subsection. 8 (2) A statement under subsection (1) must be in the *approved form. 9 (3) The statement must be given to the Commissioner within 3 months 10 after the end of the 18 months mentioned in subsection 394-10(4) 11 of the Income Tax Assessment Act 1997. 12 Note: Section 388-55 allows the Commissioner to defer the time for giving 13 an approved form. 14 (4) The *approved form may require the statement to contain the 15 following information: 16 (a) the name of the scheme; 17 (b) information relating to the identity of the *forestry manager; 18 (c) information relating to the circumstances that gave rise to the 19 condition not being satisfied. 20 (5) Subsection (4) does not limit the information that the *approved 21 form may require the statement to contain. [Page Break] 2 Part 2--Other amendments 3 Income Tax Assessment Act 1936 4 4 Subsection 82KH(1) (after paragraph (p) of the definition of 5 relevant expenditure) 6 Insert: 7 (pa) a loss or outgoing incurred by the taxpayer in respect of the 8 establishment and tending of trees for felling on behalf of the 9 taxpayer to the extent to which a deduction would, apart from 10 section 82KL, be allowable to the taxpayer under 11 section 394-10 of the Income Tax Assessment Act 1997 in 12 respect of the loss or outgoing; 13 5 After paragraph 82KH(1G)(p) 14 Insert: 15 (pa) in a case where the relevant expenditure was incurred by the 16 taxpayer in respect of the establishment and tending of trees 17 for felling on behalf of the taxpayer--the establishment and 18 tending of trees for felling on behalf of the taxpayer; 19 6 Paragraph 82KH(1L)(p) 20 After "paragraph (p)", insert "or paragraph (pa)". 21 7 After subsection 262A(2) 22 Insert: 23 (2AAA) Subsection (1) applies to a participant in a forestry managed 24 investment scheme in relation to the scheme even if the participant 25 is not carrying on a business in relation to the scheme. 26 (2AAB) Subsection (2AAC) applies to the forestry manager of a forestry 27 managed investment scheme if: 28 (a) the forestry manager (or an associate of the forestry manager) 29 receives an amount under the scheme; and 30 (b) the amount is included in the forestry manager's (or the 31 associate's) assessable income under section 15-46 of the 32 Income Tax Assessment Act 1997. [Page Break] 2 manager include records about the basis on which the scheme 3 satisfies the requirement in paragraph 394-10(1)(c) of the Income 4 Tax Assessment Act 1997 (the 70% DFE rule). 5 8 Subsection 262A(6) 6 Insert: 7 associate has the same meaning as in the Income Tax Assessment 8 Act 1997. 9 9 Subsection 262A(6) 10 Insert: 11 forestry managed investment scheme has the same meaning as in 12 the Income Tax Assessment Act 1997. 13 10 Subsection 262A(6) 14 Insert: 15 forestry manager of a forestry managed investment scheme has the 16 same meaning as in the Income Tax Assessment Act 1997. 17 11 Subsection 262A(6) 18 Insert: 19 participant in a forestry managed investment scheme has the same 20 meaning as in the Income Tax Assessment Act 1997. 21 Income Tax Assessment Act 1997 22 12 Section 10-5 (at the end of table item headed "forestry 23 agreement") 24 Add: CGT event in relation to forestry interest in agreement...... 82KZMGB 25 13 Section 10-5 (after table item headed "forestry 26 agreement") 27 Insert: forestry managed investment schemes forestry manager's receipts under scheme .......................... 15-46 [Page Break] initial participant ............................................................ CGT event in relation to forestry interest in scheme for 394-30(2) subsequent participant.................................................... 1 14 Section 12-5 (after table item headed "foreign tax credits") 2 Insert: forestry managed investment schemes payments under scheme....................................................... 394-10(1) 3 15 After section 15-45 4 Insert: 5 15-46 Amounts paid under forestry managed investment schemes 6 (1) Your assessable income includes an amount you receive under a 7 *forestry managed investment scheme if: 8 (a) you are the *forestry manager of the scheme, or an *associate 9 of the forestry manager; and 10 (b) the entity that paid the amount can deduct or has deducted the 11 amount under section 394-10 in relation to the scheme 12 (disregarding subsection 394-10(5)). 13 The amount is included for the income year for which the entity 14 that paid the amount can or has claimed a deduction for it 15 (disregarding subsection 394-10(5)). 16 (2) No part of an amount included under subsection (1) is included in 17 your assessable income for a later income year. 18 16 Section 112-97 (after table item 22) 19 Insert: 22A A CGT event happens in relation to The total cost base and Subsection forestry interest in a forestry managed reduced cost base 394-30(9) investment scheme for a subsequent participant 20 17 Subsection 995-1(1) 21 Insert: 22 70% DFE rule has the meaning given by section 394-35. [Page Break] 2 Insert: 3 direct forestry expenditure has the meaning given by 4 section 394-45. 5 19 Subsection 995-1(1) 6 Insert: 7 forestry managed investment scheme has the meaning given by 8 subsection 394-15(1). 9 20 Subsection 995-1(1) 10 Insert: 11 incidental forestry scheme receipts has the meaning given by 12 subsection 394-30(4). 13 21 Subsection 995-1(1) 14 Insert: 15 initial participant in a *forestry managed investment scheme has 16 the meaning given by subsection 394-15(5). 17 22 Subsection 995-1(1) 18 Insert: 19 forestry interest in a *forestry managed investment scheme has the 20 meaning given by subsection 394-15(3). 21 23 Subsection 995-1(1) 22 Insert: 23 forestry manager of a *forestry managed investment scheme has 24 the meaning given by subsection 394-15(2). 25 24 Subsection 995-1(1) (definition of participant) 26 Repeal the definition, substitute: 27 participant: 28 (a) participant, in relation to a *GST joint venture, has the 29 meaning given by section 195-1 of the *GST Act; and [Page Break] 2 meaning given by subsection 394-15(4). 3 25 Subsection 995-1(1) 4 Insert: 5 total forestry scheme deductions has the meaning given by 6 subsection 394-30(3). [Page Break] 2 Part 3--Application 3 26 Application 4 (1) The amendments made by this Schedule apply to amounts paid by a 5 participant under a forestry managed investment scheme on or after 6 1 July 2007. 7 (2) Despite subitem (1), the amendments do not apply if any other amounts 8 were paid by the participant or any other participant under the scheme 9 before 1 July 2007. 10 (3) Despite subitem (1), sections 394-25 and 394-30 of the Income Tax 11 Assessment Act 1997 apply to CGT events that happen on or after 1 July 12 2007. 