Tax Laws Amendment (Investment Manager Regime) Act 2012 (126 of 2012)
Schedule 2
Income Tax (Transitional Provisions) Act 1997
1 At the end of Part 4-5:
Add:
Division 842 - Exempt Australian source income and gains of foreign residents
Subdivision 842-I - Investment manager regime
Table of sections
Operative provisions
842-210 Treatment of IMR foreign fund that is a corporate tax entity
842-215 Treatment of foreign resident beneficiary that is not a trust or partnership
842-220 Treatment of foreign resident partner that is not a trust or partnership
842-225 Treatment of trustee of an IMR foreign fund
842-230 Pre-2012 IMR deduction
842-235 Pre-2012 IMR capital loss
842-240 Pre-2012 non-IMR net income , pre-2012 non-IMR Division 6E net income and pre-2012 non-IMR net capital gain
842-245 Pre-2012 non-IMR partnership net income and pre-2012 non-IMR partnership loss
842-210 Treatment of IMR foreign fund that is a corporate tax entity
Objects
(1) The object of this section is to disregard, for the purpose of calculating the assessable income of a corporate tax entity that is an IMR foreign fund, certain gains and losses that arise in the 2010-11 income year, or an earlier income year, in respect of certain kinds of financial arrangements.
Application
(2) This section applies to a corporate tax entity that is an IMR foreign fund in relation to an income year if:
(a) the income year is the 2010-11 income year or an earlier income year; and
(b) the corporate tax entity has pre-2012 IMR income, a pre-2012 IMR deduction, a pre-2012 IMR capital gain or a pre-2012 IMR capital loss in relation to the income year; and
(c) the corporate tax entity has not lodged an income tax return in relation to the 2010-11 income year, or any earlier income year, before the day that item 1 of Schedule 1 to the Tax Laws Amendment (Investment Manager Regime) Act 2012 commences; and
(d) the Commissioner did not, before 18 December 2010, make an assessment of the taxable income of the corporate tax entity for any income year.
Note 1: For the purposes of this Act, pre-2012 IMR income is defined in subsections 842-270(1) and (2) of the Income Tax Assessment Act 1997 and pre-2012 IMR capital gain is defined in subsection 842-270(3) of that Act.
Note 2: Pre-2012 IMR deduction is defined in subsections 842-230(1) and (2) of this Act and pre-2012 IMR capital loss is defined in section 842-235 of this Act.
Certain amounts disregarded
(3) In working out the corporate tax entity’s taxable income, tax loss or net capital loss for the income year:
(a) treat the corporate tax entity’s pre-2012 IMR income for the income year as non-assessable non-exempt income; and
(b) disregard the corporate tax entity’s pre-2012 IMR deduction for the income year; and
(c) disregard the corporate tax entity’s pre-2012 IMR capital gain for the income year; and
(d) disregard the corporate tax entity’s pre-2012 IMR capital loss for the income year.
Fraud
(4) Subsection (3) does not apply if the Commissioner has reason to believe that there has been fraud by the corporate tax entity in relation to any income year.
Audit or compliance review
(5) Subsection (3) does not apply if before 18 December 2010 the Commissioner notified the corporate tax entity that an audit or compliance review would be undertaken in relation to any income year.
842-215 Treatment of foreign resident beneficiary that is not a trust or partnership
Objects
(1) The objects of this section are to ensure that:
(a) a foreign resident beneficiary of an IMR foreign fund in relation to the 2010-11 income year or an earlier income year is not subject to Australian income tax in respect of pre-2012 IMR income or a pre-2012 IMR capital gain of the fund (or in respect of an amount that is referable to pre-2012 IMR income or a pre-2012 IMR capital gain of the fund) for the income year; and
(b) the foreign resident beneficiary of the fund is not able to claim a deduction or utilise a tax loss in relation to the income year to the extent that the deduction or tax loss was incurred or made in respect of an amount that is:
(i) pre-2012 IMR income of the fund (or referable to pre-2012 IMR income of the fund); or
(ii) a pre-2012 IMR capital gain of the fund (or referable to a pre-2012 IMR capital gain of the fund); and
(c) this section does not provide any tax concession to an Australian resident that invests in the fund (whether directly or indirectly through one or more interposed entities).
