Overview
Under the market value method, the amount of FIF income is decided in two steps.
Step 1 work out the movement in the market value of the FIF interest, generally between two annual reporting dates.
Step 2 allow for the deduction of any previous year's FIF losses if the losses have not been used in an earlier year.
Working through these steps gives you the amount of FIF income to include in your assessable income.
The following information will help you to complete Worksheet 1: Market value method.
Step 1: Working out the movement in the market value [section 538]
Box A
Write the market value of your interests in the FIF on the last day of the notional accounting period at A.
Box B
Write the total value of distributions to you by the FIF during the notional accounting period for the interests held on the last day of the notional accounting period at B.
If you disposed of an interest in a FIF during the notional accounting period, also include the value of distributions made by the FIF before disposal.
Box C
Write the opening market value (being the market value on the day immediately before the first day of the notional accounting period) of the interests you held on the last day of the notional accounting period at C.
If you used the deemed rate of return method to value your interests in the previous notional accounting period, use that method to determine the opening value of your interests for the notional accounting period. Write this amount at C.
Box D
Insert the amount you paid to acquire any interests in the FIF that you acquired during the notional accounting period and held on the last day of that period.
Usually, you must write the amounts at B, C and D in the currency you used for the amount at A. [subsection 538(3)] However, the market value method gives you an irrevocable election to use Australian currency in working out all your FIF income.
This brings to account currency exchange gains and losses at the time the transactions and values relevant to the determination of FIF income occurred.
If you make the election, you must write the amounts at A, B, C and D in Australian currency. [subsections 538(4) and (5)]
Exchange rates for FIF values
Use exchange rates applicable on the following days for the market value method … |
when converting the following to Australian currency |
Last day of each relevant notional accounting period for each FIF interest |
Market value of a FIF interest |
Day of each distribution made by a FIF |
Distribution made by a FIF |
Day consideration was paid or given |
Acquisition value of a FIF |
Last day of the notional accounting period of the FIF for the relevant income year |
Excess of FIF income over FIF losses |
Last day of the notional accounting period of the FIF in which the loss occurred |
FIF loss |
Last day of the notional accounting period of the FIF |
FIF losses to the same currency as the gross FIF income - not necessarily Australian currency |
Box E
Take away the sum of C and D from the sum of A and B. This is the FIF amount.
Gross FIF income
If the FIF amount is positive, that amount represents the gross FIF income of the FIF as it relates to you. [section 540]
FIF loss
If the FIF amount is negative, the amount is a FIF loss.
This FIF loss may be used to offset your assessable income but only to the extent that you have previously been subject to FIF taxation from that FIF - that is, to the extent that you have a FIF attribution surplus in relation to that FIF.
Where there is no FIF attribution surplus the FIF loss must be carried forward to be applied against future gross FIF income of that FIF. You cannot use a FIF loss in relation to one FIF to reduce the gross FIF income of another FIF. [sections 532 and 541]
Step 2: Working out the amount to include in assessable income
Box F
Write the total of any unapplied previous FIF losses at F. [subsection 542(2)]
If it is not already the case, you must convert the unapplied previous FIF loss to the same currency as the gross FIF income - that is, the amount at E. [subsection 542(8)]
Unapplied previous FIF loss
An unapplied previous FIF loss is the amount by which the undeducted amount of a FIF loss is more than the sum of any gross FIF income from your interest in that particular FIF. [subsection 542(5)]
The undeducted amount of a FIF loss is the amount of a FIF loss that has not been allowed as a deduction from your assessable income. [section 532 and subsection 542(6)]
If, in respect of a particular notional accounting period, you are entitled to an exemption under Divisions 2 to 9 and 11 to 15 of the ITAA 1936, the loss must be reduced by the gross FIF income calculated as if the exemptions did not apply for that particular notional accounting period. [subsection 542(5)]
Once you have used a FIF loss to work out if there was, for any notional accounting period, an unapplied previous FIF loss, you cannot use that loss again in later notional accounting periods. [subsection 542(7)]
In working out your unapplied previous FIF losses, apply only that gross FIF income accruing after the notional accounting period in which you incurred the loss and before the current notional accounting period in which you have a gross FIF income. [subsection 542(5)]
Box G
Take away the amount at F from the amount at E. This gives you your FIF income.
Box H
Convert your FIF income to Australian dollars at the rate of exchange applying at the end of the relevant notional accounting period. Write the converted amount at H.
The amount at H is your FIF income. Include it in your assessable income after allowing for a reduction for assessable distributions from the FIF. Read Chapter 6: Avoiding double taxation for more information.
Boxes I, J and K
If any of the distributions referred to above are dividends, interest payments or trust distributions, or your FIF interest relates to shares acquired under an employee acquisition scheme - see Reduction of FIF income for FIF interests acquired under an employee share scheme in chapter 6 - use I, J and K to arrive at the amount to include in your assessable income. [sections 530, 530A and 603]
If you are entitled to a reduction of FIF income, add the amount of the reduction to any amount at J.
Determining market value
You determine market value by referring to the quoted market values for the FIF interests. Only quotations from an approved stock exchange will be accepted. See Appendix 1: Approved stock exchanges. [section 539]
If you have interests in certain FIFs that are not listed on an approved stock exchange, you may be able to use:
- a buy-back or redemption price, or
- the price of an offer to purchase a particular FIF by an associate of that FIF.
The buy-back, offer or redemption price must be:
- publicly available
- offered to all persons having an interest of that class in the FIF
- worked out by reference to the market value of the assets of the company or trust, and
- representing an arm's length valuation of the interest on that day. [subsection 539(3)]
Worksheet 1: Market value method will help you to understand the following examples. The letters in brackets refer to the boxes on worksheet 1.
Example: FIF income included in assessable income
The opening value of a FIF interest at 1 July 2009 was HK$50,000 (C).
At the end of the notional accounting period, 30 June 2010, the closing value of the interest was HK$53,000 (A).
There were no brought forward losses or acquisitions or disposals during the notional accounting period (D).
On 30 April 2010, during the notional accounting period, there was a distribution - an interim dividend - of HK$1,000 (B).
The FIF amount, as worked out in step 1 is:
[HK$53,000 (A) + HK$1,000 (B)] - [HK$50,000 (C) - nil (D)] = HK$4,000 (E)
This amount is converted to Australian currency, using the rate of exchange that applied at the end of the notional accounting period (30 June 2010). Assuming that the exchange rate is A$1.00 = HK$5.00, the FIF income is A$800 - that is, HK$4,000 divided by five.
The distribution of HK$1,000 = A$200 and is assessable under section 44 of the ITAA 1936.
Because the distribution received was a distribution to which subsection 530(1) applies, the FIF income of A$800 (H) is reduced by the amount of the distribution: A$200 (J). Write the dividend amount (A$200) at (J). Subtract (J) from (H) and write the answer at (K). Therefore, your assessable income would include A$600 FIF income.
Example: Unapplied previous FIF loss
The opening value of a FIF interest was HK$50,000 (C) and at the end of the notional accounting period (30 June) the closing value of the interest was HK$45,000 (A).
There were no brought forward losses or acquisitions, disposals (D) or distributions (B) during the accounting period.
The decrease in market value - that is, the FIF amount - would be:
[HK$45,000 (A) + nil (B)] - [HK$50,000 (C) - nil (D)] = - HK$5,000 (E)
This FIF loss of HK$5,000 may be used to reduce gross FIF income in later years.