Taxation Administration Act 1953

Sch 1 inserted by No 178 of 1999 (as amended by No 179 of 1999 and No 44 of 2000).

Ch 2 title inserted by No 73 of 2006 , s 3 and Sch 5 item 40, effective 1 July 2006.

Div 12 (except s 12-190 ) applies to a payment made on or after 1 July 2000.

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Subdiv 12-H heading substituted by No 53 of 2016, s 3 and Sch 6 item 38, effective 5 May 2016. For application provision, see note under Division 12A heading. The heading formerly read

Subdivision 12-H - Distributions of managed investment trust income

Subdiv 12-H substituted by No 32 of 2008 , s 3 and Sch 1 item 1, applicable to fund payments made in relation to the first income year starting on or after the first 1 July after 23 June 2008 and later income years. Subdivision 12-H formerly read:

Subdivision 12-H - Distributions of managed investment trust income to foreign residents

Guide to Subdivision 12-H
SECTION 12-375 WHAT THIS DIVISION IS ABOUT  

A distribution to a foreign resident by managed investment trusts of their Australian sourced income and some capital gains may be subject to a single non-final withholding at the corporate tax rate. This includes distributions made to the foreign resident indirectly through one or more intermediaries, if relevant notices have been provided by payers.

Generally, the distribution must be made by the managed investment trust within 3 months after the end of its income year.

Division 6 of Part III of the Income Tax Assessment Act 1936 does not apply to trustees and intermediaries to the extent that they have to withhold under this subdivision (see section 99G of that Division).

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History

S 12-375 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

Operative provisions
SECTION 12-380 OBJECT  
12-380(1)
The object of this Subdivision is to implement a withholding regime to assist the collection of Australian tax on distributions of Australian sourced income by *managed investment trusts to foreign residents (directly, or indirectly through one or more *intermediaries).

12-380(2)
This regime overcomes information problems in applying alternative withholding regimes by:

(a) providing for withholding at a flat rate - the *corporate tax rate; and

(b) clarifying when withholding is required when payments are made via *intermediaries, which is commonly the case with distributions from *managed investment trusts.

Note:

Withholding other than at a flat rate would require managed investment trusts and intermediaries to know information about the foreign resident that they are unlikely to know.

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History

S 12-380 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

SECTION 12-385 WITHHOLDING BY TRUSTEE OF MANAGED INVESTMENT TRUST  
12-385(1)
The trustee of a *managed investment trust that makes a *fund payment in relation to an income year to an entity covered by section 12-410 must withhold an amount from the payment.

12-385(2)
The amount the trustee must withhold is:

Amount of the *fund payment × *corporate tax rate

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History

S 12-385 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

SECTION 12-390 WITHHOLDING BY INTERMEDIARY  
12-390(1)
An entity must withhold an amount from a payment (the later payment ) it makes if:

(a) the entity is an *intermediary in relation to a payment (the earlier payment ) it received; and

(b) all or some of the later payment (the notice part ) is attributable to the part of the earlier payment that was covered by the notice the entity received in relation to the earlier payment; and

(c) the later payment is made to an entity covered by section 12-410 .

Note:

Paragraph (1)(b) means that the notice part is attributable to a fund payment made by a managed investment trust, or 2 or more fund payments made by one or more managed investment trusts, to an intermediary.

12-390(2)
The amount the entity must withhold is:

Notice part × *corporate tax rate

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History

S 12-390 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

SECTION 12-395 MEANING OF MANAGED INVESTMENT TRUST  
12-395(1)
A trust is a managed investment trust in relation to an income year if:

(a) the trustee of the trust makes the first *fund payment in relation to the income year; and

(b) the conditions in this table are satisfied.

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 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.

12-395(2)
These are the entities:

(a) a *life insurance company;

(b) a *complying superannuation fund, a *complying approved deposit fund or a *foreign superannuation fund, being a fund that has at least 50 *members;

(c) a trust for which the conditions in table items 1 and 2 in subsection (1), and the condition in paragraph (a) or (b) of table item 3, are satisfied;

(d) an entity that is recognised, under a *foreign law relating to corporate regulation, as an entity with a similar status to a managed investment scheme and that has at least 50 members;

(e) a trust:

(i) interests in which are owned directly by an entity covered by an earlier paragraph; or

(ii) interests in which are held indirectly by an entity covered by an earlier paragraph through a *chain of trusts;

where the conditions in table items 1 and 2 in subsection (1) are satisfied for the trust, or for each trust in the chain.