13 (4) Despite subitem (1), sections 82KZMGA and 82KZMGB of the Income 14 Tax Assessment Act 1936 apply to CGT events that happen on or after 15 1 July 2007. [Page Break] 2 Schedule 9--Non-resident trustee 3 beneficiaries 4 5 Income Tax Assessment Act 1936 6 1 Subsections 98(3) and (4) 7 Repeal the subsections, substitute: 8 (2A) If: 9 (a) a beneficiary of a trust estate who is presently entitled to a 10 share of the income of the trust estate: 11 (i) is a non-resident at the end of the year of income; and 12 (ii) is not, in respect of that share of the income of the trust 13 estate, a beneficiary in the capacity of a trustee of 14 another trust estate; and 15 (iii) is not a beneficiary to whom section 97A applies in 16 relation to the year of income; and 17 (iv) is not a beneficiary to whom subsection 97(3) applies; 18 and 19 (b) the trustee of the trust estate is not assessed and is not liable 20 to pay tax under subsection (1) or (2) in respect of any part of 21 that share of the net income of the trust estate; 22 subsection (3) applies to the trustee in respect of: 23 (c) so much of that share of the net income of the trust estate as 24 is attributable to a period when the beneficiary was a 25 resident; and 26 (d) so much of that share of the net income of the trust estate as 27 is attributable to a period when the beneficiary was not a 28 resident and is also attributable to sources in Australia. 29 (3) A trustee to whom this subsection applies in respect of an amount 30 of net income is to be assessed and is liable to pay tax: 31 (a) if the beneficiary is not a company--in respect of the amount 32 of net income as if it were the income of an individual and 33 were not subject to any deduction; or 34 (b) if the beneficiary is a company--in respect of the amount of 35 net income at the rate declared by the Parliament for the 36 purposes of this paragraph. [Page Break] 2 beneficiary is a company, Subdivision 115-C of the Income Tax 3 Assessment Act 1997 affects the assessment of the trustee. 4 (4) If: 5 (a) a beneficiary of a trust estate (the first trust estate) who is 6 presently entitled to a share of the income of the first trust 7 estate: 8 (i) is, in respect of that share of the income of the first trust 9 estate, a beneficiary in the capacity of a trustee of 10 another trust estate; and 11 (ii) is not a beneficiary to whom subsection 97(3) applies; 12 and 13 (b) a trustee of the other trust estate is a non-resident at the end 14 of the year of income; 15 the trustee of the first trust estate is to be assessed and is liable to 16 pay tax in respect of so much of that share of the net income of the 17 first trust estate as is attributable to sources in Australia at the rate 18 declared by the Parliament for the purposes of this subsection. 19 Note: If the trust estate's net income includes a net capital gain, 20 Subdivision 115-C of the Income Tax Assessment Act 1997 affects the 21 assessment of the trustee. 22 2 Subsection 98A(1) 23 Omit "or (4)". 24 3 Paragraph 98A(2)(a) 25 After "trust estate", insert "(including, for a beneficiary that is a 26 company, any tax paid in respect of that interest because of 27 section 115-220 of the Income Tax Assessment Act 1997)". 28 4 At the end of section 98A 29 Add: 30 (3) If a beneficiary of a trust estate who is presently entitled to a share 31 of the income of the trust estate: 32 (a) is not, in respect of that share of the income of the trust 33 estate, a beneficiary in the capacity of a trustee of another 34 trust estate; and 35 (b) is a non-resident at the end of the year of income; [Page Break] 2 individual interest of the beneficiary in the net income of the trust 3 estate as is reasonably attributable to a part of the net income of 4 another trust estate in respect of which the trustee of the other trust 5 estate is assessed and is liable to pay tax under subsection 98(4). 6 Note: If the trust estate's net income includes a net capital gain, 7 Subdivision 115-C of the Income Tax Assessment Act 1997 also 8 affects the assessment of the beneficiary. 9 (4) To the extent that subsection (3) includes an amount in the 10 assessable income of a beneficiary of a trust estate, the amount is 11 not included by subsection (1) or section 100. 12 5 After section 98A 13 Insert: 14 98B Deduction from beneficiary's tax 15 (1) This section applies to a beneficiary of a trust estate for a year of 16 income if the assessable income of the beneficiary of the year of 17 income includes an amount covered by subsection (2). 18 (2) This subsection covers an amount (the assessable amount) if: 19 (a) the amount is included in the assessable income of the 20 beneficiary under one of the following: 21 (i) section 97; 22 (ii) subsection 98A(3); 23 (iii) section 100; and 24 (b) the amount does not represent income of the trust estate to 25 which the beneficiary is presently entitled in the capacity of a 26 trustee of another trust estate; and 27 (c) the amount is reasonably attributable to an amount (the taxed 28 net income) in respect of which the trustee of another trust 29 estate is assessed and liable to pay tax (the subsection 98(4) 30 tax) under subsection 98(4) (including any tax paid under 31 subsection 98(4) in respect of the taxed net income because 32 of section 115-222 of the Income Tax Assessment Act 1997). 33 (3) A proportion of the subsection 98(4) tax is to be deducted from the 34 income tax assessed against the beneficiary of the year of income. 35 That proportion is the same as the proportion of the taxed net 36 income that gave rise to the assessable amount. [Page Break] 2 assessable income for a beneficiary of another trust estate, you would 3 have regard to the share of the income of each interposed trust estate 4 to which a beneficiary (including a beneficiary in the capacity of a 5 trustee) is presently entitled. 6 Example: The P Trust has two non-resident trustee beneficiaries, the trustees of 7 the S Trust and the H Trust. Each trustee is presently entitled to a 1/2 8 share of the income of the P Trust. The net income of the P Trust is 9 $100,000. The trustee of the P Trust pays tax of $22,500 under 10 subsection 98(4) in respect of the trustee of the S Trust's interest and 11 $22,500 under subsection 98(4) in respect of the trustee of the H 12 Trust's interest. 13 The S Trust has a non-resident beneficiary, G, who is presently 14 entitled to a 1/3 share of the income of the S Trust. The net income of 15 the S Trust is $30,000. Subsection 98A(3) includes $10,000 in G's 16 assessable income. 17 The taxed net income of the P trust is $50,000. The proportion of that 18 taxed net income that gave rise to the $10,000 being included in G's 19 assessable income is 1/3.This is because G had a 1/3 share of the 20 income of the S Trust. $7,500 (1/3 x $22,500) is deducted from the 21 income tax assessed against G. 22 If section 97, subsection 98A(3) or section 100 also includes amounts 23 in the assessable income of any beneficiaries of the H Trust, each of 24 those beneficiaries also works out the amount of the deduction against 25 the income tax assessed against them in the same way. 26 (4) If the amount to be deducted under subsection (3) is greater than 27 the amount of the income tax assessed against the beneficiary, the 28 Commissioner must pay to the beneficiary an amount equal to the 29 difference between those 2 amounts. 