Application
(2) This section applies to a beneficiary of a trust in relation to the 2010-11 income year, or an earlier income year, if:
(a) the beneficiary is not a resident of Australia at any time during the income year; and
(b) the beneficiary is not a trust or partnership at any time during the income year (other than a foreign superannuation fund); and
(c) neither the trust nor the beneficiary has lodged an income tax return in relation to the 2010-11 income year, or any earlier income year, before the day that item 1 of Schedule 1 to the Tax Laws Amendment (Investment Manager Regime) Act 2012 commences; and
(d) the Commissioner did not, before 18 December 2010, make an assessment of the beneficiary for any income year.
Note: A trust that is an IMR foreign fund is generally subject to the general tax rules that apply to trusts, subject to the modifications in this Subdivision: see Division 6 of Part III of the Income Tax Assessment Act 1936. Also see section 842-225 of this Act, which deals with trustees of IMR foreign funds.
Adjustments to calculation of taxable income, tax loss or net capital loss
(3) In working out the beneficiary’s taxable income, tax loss or net capital loss for the income year:
(a) for the purposes of applying Division 6 of Part III of the Income Tax Assessment Act 1936 to the beneficiary, replace the references in that Division to share of the net income with references to share of the pre-2012 non-IMR net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997); and
(b) for the purposes of applying subsections 98A(1) and (3) of Division 6 of Part III of the Income Tax Assessment Act 1936 to the beneficiary, replace the references in those subsections to individual interest of the beneficiary in the net income with references to individual interest of the beneficiary in the pre-2012 non-IMR net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997); and
(c) for the purposes of applying Division 6E of Part III of the Income Tax Assessment Act 1936 to the beneficiary, replace the references in that Division to Division 6E net income with references to pre-2012 non-IMR Division 6E net income (within the meaning of subsection 842-240(2) of the Income Tax (Transitional Provisions) Act 1997); and
(d) in applying subsection 115-215(3) of the Income Tax Assessment Act 1997 to the beneficiary, replace the reference in that subsection to each capital gain of the trust estate with a reference to each capital gain of the trust estate that is a pre-2012 non-IMR net capital gain (or is referable to a pre-2012 non-IMR net capital gain of the trust estate)(within the meaning of subsection 842-240(3) of the Income Tax (Transitional Provisions) Act 1997); and
(e) in applying section 115-225 of the Income Tax Assessment Act 1997 to the beneficiary:
(i) replace references in that section to net income of the trust estate with references to pre-2012 non-IMR net income of the trust estate(within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997); and
(ii) replace the reference in that section to net capital gain (if any) with a reference to pre-2012 non-IMR net capital gain (if any)(within the meaning of subsection 842-240(3) of the Income Tax (Transitional Provisions) Act 1997).
(4) For the purposes of applying paragraph 115-225(1)(a) of the Income Tax Assessment Act 1997 to the beneficiary in respect of the income year:
(a) disregard a capital gain of the trust to the extent the capital gain is a pre-2012 IMR capital gain (or is referable to a pre-2012 IMR capital gain of the fund); and
(b) disregard a pre-2012 IMR capital loss of the trust for the purposes of determining the amount of the capital gain remaining after applying steps 1 to 4 of the method statement in subsection 102-5(1) of that Act; and
(c) disregard a net capital loss of the trust to the extent that it is attributable to a pre-2012 IMR capital loss for the purposes of determining the amount of the capital gain remaining after applying steps 1 to 4 of the method statement in subsection 102-5(1).
Fraud
(5) Subsections (3) and (4) do not apply if the Commissioner has reason to believe that there has been fraud by the trust in relation to any income year.
Audit or compliance review
(6) Subsections (3) and (4) do not apply if before 18 December 2010 the Commissioner notified the trust that an audit or compliance review would be undertaken in relation to any income year.