Exception: foreign resident individual having a substantial interest

12-395(3)
The condition in table item 3 in subsection (1) is not satisfied for a trust at a time if, at that time, one foreign resident individual, directly or indirectly:

(a) held, or had the right to acquire, interests representing 10% or more of the value of the interests in the trust; or

(b) had the control of, or the ability to control, 10% or more of the rights attaching to *membership interests in the trust; or

(c) had the right to receive 10% or more of any distribution of income that the trustee may make.

Start-up phase

12-395(4)
A trust that is created during an income year is a managed investment trust in relation to the income year if, at the time the trustee of the trust makes the first *fund payment in relation to the income year, the conditions in table items 1 and 2 in subsection (1) are satisfied for the trust.

Wind-up phase

12-395(5)
A trust that ceases to exist during an income year is a managed investment trust in relation to the income year if:

(a) at the time the trustee makes the first *fund payment in relation to the income year, the conditions in table items 1 and 2 in subsection (1) are satisfied for the trust; and

(b) the trust was a *managed investment trust in relation to the previous income year otherwise than because of subsection (4).

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History

S 12-395 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

SECTION 12-400 MEANING OF FUND PAYMENT  
12-400(1)
The object of this section is to ensure that the total of the *fund payments that the trustee of a trust makes in relation to an income year equals, as nearly as practicable, the net income of the trust for the income year, disregarding these amounts ( excluded amounts ):

(a) a dividend (as defined in Division 11A of Part III of the Income Tax Assessment Act 1936 ) that is subject to, or exempted from, a requirement to withhold under Subdivision 12-F ;

(b) interest (as so defined) that is subject to, or exempted from, such a requirement;

(c) a *royalty that is subject to, or exempted from, such a requirement;

(d) a *capital gain from a *CGT asset that is not *taxable Australian property;

(e) amounts that are not from an *Australian source;

and disregarding deductions relating to excluded amounts.

12-400(2)
Work out as follows how much of a payment (the actual payment ) made by the trustee of a trust in relation to an income year is a fund payment in relation to that year: Method statement

Step 1.

Reduce the actual payment by so much of it that is attributable to excluded amounts.

Step 2.

Work out what it is reasonable to expect will be the *net income of the trust for the income year:

(a) disregarding excluded amounts, expected excluded amounts and deductions relating to those amounts; and

(b) on the basis that a *capital gain from *taxable Australian property of the trust that was or would be reduced under step 3 of the method statement in subsection 102-5(1) were double the amount it actually is.

Step 3.

The fund payment is so much of the step 2 amount as is reasonable having regard to:

(a) the object of this section; and

(b) the step 1 amount; and

(c) the amounts of any earlier *fund payments made by the trustee in relation to the income year; and

(d) the expected amounts of any later fund payments the trustee expects to make in relation to the income year.

12-400(3)
The expected *net income of the trust and the expected amounts of future *fund payments are to be worked out on the basis of the trustee ' s knowledge when the actual payment is made.

12-400(4)
However, an amount is not a fund payment in relation to the income year unless it is paid:

(a) during the income year; or

(b) within 3 months after the end of the income year; or

(c) within a longer period (starting at the end of the period referred to in paragraph (b) and not exceeding 3 months) allowed by the Commissioner.

12-400(5)
The Commissioner may allow a longer period as mentioned in paragraph (4)(c) only if the Commissioner is of the opinion that the trustee was unable to make the payment during the income year, or within 3 months after the end of the income year, because of circumstances beyond the influence or control of the trustee.

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History

S 12-400 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

SECTION 12-405 MEANING OF INTERMEDIARY  
12-405(1)
An entity is an intermediary in relation to a payment it receives at a time (the receipt time ) if:

(a) it is *carrying on a *business at the receipt time that consists predominantly of providing a custodial or depository service (as defined by section 766E of the Corporations Act 2001 ) pursuant to an Australian financial services licence (as defined by section 761A of that Act); and

(b) it received the payment in the course of that business; and

(c) before or at the receipt time, it received a notice of the kind referred to in section 12-415 in relation to the payment; and

(d) either:

(i) subsection (2) is satisfied for the entity at the receipt time; or

(ii) the business is carried on at the receipt time through an *Australian permanent establishment.

12-405(2)
This subsection is satisfied for an entity at the receipt time if:

(a) for a trust - at that time:

(i) the trustee was an Australian resident; or

(ii) the central management and control of the trust was in Australia; or

(b) for another entity - the entity is an Australian resident at the receipt time.