30 Note: See Division 3A of Part IIB of, and section 105-65 in Schedule 1 to, 31 the Taxation Administration Act 1953 for the rules about how the 32 Commissioner must pay the entity. Division 3A of Part IIB allows the 33 Commissioner to apply the amount owing as a credit against tax debts 34 that the entity owes to the Commonwealth. 35 6 After paragraph 99B(2)(b) 36 Insert: 37 (ba) an amount that is non-assessable non-exempt income of the 38 beneficiary because of section 802-17 of the Income Tax 39 Assessment Act 1997; 40 7 After subparagraph 99B(2)(c)(ii) 41 Insert: [Page Break] 2 of another trust estate in respect of which the trustee of 3 the other trust estate is assessed and is liable to pay tax 4 under subsection 98(4); 5 8 After section 99D 6 Insert: 7 99E Later trust not taxed on income already taxed under subsection 8 98(4) 9 Sections 98, 99 and 99A do not apply to so much of the net income 10 of a trust estate of a year of income as is reasonably attributable to 11 a part of the net income of another trust estate in respect of which 12 the trustee of the other trust estate is assessed and is liable to pay 13 tax under subsection 98(4). 14 9 Subsection 100(1) (note) 15 Omit "Note", substitute "Note 1". 16 10 At the end of subsection 100(1) 17 Add: 18 Note 2: An amount is not included in assessable income under this section to 19 the extent that subsection 98A(3) already includes it: see subsection 20 98A(4). 21 11 After subsection 100(1A) 22 Insert: 23 (1B) If a beneficiary in a trust estate who is under a legal disability or is 24 deemed to be presently entitled to any of the income of the trust 25 estate by virtue of the operation of subsection 95A(2): 26 (a) is a resident at the end of the year of income; and 27 (b) is not a beneficiary in any other trust estate and does not 28 derive income from any other source; 29 the assessable income of the beneficiary includes so much of the 30 individual interest of the beneficiary in the net income of the trust 31 estate as is reasonably attributable to a part of the net income of 32 another trust estate in respect of which the trustee of the other trust 33 estate is assessed and is liable to pay tax under subsection 98(4). [Page Break] 2 Subdivision 115-C of the Income Tax Assessment Act 1997 also 3 affects the assessment of the beneficiary. 4 Note 2: A credit is available under section 98B for an appropriate part of the 5 subsection 98(4) tax. 6 Note 3: An amount is not included in assessable income under this section to 7 the extent that subsection 98A(3) already includes it: see subsection 8 98A(4). 9 12 At the end of section 100 10 Add: 11 (3) However, an amount of tax is not to be deducted under 12 subsection (2) from the income tax assessed against a beneficiary 13 to the extent that the amount is deducted under section 98B from 14 the income tax assessed against the beneficiary. 15 13 Subsection 128B(1) (note) 16 Omit "section 802-15", substitute "sections 802-15 and 802-17". 17 Income Tax Assessment Act 1997 18 14 Section 12-5 (table item headed "foreign residents") 19 Repeal the item. 20 15 Section 13-1 (table item headed "trusts") 21 Before: non-resident beneficiary ...................................................... 98A(2)(a) 22 insert: beneficiary in a foreign trust ............................................... 98B 23 16 Subparagraphs 115-215(2)(b)(ii) and (iii) 24 Repeal the subparagraphs, substitute: 25 (ii) under subsection 98A(1) or (3) of that Act; or 26 (iii) under section 100 of that Act. 27 17 Section 115-220 (heading) 28 Repeal the heading, substitute: [Page Break] 2 of the Income Tax Assessment Act 1936 3 18 Subsection 115-220(1) 4 Omit "subsection 98(3)", substitute "paragraph 98(3)(b)". 5 19 Subsection 115-220(2) (heading) 6 Repeal the heading, substitute: 7 Modification of paragraph 98(3)(b) 8 20 Subsection 115-220(2) 9 Omit "subsection 98(3)", substitute "paragraph 98(3)(b)". 10 21 After section 115-220 11 Insert: 12 115-222 Special rule for assessing trustee under subsection 98(4) of 13 the Income Tax Assessment Act 1936 14 Purpose 15 (1) The purpose of this section is to ensure a trustee assessed under 16 subsection 98(4) of the Income Tax Assessment Act 1936 (in 17 respect of the share of the net income to which a beneficiary that is 18 a foreign resident in the capacity of a trustee is entitled) does not 19 get the benefit in that assessment of the *discount percentage. 20 Modification of subsection 98(4) 21 (2) The trustee is to be assessed (and pay tax) under subsection 98(4) 22 of the Income Tax Assessment Act 1936 as if the part of the share 23 that is attributable to a *capital gain of the trust that was reduced 24 under step 3 of the method statement in subsection 102-5(1) were 25 double the amount that it actually is. 26 22 Subparagraph 207-50(3)(b)(ii) 27 Omit "paragraph 98A(1)(a) or (b), or paragraph 100(1)(a) or (b),", 28 substitute "section 98A or 100". 29 23 After section 802-15 [Page Break] 2 802-17 Trust estates and foreign resident beneficiaries--exempting 3 CFI from Australian tax 4 Foreign resident beneficiaries 5 (1) So much of a share of the net income of a trust as is reasonably 6 attributable to the whole or a part of the *unfranked part of a 7 *frankable distribution made by an *Australian corporate tax entity 8 that the entity declares, in its *distribution statement, to be *conduit 9 foreign income: 10 (a) is not assessable income and is not *exempt income of a 11 beneficiary of the trust who: 12 (i) is a foreign resident; and 13 (ii) is presently entitled to the share of the income of the 14 trust; and 15 (b) is an amount to which section 128B (Liability to withholding 16 tax) of the Income Tax Assessment Act 1936 does not apply. 17 Note: A frankable distribution to which a part of the net income of a trust is 18 reasonably attributable may be made by the Australian corporate tax 19 entity to the trust directly, or to the trust indirectly through one or 20 more interposed trusts. 21 (2) The declaration must be made on or before the day on which the 22 *distribution is made. 23 Note: For a private company, this rule may bring forward the time at which 24 the company is required to make its distribution statement: see 25 section 202-75. 26 Trusts 27 (3) The trustee of a trust is not to be assessed (and pay tax) under 28 section 98, 99 or 99A of the Income Tax Assessment Act 1936 in 29 respect of so much of the net income of the trust as is 30 *non-assessable non-exempt income of a beneficiary of the trust 31 under subsection (1). 