842-220 Treatment of foreign resident partner that is not a trust or partnership
Objects
(1) The objects of this section are to ensure that:
(a) a foreign resident partner of an IMR foreign fund in relation to the 2010-11 income year, or an earlier income year, is not subject to any Australian income tax in respect of pre-2012 IMR income or a pre-2012 IMR capital gain (or in respect of an amount that is referable to pre-2012 IMR income or a pre-2012 IMR capital gain) for the income year; and
(b) the foreign resident partner of the fund is not able to claim a deduction or utilise a tax loss in relation to the income year to the extent that the deduction or tax loss was incurred or made in respect of an amount that is:
(i) pre-2012 IMR income of the fund (or referable to pre-2012 IMR income of the fund); or
(ii) a pre-2012 IMR capital gain (or referable to a pre-2012 IMR capital gain); and
(c) this section does not provide any tax concession to an Australian resident that invests in the fund (whether directly or indirectly through one or more interposed entities).
Application
(2) This section applies to a partner in a partnership in relation to the 2010-11 income year, or an earlier income year, if:
(a) the partner is not an Australian resident at any time during the income year; and
(b) the partner is not a trust or a partnership at any time during the income year (other than a foreign superannuation fund); and
(c) neither the partnership nor the partner has lodged an income tax return in relation to the 2010-11 income year, or any earlier income year, before the day that item 1 of Schedule 1 to the Tax Laws Amendment (Investment Manager Regime) Act 2012 commences; and
(d) the Commissioner did not, before 18 December 2010, make an assessment of the taxable income of the partner for any income year.
Note: A partnership that is an IMR foreign fund is generally subject to the general tax rules that apply to partnerships, subject to the modifications set out in this Subdivision: see Division 5 of Part III of the Income Tax Assessment Act 1936.
Adjustments to calculation of taxable income, tax loss or net capital loss
(3) In working out the partner’s taxable income, tax loss or net capital loss for the income year:
(a) for the purposes of applying Division 5 of Part III of the Income Tax Assessment Act 1936 to the partner, replace the references in that Division to the individual interest of the partner in the net income of the partnership with references to the individual interest of the partner in the pre-2012 non-IMR partnership net income (within the meaning of section 842-245 of the Income Tax (Transitional Provisions) Act 1997); and
(b) for the purposes of applying Division 5 of Part III of the Income Tax Assessment Act 1936 to the partner, replace the references in that Division to the individual interest of the partner in the partnership loss with references to the individual interest of the partner in the pre-2012 non-IMR partnership loss (within the meaning of section 842-245 of the Income Tax (Transitional Provisions) Act 1997); and
(c) disregard the partner’s pre-2012 IMR capital gain or an amount that is referable to a pre-2012 IMR capital gain (within the meaning of subsection 842-270(3) of the Income Tax Assessment Act 1997) or pre-2012 IMR capital loss or an amount that is referable to a pre-2012 IMR capital loss (within the meaning of that term in section 842-235 of this Act).
Fraud
(4) Subsection (3) does not apply if the Commissioner has reason to believe that there has been fraud by the partnership in relation to any income year.
Audit or compliance review
(5) Subsection (3) does not apply if before 18 December 2010 the Commissioner notified the partnership that an audit or compliance review would be undertaken in relation to any income year.
842-225 Treatment of trustee of an IMR foreign fund
Objects
(1) The object of this section is to ensure that the following provisions interact appropriately with the tax concessions mentioned in subsection 842-210(1), paragraphs 842-215(1)(a) and (b) and paragraphs 842-220(1)(a) and (b) in respect of the 2010-11 income year or an earlier income year:
(a) subsection 115-220(2) of the Income Tax Assessment Act 1997;
(b) section 115-225 of the Income Tax Assessment Act 1997;
(c) section 98 of the Income Tax Assessment Act 1936;
(d) section 99E of the Income Tax Assessment Act 1936.
Note: Division 6 of Part III of the Income Tax Assessment Act 1936, Division 115 of the Income Tax Assessment Act 1997, and all other provisions of those Acts apply to the trustee of an IMR foreign fund, subject to the modifications in this section.
Application
(2) This section applies to the 2010-11 income year or an earlier income year of a trustee of a trust that is an IMR foreign fund in relation to that income year.
