Under the attribution method, the trustee of an AMIT must first calculate the 'trust component of each particular character' – that is, the total of the amounts associated with the various activities of the trust that attract different tax consequences.
The sum of the trust components for each assessable income character must equal the total assessable income of the AMIT less deductions (but not reduced below nil).
Trust component of a particular income character
The trustee works out the trust component of a particular income character as follows:
Amount of the character derived or received in the income year (less deductions)
plus
Total unders less Total overs
plus
Rounding adjustment deficit (or less Rounding adjustment surplus)
less
Cross-character allocation amount
less
Carry-forward trust component deficit
plus
Foreign income tax offset (FITO) allocation amount.
Trust component of a particular tax offset character
The trustee works out the trust component of a particular tax offset character as follows:
Amount of the character derived or received in the income year
plus
Total unders less Total overs.
Deductions
Deductions that relate directly to an amount of an assessable income character must initially be applied only to reduce that income character amount. If deductions relate to more than one assessable income character amount, they must be apportioned between them on a reasonable basis.
Any remaining deductions must be apportioned between the remaining assessable income character amounts on a reasonable basis. No trust component can be reduced below nil.
For more information see also Law Companion Ruling LCR 2015/8 Attribution Managed Investment Trusts: the rules for working out trust components – allocation of deductions.
Unders and overs
When the trustee of an AMIT is required to calculate the trust components for the year and the attribution of those amounts to members, they may have difficulty in obtaining final financial information in time to include it in the calculations. They may need to make an estimate of amounts to report to the ATO and the AMIT members by the required reporting dates.
Once the final financial information is available, the trustee will revise their calculations using final amounts. Any understatements in their estimations will be an 'under' and any overstatements in their estimations will be an 'over'.
Under the attribution system, any unders and overs can be accounted for in the year they are discovered, rather than the year that the under- or over-estimation occurred.
If the trustee chooses to reconcile the under or over in the discovery year, then:
- in the case of an under of a particular character – the trust component of that particular character is increased in the discovery year
- in the case of an over of a particular character – the trust component of that particular character is decreased in the discovery year.
For more information see also unders and overs for AMITs.
Rounding adjustments deficit
Rounding discrepancies can occur where a trustee cannot reasonably attribute trust components in proportions equal to membership interests in a way that can be divided into payable currency (cents). When attributed amounts are rounded down, the unpaid amount becomes a rounding adjustment deficit.
An AMIT will have a rounding adjustment deficit of a particular character for an income year if:
- for the previous income year, the sum of all determined member components of a particular character is less than the determined trust component of that character for that previous income year, and
- the shortfall results wholly or partly from the trustee rounding down amounts in working out the determined member components for that previous income year.
The amount of the rounding adjustment deficit is applied to increase the trust component of that character in the income year in which the rounding adjustment deficit arises.
Rounding adjustment surplus
A rounding adjustment surplus will occur when the AMIT rounds up an amount in order to attribute it to members in whole cents, according to their membership interests.
An AMIT will have a rounding adjustment surplus of a particular character for an income year if both:
- for the previous income year, the sum of all determined member components of a particular character is more than the determined trust component of that character for that previous income year
- the surplus results wholly or partly from the trustee rounding up amounts in working out the determined member components for that previous income year.
The amount of the rounding adjustment surplus is applied to decrease the trust component of that character in the income year in which the rounding adjustment deficit arises.
Trust component deficit
When adjusting a trust component with the net overs/unders amount or a rounding adjustment surplus/deficit of that character, the amount of the adjusted trust component cannot be a negative – that is, it can only be reduced to nil.
Any amount remaining after the trust component is reduced to nil becomes a 'trust component deficit' for that character for that income year.
Cross-character allocation amount
The trustee can apply the trust component deficit for a particular character of assessable income to reduce one or more trust components of other characters of assessable income.
The amount allocated to each trust component is called the 'cross-character allocation' amount. The cross-character allocation must be done on a reasonable basis and cannot reduce the trust component of another character below nil.
Carried-forward trust component deficit
Any remaining trust component deficit that cannot be applied to another trust component of assessable income must be carried forward to a later income year. The amount is then called a 'carried forward trust component deficit'.
The same will apply if the trustee chooses not to apply the trust component deficit to another trust component of assessable income in the current income year (that is, the trustee does not make a cross-character allocation).
Carried-forward trust component deficits must be allocated in a future year in the same way as the current year:
- firstly, to a trust component of the same character of assessable income
- then to another trust component of a different character of assessable income as a cross-character allocation amount
- then as a carried forward trust component deficit to a future year if there is any amount remaining.
For more information see also Law Companion Ruling LCR 2016/4 Attribution Managed Investment Trusts: 'carry-forward trust component deficit'.
Trust component deficit of a tax offset character (other than FITO)
If an AMIT has a trust component deficit of a tax offset character that is not a foreign income tax offset (FITO), the trustee is liable to pay an amount of tax equal to the amount of the trust component deficit.
This is necessary because the excess tax offset attributed to a member in the earlier year will have been available to reduce the member's tax liability. Therefore, the imposition of tax on the trustee equal to the amount of the tax offset trust component deficit will ensure that the revenue is not disadvantaged by the member having been attributed an excess offset in the earlier year.
FITO allocation amount
If an AMIT has a foreign income tax offset (FITO) allocation amount, that amount is applied to increase the trust component of a character relating to foreign source income.
An AMIT will have a 'FITO allocation amount' if it has both:
- a trust component of a character that is foreign income tax paid (that counts toward a foreign income tax offset)
- a trust component deficit of that character for the income year.
As the standard corporate tax rate is currently 30%, the FITO allocation amount is worked out using the following formula:
Trust component deficit + (Trust component deficit × 70÷30)
Determined trust components
The trustee determines the amount of the trust components of each particular income character and creates a document recording those amounts. Once the amounts are documented, they are called the 'determined trust components'.