32 24 Subsection 855-40(3) 33 Repeal the subsection, substitute: [Page Break] 2 of an amount to the extent that the amount gives rise to a *capital 3 gain that is disregarded for a beneficiary under subsection (2). 4 25 Subsection 855-40(4) 5 After "subsection 98A(1)", insert "or (3)". 6 26 Subsection 855-40(9) 7 Repeal the subsection (including the notes). 8 Income Tax Rates Act 1986 9 27 Subparagraph 5(a)(iv) 10 Omit "subsection 98(3)", substitute "paragraph 98(3)(b) or subsection 11 98(4)". 12 28 Subparagraph 5(b)(iv) 13 Omit "subsection 98(3)", substitute "paragraph 98(3)(b) or subsection 14 98(4)". 15 29 Section 28 16 Repeal the section, substitute: 17 28 Rates of tax payable by certain trustees to whom section 98 of the 18 Assessment Act applies 19 The rates of tax payable by a trustee of a trust estate in respect of a 20 share of the net income of the trust estate in respect of which the 21 trustee is liable to be assessed and to pay tax are: 22 (a) if paragraph 98(3)(b) of the Assessment Act applies--the rate 23 specified in subsection 23(2) (about companies); and 24 (b) if subsection 98(4) of the Assessment Act applies--the 25 maximum rate specified in column 3 of the table in Part II of 26 Schedule 7 to this Act that applies for the year of income. 27 Note: If paragraph 98(3)(a) of the Assessment Act applies, see subsection 28 12(6). 29 30 Application [Page Break] 2 by this Schedule, other than items 13 and 23, apply in relation to 3 income years starting on or after 1 July 2006. 4 (2) The amendments made by items 13 and 23 of this Schedule apply in 5 relation to income years starting on or after 1 July 2005. 6 31 Transitional provision--trusts that ceased to exist before 7 introduction 8 Subsection 98(4) of the Income Tax Assessment Act 1936, as inserted by 9 item 1 of this Schedule, does not apply in relation to a trustee of a trust 10 that ceased to exist before the Bill for this Act was introduced into the 11 House of Representatives. 12 32 Transitional provision--managed investment trusts 13 (1) This item applies in relation to the following income years: 14 (a) the first income year starting on or after 1 July 2006; 15 (b) the income year immediately prior to the first income year 16 starting on or after the first 1 July after the day on which this 17 Act receives the Royal Assent; 18 (c) each intervening income year (if any). 19 (2) In this item, expressions mean the same as in the Income Tax 20 Assessment Act 1997. 21 (3) Subsection 98(4) of the Income Tax Assessment Act 1936, as inserted by 22 item 1 of this Schedule, does not apply in relation to a trustee of a trust 23 in relation to an income year to which this item applies if the conditions 24 in subitems (4) to (6) are satisfied for the trust for the income year. 25 (4) The trust must be a resident trust estate for the purposes of Division 6 of 26 Part III of the Income Tax Assessment Act 1936 for the income year. 27 (5) At each of the times in the income year mentioned in subitem (9), the 28 trust must be a managed investment scheme (as defined by section 9 of 29 the Corporations Act 2001) and be operated by a financial services 30 licensee (as defined by section 761A of that Act) whose licence covers 31 operating such a managed investment scheme. 32 (6) At each of the times in the income year mentioned in subitem (9), one 33 of the following must be satisfied: [Page Break] 2 list of an approved stock exchange in Australia; 3 (b) the trust must have at least 50 members (ignoring objects of a 4 trust); 5 (c) one of the entities covered by subitem (7) must be a member 6 of the trust. 7 (7) These are the entities: 8 (a) a life insurance company; 9 (b) a complying superannuation fund, a complying approved 10 deposit fund or a foreign superannuation fund, being a fund 11 that has at least 50 members; 12 (c) a trust that satisfies the conditions in subitems (4) and (5) and 13 also satisfies the condition in paragraph (a) or (b) of 14 subitem (6); 15 (d) an entity that is recognised, under a foreign law relating to 16 corporate regulation, as an entity with a similar status to a 17 managed investment scheme and that has at least 50 18 members; 19 (e) a trust: 20 (i) interests in which are owned directly by an entity 21 covered by an earlier paragraph; or 22 (ii) interests in which are held indirectly by an entity 23 covered by an earlier paragraph through a *chain of 24 trusts; 25 where the conditions in subitems (4) and (5) are satisfied for 26 the trust, or for each trust in the chain. 27 (8) The condition in subitem (6) is not satisfied for a trust at a time if, at 28 that time, one foreign resident individual, directly or indirectly: 29 (a) held, or had the right to acquire, interests representing 10% 30 or more of the value of the interests in the trust; or 31 (b) had the control of, or the ability to control, 10% or more of 32 the rights attaching to membership interests in the trust; or 33 (c) had the right to receive 10% or more of any distribution of 34 income that the trustee may make. 35 (9) The times in an income year are: 36 (a) for a trust that was in existence throughout the income year-- 37 the first day and the last day of the income year; and [Page Break] 2 time that is 1 month after the time the trust comes into 3 existence, and the last day of the income year; and 4 (c) for a trust that ceases to exist in the income year--the first 5 day of the income year and the time that is 1 month before 6 the time the trust ceases to exist. 7 33 Transitional provision--intermediaries 8 (1) This item applies in relation to the following income years: 9 (a) the first income year starting on or after 1 July 2006; 10 (b) the income year immediately prior to the first income year 11 starting on or after the first 1 July after the day on which this 12 Act receives the Royal Assent; 13 (c) each intervening income year (if any). 14 (2) In this item, expressions mean the same as in the Income Tax 15 Assessment Act 1997. 16 (3) Subsection 98(4) of the Income Tax Assessment Act 1936, as inserted by 17 item 1 of this Schedule, does not apply to a trustee of a trust in relation 18 to so much of the net income of the trust of an income year to which 19 this item applies as: 20 (a) represents income applied by the trustee in making a payment 21 covered by subitem (4); and 22 (b) is attributable to a payment made by a trustee of another 23 trust, if the conditions in subitems 32(4) to (6) of this 24 Schedule are satisfied for the other trust for the income year 25 in which the payment made by the trustee of the other trust is 26 made. 27 (4) A payment made by a trustee of a trust is covered by this subitem if: 28 (a) the payment is made to an entity that is a foreign resident at 29 the time of the payment; and 30 (b) at the time of the payment, the trust is carrying on a business 31 that consists predominantly of providing a custodial or 32 depository service (as defined by section 766E of the 33 Corporations Act 2001) pursuant to an Australian financial 34 services licence (as defined by section 761A of that Act); and 35 (c) the payment is made in the course of the business; and 36 (d) either: [Page Break] 2 Division 6 of Part III of the Income Tax Assessment Act 3 1936 for the income year in which the payment is made; 4 or 5 (b) the business is carried on in Australia through an 6 Australian permanent establishment. 