Applying subsection 115-220(2) of the Income Tax Assessment Act 1997
(3) For the purposes of applying subsection 115-220(2) of the Income Tax Assessment Act 1997 to the beneficiary:
(a) disregard a capital gain of the IMR foreign fund to the extent that the capital gain is a pre-2012 IMR capital gain; and
(b) disregard a pre-2012 IMR capital loss of the IMR foreign fund for the purposes of determining the amount of the capital gain remaining after applying steps 1 to 4 of the method statement in subsection 102-5(1); and
(c) disregard a net capital loss of the IMR foreign fund to the extent that it is attributable to a pre-2012 IMR capital loss for the purposes of determining how much of a capital gain that is not a pre-2012 IMR capital gain remains after applying steps 1 to 4 of the method statement in subsection 102-5(1).
Note: The effect of this subsection is that the increase to the assessable amount which occurs as a result of section 115-220 of the Income Tax Assessment Act 1997is calculated with reference to the capital gains of the IMR foreign fund that are not IMR capital gains or amounts referable to IMR capital gains (rather than by calculating the increase with reference to all capital gains of the fund).
Modifications to section 115-225 of the Income Tax Assessment Act 1997
(4) For the purposes of applying section 115-225 of the Income Tax Assessment Act 1997 in respect of section 115-220, make the following assumptions:
(a) replace the references in section 115-225 to the net income of the trust estate with references to the pre-2012 non-IMR net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997) of the trust estate;
(b) replace the references in section 115-225 to net capital gain (if any) with a reference to pre-2012 non-IMR net capital gain (if any) (within the meaning of subsection 842-240(3) of the Income Tax (Transitional Provisions) Act 1997).
Modifications to section 98 of the Income Tax Assessment Act 1936
(5) For the purposes of applying section 98 of the Income Tax Assessment Act 1936 in respect of an income year that is the 2010-11 income year or an earlier income year, replace references in that section to net income with references to pre-2012 non-IMR net income(within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997).
Note: The effect of this subsection is that where section 98 of the Income Tax Assessment Act 1936 applies to the trustee of a trust that is an IMR foreign fund, the trustee is only assessed and made liable to pay tax in respect of pre-2012 non-IMR net income of the fund (rather than in respect of all net income of the fund to which section 98 would otherwise apply).
Modifications to section 99E of the Income Tax Assessment Act 1936
(6) For the purposes of applying section 99E of the Income Tax Assessment Act 1936 in respect of an income year that is the 2010-11 income year or an earlier income year:
(a) replace the reference to so much of the net income with a reference to so much of the net income or pre-2012 non-IMR net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997) as the case may be; and
(b) replace the reference to a part of the net income of another trust estate with a reference to a part of the pre-2012 non-IMR net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997) of another trust estate.
Note: The effect of this subsection is that the trustee of a trust that receives a distribution of pre-2012 non-IMR net income from another trust is not required to apply section 98, 99 or 99A of the Income Tax Assessment Act 1936 to those amounts.
Certain losses disregarded
(7) The IMR foreign fund cannot utilise a tax loss or net capital loss in relation to the income year, or in any future income year, to the extent the loss is attributable to pre-2012 IMR income, a pre-2012 IMR capital gain, a pre-2012 IMR deduction or a pre-2012 IMR capital loss.
842-230 Pre-2012 IMR deduction
(1) The pre-2012 IMR deduction of an IMR foreign fund for an income year is the amount of the fund’s deductions for the income year to the extent to which they:
(a) are attributable to gaining the fund’s pre-2012 IMR income; and
(b) relate to the 2011-12 income year, or an earlier income year.
(2) Disregard the following provisions for the purposes of determining the pre-2012 IMR deduction of the fund:
(a) subsection 842-210(3) (which is about certain amounts of an IMR foreign fund being disregarded);
(b) paragraph 842-240(1)(b) (which is about pre-2012 non-IMR net income);
(c) paragraph842-245(a) (which is about pre-2012 non-IMR partnership net income).
842-235 Pre-2012 IMR capital loss
The pre-2012 IMR capital loss of an IMR foreign fund for an income year is the sum of the fund’s capital losses made in the income year that are attributable to CGT assets that are financial arrangements covered by section 842-245 of the Income Tax Assessment Act 1997.
