The FIF measures apply to a FIF's notional accounting period - this generally coincides with your income year.
The notional accounting period provides a measurement point for the application of the FIF provisions and is referred to for a variety of purposes including the application of the various methods of determining FIF income and for some of the exemptions.
Important: You must return attributable income from the FIF for the notional accounting period which ends in your income year.
If the period for which a FIF prepares its accounts is different from your income year, and this period is not more than 12 months, you may elect for the notional accounting period of the FIF to coincide with the period for which the accounts of the FIF are prepared. This election cannot be revoked for as long as you have the FIF interest. [subsections 486(3) and (4)]
Example
Gary acquires an interest in a FIF on 1 March 2003. The FIF prepares its annual accounts for the accounting period 1 April to 31 March and Gary elects to align the notional accounting period with the accounting period of the FIF.
He needs to include attributable income from the FIF for the period 1 March 2003 (the date of acquisition) to 31 March 2003 (the end of the elected notional period) in his tax return for the income year ended 30 June 2003. This is because the notional accounting period of the FIF ended during the income year for which Gary is lodging his tax return.
If the FIF prepared its annual accounts for the accounting period 1 January to 31 December each year and Gary elected to align the notional accounting period with the accounting period of the FIF, he would have to include attributable income from the FIF for the period 1 March 2003 (the date of acquisition) to 31 December 2003 (the end of the elected notional accounting period) in his return for the income year ended 30 June 2004 as that is the income year in which the notional accounting period ended.
End of exampleNotional accounting period of a FLP
The notional accounting period of a FLP is generally each period of 12 months ending on 30 June. [subsection 487(2)]
If the cash surrender values of your interest in a FLP are available on a day during the same month in each calendar year (the relevant day), you can elect that the notional accounting period of the FLP be determined under subsection 487(5). For example, if the relevant day is in February, you may elect that the accounting period begins in March (the month after the first relevant day) and ends at the end of February in the following year (in which the next relevant day occurs).
This election cannot be revoked for as long as you have an interest in the FLP. [Subsection 487(4)]
Direct investments
The FIF legislation refers to an interest that is generally:
- a share in a foreign company
- an interest in the capital or income of a foreign trust, or
- the holding of the legal title of a foreign life assurance policy.
If you, as an Australian resident, personally and directly own foreign investments (not through a company or a trust), the FIF legislation does not apply as it does not cover direct interests in physical assets such as land, livestock, plant and debt instruments. Other provisions of the income tax law apply to such investments.