7 34 Transitional provision--application of former subsection 8 768-605(4) and former section 768-615 of the Income 9 Tax Assessment Act 1997 10 (1) Former subsection 768-605(4) of the Income Tax Assessment Act 1997 11 applies in relation to income years starting on or after 1 July 2006 as if 12 the reference in that subsection to subsection 98A(1) were instead a 13 reference to subsection 98A(1) or (3). 14 (2) Former section 768-615 of the Income Tax Assessment Act 1997 does 15 not apply in relation to income years starting on or after 1 July 2006. [Page Break] 2 Schedule 10--Distributions to foreign 3 residents from managed investment 4 trusts 5 Part 1--Main amendments 6 Taxation Administration Act 1953 7 1 At the end of Division 12 in Schedule 1 8 Add: 9 Subdivision 12-H--Distributions of managed investment trust 10 income to foreign residents 11 Guide to Subdivision 12-H 12 12-375 What this Division is about 13 A distribution to a foreign resident by managed investment trusts 14 of their Australian sourced income and some capital gains may be 15 subject to a single non-final withholding at the corporate tax rate. 16 This includes distributions made to the foreign resident indirectly 17 through one or more intermediaries, if relevant notices have been 18 provided by payers. 19 Generally, the distribution must be made by the managed 20 investment trust within 3 months after the end of its income year. 21 Division 6 of Part III of the Income Tax Assessment Act 1936 does 22 not apply to trustees and intermediaries to the extent that they have 23 to withhold under this subdivision (see section 99G of that 24 Division). 25 Table of sections 26 Operative provisions 27 12-380 Object [Page Break] 2 12-390 Withholding by intermediary 3 12-395 Meaning of managed investment trust 4 12-400 Meaning of fund payment 5 12-405 Meaning of intermediary 6 12-410 Entity to whom payment is made 7 12-415 Notices 8 12-420 Agency rules 9 Operative provisions 10 12-380 Object 11 (1) The object of this Subdivision is to implement a withholding 12 regime to assist the collection of Australian tax on distributions of 13 Australian sourced income by *managed investment trusts to 14 foreign residents (directly, or indirectly through one or more 15 *intermediaries). 16 (2) This regime overcomes information problems in applying 17 alternative withholding regimes by: 18 (a) providing for withholding at a flat rate--the *corporate tax 19 rate; and 20 (b) clarifying when withholding is required when payments are 21 made via *intermediaries, which is commonly the case with 22 distributions from *managed investment trusts. 23 Note: Withholding other than at a flat rate would require managed 24 investment trusts and intermediaries to know information about the 25 foreign resident that they are unlikely to know. 26 12-385 Withholding by trustee of managed investment trust 27 (1) The trustee of a *managed investment trust that makes a *fund 28 payment in relation to an income year to an entity covered by 29 section 12-410 must withhold an amount from the payment. 30 (2) The amount the trustee must withhold is: 31 Amount of the *fund payment × *corporate tax rate [Page Break] 2 (1) An entity must withhold an amount from a payment (the later 3 payment) it makes if: 4 (a) the entity is an *intermediary in relation to a payment (the 5 earlier payment) it received; and 6 (b) all or some of the later payment (the notice part) is 7 attributable to the part of the earlier payment that was 8 covered by the notice the entity received in relation to the 9 earlier payment; and 10 (c) the later payment is made to an entity covered by 11 section 12-410. 12 Note: Paragraph (1)(b) means that the notice part is attributable to a fund 13 payment made by a managed investment trust, or 2 or more fund 14 payments made by one or more managed investment trusts, to an 15 intermediary. 16 (2) The amount the entity must withhold is: 17 Notice part × *corporate tax rate 18 12-395 Meaning of managed investment trust 19 (1) A trust is a managed investment trust in relation to an income year 20 if: 21 (a) the trustee of the trust makes the first *fund payment in 22 relation to the income year; and 23 (b) the conditions in this table are satisfied. 24 Conditions to be satisfied Item Condition 1 At the time the payment is made, or at an earlier time in the income year: (a) the trustee was an Australian resident; or (b) the central management and control of the trust was in Australia. 2 At the time the payment is made, the trust is a managed investment scheme (as defined by section 9 of the Corporations Act 2001) and is operated by a financial services licensee (as defined by section 761A of that Act) whose licence covers operating such a managed investment scheme. 3 At the time the payment is made: (a) units in the trust are listed for quotation in the official list of an *approved [Page Break] Item Condition stock exchange in Australia; or (b) the trust has at least 50 *members (ignoring objects of a trust); or (c) one of the entities covered by a paragraph of subsection (2) is a member of the trust. 1 2 (2) These are the entities: 3 (a) a *life insurance company; 4 (b) a *complying superannuation fund, a *complying approved 5 deposit fund or a *foreign superannuation fund, being a fund 6 that has at least 50 *members; 7 (c) a trust for which the conditions in table items 1 and 2 in 8 subsection (1), and the condition in paragraph (a) or (b) of 9 table item 3, are satisfied; 10 (d) an entity that is recognised, under a *foreign law relating to 11 corporate regulation, as an entity with a similar status to a 12 managed investment scheme and that has at least 50 13 members; 14 (e) a trust: 15 (i) interests in which are owned directly by an entity 16 covered by an earlier paragraph; or 17 (ii) interests in which are held indirectly by an entity 18 covered by an earlier paragraph through a *chain of 19 trusts; 20 where the conditions in table items 1 and 2 in subsection (1) 21 are satisfied for the trust, or for each trust in the chain. 