842-240 Pre-2012 non-IMR net income , pre-2012 non-IMR Division 6E net income and pre-2012 non-IMR net capital gain
(1) A trust’s pre-2012 non-IMR net income in relation to an income year is determined by calculating the net income of the trust as follows:
(a) for income years prior to the 2010-11 income year - disregard the pre-2012 IMR capital gain and pre-2012 IMR capital loss;
(b) disregard the pre-2012 IMR income and pre-2012 IMR deduction of the trust for the income year;
(c) disregard any amount that is included in the trust’s assessable income under subsection 207-35(1) to the extent that the amount is attributable to pre-2012 IMR income of the trust for the income year;
(d) if the trust is a beneficiary of another trust - then:
(i) for the purposes of applying Division 6 of Part III of the Income Tax Assessment Act 1936 to the trust that is a beneficiary, replace the references in that Division to share of the net income with references to share of the pre-2012 non-IMR net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997); and
(ii) for the purposes of applying Division 6E of Part III of the Income Tax Assessment Act 1936 to the trust that is a beneficiary, replace references in that Division to Division 6E net income with references to pre-2012 non-IMR Division 6E net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997);
(e) if the trust is a partner in a partnership - for the purposes of applying Division 5 of Part III of the Income Tax Assessment Act 1936 to the partner,replace the references to the individual interest of the partner in the partnership net income or partnership loss with references to the individual interest of the partner in the pre-2012 non-IMR partnership net income or pre-2012 non-IMR partnership loss (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997).
Note: The net income of a trust may include a share of the net income of another trust. Where there is a chain of trusts, these calculations are applied to each trust in the chain.
Pre-2012 non-IMR Division 6E net income
(2) A trust’s pre-2012 non-IMR Division 6E net income in relation to an income year is determined by calculating the Division 6E net income (within the meaning of subsection 102UY(3) of the Income Tax Assessment Act 1936) of the trust as follows:
(a) disregard the pre-2012 IMR income and pre-2012 IMR deduction of the trust in relation to the income year;
(b) disregard the things mentioned in subparagraphs 102UW(b)(i) to (iii) of the Income Tax Assessment Act 1936 (which is about adjustments of Division 6 assessable amounts) in relation to the income year.
Pre-2012 non-IMR net capital gain
(3) A trust’s pre-2012 non-IMR net capital gain in relation to an income year is determined by calculating the net capital gain of the trust as follows:
(a) disregard the trust’s pre-2012 IMR capital gain and pre-2012 IMR capital loss in relation to the income year;
(b) disregard any capital gain of the trust in relation to the income year that is referable to a pre-2012 IMR capital gain of another IMR foreign fund that is a trust.
842-245 Pre-2012 non-IMR partnership net income and pre-2012 non-IMR partnership loss
A partnership’s pre-2012 non-IMR partnership net income or pre-2012 non-IMR partnership loss in relation to an income year is determined by calculating the net income or partnership loss of the partnership as follows:
(a) disregard the pre-2012 IMR income and pre-2012 IMR deduction of the partnership for the income year;
(b) disregard any amount included in the partnership’s assessable income under subsection 207-35(1) to the extent that the amount is attributable to pre-2012 IMR income of the partnership for the income year;
(c) if the partnership is a beneficiary of a trust - then:
(i) for the purposes of applying Division 6 of Part III of the Income Tax Assessment Act 1936 to the beneficiary, replace the references in that Division to share of the net income with references to share of the pre-2012 non-IMR net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997); and
(ii) for the purposes of applying Division 6E of Part III of the Income Tax Assessment Act 1936 to the beneficiary, replace references in that Division to Division 6E net income with references to pre-2012 non-IMR Division 6E net income (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997);
(d) if the partnership is a partner in another partnership - for the purposes of applying Division 5 of Part III of the Income Tax Assessment Act 1936 to the partner, replace the references in that Division to the individual interest of the partner in the partnership net income or partnership loss with references to the individual interest of the partner in the pre-2012 non-IMR partnership net income or pre-2012 non-IMR partnership loss (within the meaning of subsection 842-240(1) of the Income Tax (Transitional Provisions) Act 1997).
Note: The net income of a partnership may include a share of the net income of another partnership. Where there is a chain of partnerships, these calculations are applied to each partnership in the chain.