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History

S 12-405 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

SECTION 12-410 ENTITY TO WHOM PAYMENT IS MADE  
12-410(1)
An entity (the recipient ) is covered by this section for a payment made to it by another entity (the payer ) if any of these conditions is satisfied when the payment is made:

(a) the recipient is a foreign resident;

(b) the payer believes, or has reasonable grounds to believe, that the recipient is a foreign resident;

(c) the payer has no reasonable grounds to believe that the recipient is an Australian resident, and either:

(i) the recipient has an address outside Australia (according to any record that is in the payer ' s possession, or is kept or maintained on the payer ' s behalf, about the transaction to which the payment relates); or

(ii) the payer is authorised to make the payment at a place outside Australia (whether to the recipient or to anyone else);

(d) the recipient has a connection outside Australia of a kind set out in the regulations.

12-410(2)
However, a recipient is not covered by this section for a payment if the recipient is an *intermediary.

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History

S 12-410 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

SECTION 12-415 NOTICES  
12-415(1)
An entity that makes a payment to another entity (the recipient ) from which an amount would have been required to be withheld under this Subdivision if the payment had been made to an entity covered by section 12-410 may give the recipient a notice.

12-415(2)
The notice:

(a) must specify that part of the payment from which an amount would have been so required to have been withheld; and

(b) if that part is worked out by reference to a *discount capital gain - must specify the amount of that gain; and

(c) must specify the income year of the *managed investment trust to which the relevant *fund payment relates.

12-415(3)
An *intermediary in relation to a payment cannot give a notice in relation to an amount:

(a) that is a payment only because of section 11-5 ; and

(b) that is attributable (wholly or partly) to the first-mentioned payment.

Note:

Under section 11-5 , an entity is taken to have paid an amount to another entity if the first entity applies or deals with the amount on the other entity ' s behalf or as the other entity directs.

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History

S 12-415 inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

SECTION 12-420 AGENCY RULES  
12-420(1)
This Subdivision has effect as if a payment made to an entity in the capacity as agent for another entity (the principal ) had been made to the principal.

12-420(2)
However, if the agent is an *intermediary in relation to the payment:

(a) this Subdivision has effect as if the intermediary were not an agent in relation to the payment; and

(b) for the purposes of this Subdivision, the receipt by the intermediary of the payment on behalf of the principal is not to be treated as a payment to the principal by any entity.

Note:

As a result of subsection (2), an agent intermediary may be required to withhold amounts under this Subdivision.

Subdiv 12-H inserted by No 79 of 2007 , s 3 and Sch 10 item 1, applicable to the first income year starting on or after the first 1 July after the day on which No 79 of 2007 receives the Royal Assent (ie 21 June 2007) and later income years.

S 12-402 repealed by No 53 of 2016, s 3 and Sch 4 item 6, effective 5 May 2016. For application provision, see note under Division 12A heading. S 12-402 formerly read:

SECTION 12-402 WIDELY-HELD REQUIREMENTS - ORDINARY CASE  
12-402(1)
The trust satisfies the requirements in this subsection in relation to the income year if, at the time the payment mentioned in paragraph 12-400(1)(a) is made, the trust has at least 25 *members.

12-402(1A)
The trust satisfies the requirements in this subsection in relation to the income year if, at the time the payment mentioned in paragraph 12-400(1)(a) is made:

(a) units in the trust are listed for quotation in the official list of an *approved stock exchange in Australia; or

(b) the trust has at least 50 *members (ignoring objects of a trust).

12-402(2)
For the purposes of subsection (1) and paragraph (1A)(b), determine the number of *members of the trust as follows:

(a) first, by applying the rules in subsection (4), identify:

(i) the members of the trust that are not entities covered by subsection (3); and

(ii) the members of the trust that are entities covered by subsection (3);

(b) next, work out the number of members mentioned in subparagraph (a)(i);

(c) next:

(i) work out the *MIT participation interest in the trust of each entity mentioned in subparagraph (a)(ii); and

(ii) for each of those entities, multiply the total of its MIT participation interest in the trust by 50 and round the result upwards to the nearest whole number; and

(iii) work out the total of the results of subparagraph (ii) for all of those entities;

(d) next, work out the total of the results of paragraphs (b) and (c).