22 Exception: foreign resident individual having a substantial interest 23 (3) The condition in table item 3 in subsection (1) is not satisfied for a 24 trust at a time if, at that time, one foreign resident individual, 25 directly or indirectly: 26 (a) held, or had the right to acquire, interests representing 10% 27 or more of the value of the interests in the trust; or 28 (b) had the control of, or the ability to control, 10% or more of 29 the rights attaching to *membership interests in the trust; or [Page Break] 2 income that the trustee may make. 3 Start-up phase 4 (4) A trust that is created during an income year is a managed 5 investment trust in relation to the income year if, at the time the 6 trustee of the trust makes the first *fund payment in relation to the 7 income year, the conditions in table items 1 and 2 in subsection (1) 8 are satisfied for the trust. 9 Wind-up phase 10 (5) A trust that ceases to exist during an income year is a managed 11 investment trust in relation to the income year if: 12 (a) at the time the trustee makes the first *fund payment in 13 relation to the income year, the conditions in table items 1 14 and 2 in subsection (1) are satisfied for the trust; and 15 (b) the trust was a *managed investment trust in relation to the 16 previous income year otherwise than because of 17 subsection (4). 18 12-400 Meaning of fund payment 19 (1) The object of this section is to ensure that the total of the *fund 20 payments that the trustee of a trust makes in relation to an income 21 year equals, as nearly as practicable, the net income of the trust for 22 the income year, disregarding these amounts (excluded amounts): 23 (a) a dividend (as defined in Division 11A of Part III of the 24 Income Tax Assessment Act 1936) that is subject to, or 25 exempted from, a requirement to withhold under 26 Subdivision 12-F; 27 (b) interest (as so defined) that is subject to, or exempted from, 28 such a requirement; 29 (c) a *royalty that is subject to, or exempted from, such a 30 requirement; 31 (d) a *capital gain from a *CGT asset that is not *taxable 32 Australian property; 33 (e) amounts that are not from an *Australian source; 34 and disregarding deductions relating to excluded amounts. [Page Break] 2 made by the trustee of a trust in relation to an income year is a 3 fund payment in relation to that year: 4 Method statement 5 Step 1. Reduce the actual payment by so much of it that is 6 attributable to excluded amounts. 7 Step 2. Work out what it is reasonable to expect will be the *net 8 income of the trust for the income year: 9 (a) disregarding excluded amounts, expected excluded 10 amounts and deductions relating to those amounts; 11 and 12 (b) on the basis that a *capital gain from *taxable 13 Australian property of the trust that was or would 14 be reduced under step 3 of the method statement in 15 subsection 102-5(1) were double the amount it 16 actually is. 17 Step 3. The fund payment is so much of the step 2 amount as is 18 reasonable having regard to: 19 (a) the object of this section; and 20 (b) the step 1 amount; and 21 (c) the amounts of any earlier *fund payments made 22 by the trustee in relation to the income year; and 23 (d) the expected amounts of any later fund payments 24 the trustee expects to make in relation to the 25 income year. 26 (3) The expected *net income of the trust and the expected amounts of 27 future *fund payments are to be worked out on the basis of the 28 trustee's knowledge when the actual payment is made. 29 (4) However, an amount is not a fund payment in relation to the 30 income year unless it is paid: [Page Break] 2 (b) within 3 months after the end of the income year; or 3 (c) within a longer period (starting at the end of the period 4 referred to in paragraph (b) and not exceeding 3 months) 5 allowed by the Commissioner. 6 (5) The Commissioner may allow a longer period as mentioned in 7 paragraph (4)(c) only if the Commissioner is of the opinion that the 8 trustee was unable to make the payment during the income year, or 9 within 3 months after the end of the income year, because of 10 circumstances beyond the influence or control of the trustee. 11 12-405 Meaning of intermediary 12 (1) An entity is an intermediary in relation to a payment it receives at 13 a time (the receipt time) if: 14 (a) it is *carrying on a *business at the receipt time that consists 15 predominantly of providing a custodial or depository service 16 (as defined by section 766E of the Corporations Act 2001) 17 pursuant to an Australian financial services licence (as 18 defined by section 761A of that Act); and 19 (b) it received the payment in the course of that business; and 20 (c) before or at the receipt time, it received a notice of the kind 21 referred to in section 12-415 in relation to the payment; and 22 (d) either: 23 (i) subsection (2) is satisfied for the entity at the receipt 24 time; or 25 (ii) the business is carried on at the receipt time through an 26 *Australian permanent establishment. 27 (2) This subsection is satisfied for an entity at the receipt time if: 28 (a) for a trust--at that time: 29 (i) the trustee was an Australian resident; or 30 (ii) the central management and control of the trust was in 31 Australia; or 32 (b) for another entity--the entity is an Australian resident at the 33 receipt time. [Page Break] 2 (1) An entity (the recipient) is covered by this section for a payment 3 made to it by another entity (the payer) if any of these conditions is 4 satisfied when the payment is made: 5 (a) the recipient is a foreign resident; 6 (b) the payer believes, or has reasonable grounds to believe, that 7 the recipient is a foreign resident; 8 (c) the payer has no reasonable grounds to believe that the 9 recipient is an Australian resident, and either: 10 (i) the recipient has an address outside Australia (according 11 to any record that is in the payer's possession, or is kept 12 or maintained on the payer's behalf, about the 13 transaction to which the payment relates); or 14 (ii) the payer is authorised to make the payment at a place 15 outside Australia (whether to the recipient or to anyone 16 else); 17 (d) the recipient has a connection outside Australia of a kind set 18 out in the regulations. 19 (2) However, a recipient is not covered by this section for a payment if 20 the recipient is an *intermediary. 21 12-415 Notices 22 (1) An entity that makes a payment to another entity (the recipient) 23 from which an amount would have been required to be withheld 24 under this Subdivision if the payment had been made to an entity 25 covered by section 12-410 may give the recipient a notice. 26 (2) The notice: 27 (a) must specify that part of the payment from which an amount 28 would have been so required to have been withheld; and 29 (b) if that part is worked out by reference to a *discount capital 30 gain--must specify the amount of that gain; and 31 (c) must specify the income year of the *managed investment 32 trust to which the relevant *fund payment relates. 33 (3) An *intermediary in relation to a payment cannot give a notice in 34 relation to an amount: 35 (a) that is a payment only because of section 11-5; and [Page Break] 2 payment. 3 Note: Under section 11-5, an entity is taken to have paid an amount to 4 another entity if the first entity applies or deals with the amount on the 5 other entity's behalf or as the other entity directs. 6 12-420 Agency rules 7 (1) This Subdivision has effect as if a payment made to an entity in the 8 capacity as agent for another entity (the principal) had been made 9 to the principal. 10 (2) However, if the agent is an *intermediary in relation to the 11 payment: 12 (a) this Subdivision has effect as if the intermediary were not an 13 agent in relation to the payment; and 14 (b) for the purposes of this Subdivision, the receipt by the 15 intermediary of the payment on behalf of the principal is not 16 to be treated as a payment to the principal by any entity. 17 Note: As a result of subsection (2), an agent intermediary may be required to 18 withhold amounts under this Subdivision. 19 2 At the end of Subdivision 18-A in Schedule 1 20 Add: 21 Entitlement to credit: amount attributable to fund payment 22 18-50 Credit: amount attributable to fund payment 23 (1) This section applies to an entity if: 24 (a) the entity is a beneficiary of a trust and the assessable income 25 of the entity for an income year includes an amount (the 26 assessable amount) under section 97, 99F or 100 of the 27 Income Tax Assessment Act 1936; or 28 (b) the entity is a trustee of a trust and is assessed and is liable to 29 pay tax under section 99 or 99A of that Act on an amount 30 (also the assessable amount) for an income year; 31 and an assessment has been made of the income tax payable by the 32 entity for the income year. [Page Break] 2 assessable income of the beneficiary because of subsection 3 115-215(3) of the Income Tax Assessment Act 1997. 4 (3) The entity is entitled to a credit if the assessable amount is 5 represented by or reasonably attributable to a *withholding 6 payment from which an amount was withheld under 7 Subdivision 12-H (about distributions to foreign residents from 8 managed investment trusts). 9 (4) The amount of the credit is worked out using the formula: Attributable part of the payment 10 Amount withheld × Amount of the *withholding payment 11 where: 12 attributable part of the payment is so much of the assessable 13 amount as is represented by or reasonably attributable to the 14 *withholding payment. 15 (5) Paragraph (1)(a) does not apply to a beneficiary of a trust in 16 relation to an amount included in the beneficiary's assessable 17 income under section 97 of the Income Tax Assessment Act 1936 if 18 the beneficiary has the amount included in the capacity of a trustee 19 of another trust. 20 (6) However, subsection (5) does not stop paragraph (1)(a) applying to 21 a trustee of: 22 (a) a *complying superannuation fund, a *non-complying 23 superannuation fund, a *complying approved deposit fund, a 24 *non-complying approved deposit fund or a *pooled 25 superannuation trust; or 26 (b) a *corporate unit trust; or 27 (c) a *public trading trust. [Page Break] 2 Part 2--Consequential amendments 3 Income Tax Assessment Act 1936 4 3 Subsection 6(1) 5 Insert: 6 fund payment has the same meaning as in the Income Tax 7 Assessment Act 1997. 8 4 Subsection 6(1) 9 Insert: 10 intermediary has the same meaning as in the Income Tax 11 Assessment Act 1997. 12 5 Subsection 6(1) 13 Insert: 14 managed investment trust has the same meaning as in the Income 15 Tax Assessment Act 1997. 16 6 Before section 100 17 Insert: 18 99F Assessable income includes amounts attributable to fund 19 payments 20 If a beneficiary of a trust estate who is presently entitled to a share 21 of the income of the trust estate: 22 (a) is a non-resident at the end of the year of income; and 23 (b) is not, in respect of that share, a beneficiary in the capacity of 24 a trustee of another trust estate; 25 the assessable income of the beneficiary includes so much of the 26 individual interest of the beneficiary in the net income of the trust 27 estate as is represented by or reasonably attributable to an amount 28 from which an entity is required to withhold an amount under 29 Subdivision 12-H in Schedule 1 to the Taxation Administration Act 30 1953. [Page Break] 2 (1) Sections 98, 99 and 99A do not apply to so much of the net income 3 of a trust estate of a year of income as: 4 (a) represents income to which a beneficiary is presently 5 entitled; and 6 (b) is represented by or reasonably attributable to an amount 7 from which an entity is required to withhold an amount under 8 Subdivision 12-H in Schedule 1 to the Taxation 9 Administration Act 1953. 10 (2) Subsection 98(4) does not apply to so much of the net income of a 11 trust estate as represents income to which a beneficiary is presently 12 entitled and gives rise to an amount from which an entity is 13 required to withhold an amount under that Subdivision. 14 99H Late payments 15 (1) This section applies if: 16 (a) a beneficiary of a trust estate that is a managed investment 17 trust is presently entitled to a share of the income of the trust 18 estate of a year of income; and 19 (b) the beneficiary is a non-resident at the end of the year of 20 income; and 21 (c) all or part of that share of the net income of the trust estate 22 (the late amount) has not been paid to the beneficiary by the 23 end of the period applicable under subsection 12-400(4) in 24 Schedule 1 to the Taxation Administration Act 1953; and 25 Note: That subsection requires payments to be made before the end of 26 3 months after the end of the relevant year of income or within a 27 longer period allowed by the Commissioner. 28 (d) if the late amount had been paid to the beneficiary within that 29 period, the payment would have been a fund payment made 30 by the trustee of the managed investment trust. 31 (2) This Division applies as if that portion of the beneficiary's income 32 that represents the late amount were income to which no 33 beneficiary was presently entitled. 34 (3) In working out the net income of the trust estate for the year of 35 income for the purposes of subsection (1), disregard these amounts 36 (excluded amounts): [Page Break] 2 subject to, or exempted from, a requirement to withhold 3 under Subdivision 12-F in Schedule 1 to the Taxation 4 Administration Act 1953; 5 (b) interest (as so defined) that is subject to, or exempted from, 6 such a requirement; 7 (c) a royalty that is subject to, or exempted from, such a 8 requirement; 9 (d) a capital gain from a CGT asset that is not taxable Australian 10 property; 11 (e) amounts that are not from a source in Australia; 12 and disregard deductions relating to excluded amounts. 