12-402(3)
This section covers the following kinds of entity:

(a) a *life insurance company;

(aa) a *foreign life insurance company that is regulated under a *foreign law;

(b) a *complying superannuation fund, a *complying approved deposit fund or a *foreign superannuation fund, being a fund that has at least 50 *members;

(c) a *pooled superannuation trust that has at least one member that is a complying superannuation fund that has at least 50 members;

(d) a *managed investment trust in relation to the income year;

(e) an entity:

(i) that is recognised under a *foreign law as being used for collective investment by pooling the contributions of its members as consideration to acquire rights to benefits produced by the entity; and

(ii) that has at least 50 members; and

(iii) the contributing members of which do not have day-to-day control over the entity ' s operation;

(f) an entity, the principal purpose of which is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country, if:

(i) the entity is a fund established by an *exempt foreign government agency; or

(ii) the entity is established under a foreign law for an exempt foreign government agency; or

(iii) the entity is a *wholly-owned subsidiary of an entity mentioned in subparagraph (i) or (ii);

(g) an investment entity that satisfies all of these requirements:

(i) the entity is wholly-owned by one or more *foreign government agencies, or is a wholly-owned subsidiary of one or more foreign government agencies;

(ii) the entity is established using only the public money or public property of the foreign government concerned;

(iii) all economic benefits obtained by the entity have passed, or are expected to pass, to the foreign government concerned;

(h) an entity established and wholly-owned by an *Australian government agency, if the capital of the entity, and returns from the investment of that capital, are used for the primary purpose of meeting statutory government liabilities or obligations (such as superannuation liabilities and liabilities arising from compensation or workcover claims);

(i) (Repealed by No 53 of 2016)

(j) a *limited partnership, if, throughout the income year:

(i) at least 95% of the *membership interests in the limited partnership are owned by entities mentioned in the preceding paragraphs of this subsection, or by entities that are wholly-owned by entities so mentioned; and

(ii) the remaining membership interests (if any) in the limited partnership are owned by a *general partner of the limited partnership that habitually exercises the management power of the limited partnership;

(k) an entity, all the membership interests in which are owned by any of the following:

(i) entities mentioned in the preceding paragraphs of this subsection;

(ii) entities that are wholly-owned by entities mentioned in the preceding paragraphs of this subsection;

(iii) entities that are covered under this subsection because of a previous operation of this paragraph;

(l) an entity of a kind similar to an entity mentioned in the preceding paragraphs of this subsection as specified in the regulations.

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S 12-402(3) amended by No 53 of 2016, s 3 and Sch 7 items 1 and 2, by inserting para (aa), repealing para (i) and inserting para (j) to (l), applicable to income years starting on or after 1 July 2014. Para (i) formerly read:

(i) an entity of a kind similar to an entity mentioned in the preceding paragraphs of this subsection as specified in the regulations.

S 12-402(3) amended by No 12 of 2012, s 3 and Sch 6 item 191, by substituting para (e), effective 21 March 2012. No 12 of 2012, s 3 and Sch 6 item 192 contains the following application provision:

192 Application of amendment  
192
Item 6 of Schedule 5 to the Tax Laws Amendment (2010 Measures No 3) Act 2010 applies in relation to the amendment made by this Part in the same way as that item applies in relation to the amendments made by that Schedule.

Para (e) formerly read:

(e) an entity that is recognised under a *foreign law as being used for collective investment by means of pooling the contributions of at least 50 members of the entity as consideration to acquire rights to benefits produced by the entity, if the members of the entity do not have day-to-day control over the operation of the entity;

12-402(4)
The rules are as follows:

(a) if an entity that is not a trust holds interests in the trust indirectly, through a *chain of trusts:

(i) treat the entity as a member of the trust; and

(ii) do not treat a trust in the chain of trusts as a member of the trust;

(b) do not treat an object of the trust as a member of the trust;

(ba) if the trust is mentioned in subparagraph 12-400(1)(e)(i) (trusts with wholesale membership) - do not treat an individual as a member of the trust (other than an individual who became a member of the trust because a financial product or a financial service was provided to, or acquired by, the individual as a wholesale client (within the meaning of section 761G of the Corporations Act 2001 ));

(c) the rules in subsection (6).

12-402(5)
For the purposes of paragraph (4)(a), treat an entity covered by subsection (3) as an entity that is not a trust.

12-402(6)
The rules are as follows:

(a) treat the following entities as together being one entity:

(i) an individual;

(ii) each of his or her relatives;

(iii) each entity acting in the capacity of nominee of an individual mentioned in subparagraph (i) or (ii);

(b) treat the following entities as together being one entity (the notional entity ):

(i) an entity that is not an individual;

(ii) each entity acting in the capacity of nominee of the entity mentioned in subparagraph (i).

12-402(7)
For the purposes of subsection (4), if the entity mentioned in subparagraph (6)(b)(i) is an entity covered by subsection (3), treat the notional entity as an entity covered by subsection (3).

S 12-402 inserted by No 90 of 2010, s 3 and Sch 5 item 4, effective 29 June 2010. For application and transitional provisions, see note under s 12-400 .