13 7 Before subsection 100(2) 14 Insert: 15 (1C) If a beneficiary in a trust estate who is under a legal disability or is 16 deemed to be presently entitled to any of the income of the trust 17 estate by virtue of the operation of subsection 95A(2): 18 (a) is a resident at the end of the year of income; and 19 (b) is not a beneficiary in any other trust estate and does not 20 derive income from any other source; 21 the assessable income of the beneficiary includes so much of the 22 individual interest of the beneficiary in the net income of the trust 23 estate as is represented by or reasonably attributable to a payment 24 from which an entity was required to withhold an amount under 25 Subdivision 12-H in Schedule 1 to the Taxation Administration Act 26 1953. 27 Note: A credit is available under section 18-50 in Schedule 1 to the Taxation 28 Administration Act 1953 for an appropriate part of the amount 29 withheld. 30 8 Paragraph 202EE(1)(c) 31 After "Subdivision 12-F", insert "or 12-H". 32 9 Subsection 255(2A) 33 After "natural resource payments)", insert "or Subdivision 12-H in that 34 Schedule (about distributions to foreign residents from managed 35 investment trusts)". [Page Break] 2 10 At the end of paragraph 115-215(2)(b) 3 Add: 4 ; or (iv) under section 99F of that Act. 5 11 Subsection 995-1(1) 6 Insert: 7 fund payment has the meaning given by section 12-400 in 8 Schedule 1 to the Taxation Administration Act 1953. 9 12 Subsection 995-1(1) 10 Insert: 11 intermediary has the meaning given by section 12-405 in 12 Schedule 1 to the Taxation Administration Act 1953. 13 13 Subsection 995-1(1) 14 Insert: 15 managed investment trust has the meaning given by 16 section 12-395 in Schedule 1 to the Taxation Administration Act 17 1953. 18 Taxation Administration Act 1953 19 14 Subsection 10-5(1) in Schedule 1 (at the end of the table) 20 Add: 21 25 A payment by a managed investment trust 12-385 26 A payment by an intermediary 12-390 22 15 Subsection 12-5(2) in Schedule 1 (before table item 1) 23 Insert: 24 [Page Break] or 12-390 foreign residents from *managed investment trusts 1 16 Subsection 15-15(1) in Schedule 1 2 After "or 12-145", insert "or Subdivision 12-H". 3 17 Subsection 15-15(1) in Schedule 1 (at the end of the note) 4 Add "Subdivision 12-H is about distributions to foreign residents from 5 managed investment trusts (except dividends, interest and royalties).". 6 18 Subsection 15-35(1) in Schedule 1 7 After "section 12-325", insert ", 12-385 or 12-390". 8 19 After subsection 16-153(3) in Schedule 1 9 Insert: 10 (4) An entity must give a report to the Commissioner in the *approved 11 form if the entity is required to withhold amounts under 12 Subdivision 12-H in relation to *fund payments made by a 13 particular *managed investment trust (the paying trust) in relation 14 to an income year of that trust. 15 Note: The entity may be the managed investment trust itself or an 16 intermediary. 17 (4A) The report under subsection (4) must be given: 18 (a) not later than 14 days after the end of 6 months after the end 19 of the income year of the *managed investment trust in 20 relation to which the relevant *fund payments were made; or 21 (b) within a longer period allowed by the Commissioner. 22 20 Paragraph 16-155(1)(a) in Schedule 1 23 Omit "or 12-317", substitute ", 12-317, 12-385 or 12-390". 24 21 After section 16-155 in Schedule 1 25 Insert: [Page Break] 2 (1) An entity (the payer) must give a *payment summary to another 3 entity (the recipient) if the payer made *withholding payments 4 covered by section 12-385 or 12-390 to the recipient in relation to 5 *fund payments made by a particular *managed investment trust 6 (the paying trust) in relation to an income year of that trust. 7 Note: The entity may be the managed investment trust itself or an 8 intermediary. 9 (2) The *payment summary: 10 (a) must cover each of the *withholding payments mentioned in 11 subsection (1); and 12 (b) may be in electronic form; and 13 (c) must be given: 14 (i) not later than 14 days after the end of 6 months after the 15 end of the income year of the *managed investment trust 16 in relation to which the relevant *fund payments were 17 made; or 18 (ii) within a longer period allowed by the Commissioner. 19 22 Paragraph 16-160(1)(a) in Schedule 1 20 Omit "or 12-317", substitute ", 12-317, 12-385 or 12-390". 21 23 Subsection 16-170(1) in Schedule 1 22 After "payment summary", insert "(except one relating to 23 Subdivision 12-H)". 24 24 After subsection 16-170(1) in Schedule 1 25 Insert: 26 (1AA) A payment summary relating to Subdivision 12-H is a statement 27 that: 28 (a) names the payer and the recipient; and 29 (b) if the recipient has given the recipient's *tax file number or 30 *ABN to the payer--states the tax file number or ABN; and 31 (c) states the total of the *withholding payments (if any) that it 32 covers, and the total of the *amounts withheld by the payer 33 from those withholding payments; and [Page Break] 2 investment trust to which it relates. 3 25 Subsection 16-175(1) in Schedule 1 4 After "16-155,", insert "16-157,". 5 26 Subsection 16-175(1) in Schedule 1 6 After "16-170(1),", insert "(1AA),". 7 27 At the end of section 18-15 in Schedule 1 8 Add: 9 (3) An entity is not entitled to a credit under this section in relation to a 10 *withholding payment if the entity is entitled to a credit under 11 section 18-50 in relation to that withholding payment. 12 28 At the end of section 18-25 in Schedule 1 13 Add: 14 (9) An entity is not entitled to a credit under this section in relation to a 15 *withholding payment if the entity is entitled to a credit under 16 section 18-50 in relation to that withholding payment. 17 29 Paragraph 20-35(3)(a) in Schedule 1 18 After "*payment summary", insert "(except one relating to 19 Subdivision 12-H)". 20 30 Paragraph 20-35(3)(b) in Schedule 1 21 Before "a payment summary", insert "such". 22 31 At the end of section 20-35 in Schedule 1 23 Add: 24 (4) A person must not, with the intention of obtaining a credit, a 25 payment or any other benefit, present: 26 (a) a *payment summary relating to Subdivision 12-H, or a copy 27 of such a payment summary; or 28 (b) a document purporting to be such a payment summary or a 29 copy of such a payment summary; [Page Break] 2 summary, duly given to the person. 3 Penalty: 60 penalty units, or imprisonment for 12 months, or both. 4 Note: See section 4AA of the Crimes Act 1914 for the current value of a 5 penalty unit. [Page Break] 2 Part 3--Application 3 32 Application 4 The amendments made by this Schedule apply to the first income year 5 starting on or after the first 1 July after the day on which this Act 6 receives the Royal Assent and later income years.