(c) the amount is or will be more or less than the *market value of what it is for;

treat the amount as that market value.

394-40 Payments under forestry managed investment scheme

For the purposes of this Division, do not treat the following payments as payments under a *forestry managed investment scheme by a *participant in the scheme:

(a) payments for *borrowing money;

(b) payments of interest and payments in the nature of interest;

(c) payments of stamp duty;

(d) payments of *GST;

(e) payments that relate to one or more of the matters mentioned in paragraphs 394-45(4)(a), (b) or (c).

394-45 Direct forestry expenditure

(1) Direct forestry expenditure under a *forestry managed investment scheme means:

(a) an amount paid under the scheme that is attributable to establishing, tending, felling and harvesting trees; and

(b) notional amounts reflecting the *market value of goods, services or the use of land, provided by the *forestry manager of the scheme, for establishing, tending, felling and harvesting trees.

Example 1: Notional amounts reflecting the value of the use of land owned by the forestry manager that is provided for establishing, tending, felling and harvesting trees.

Example 2: Notional amounts reflecting the value of tree felling services provided by the forestry manager.

(2) Treat *direct forestry expenditure covered by paragraph (1)(b) as paid annually for each income year of the *forestry manager of the scheme based on the *market value of the goods, services, or the use of the land. Treat the day on which it is paid as:

(a) unless paragraph (b) or (c) applies - 1 January in the income year; or

(b) if the first time an amount is paid under the scheme is later than the first day of the income year - the last day of the income year; or

(c) if the scheme comes to an end on a day before the end of the income year - that day.

Exclusions - general

(3) However, direct forestry expenditure under the scheme does not include amounts paid under the scheme to the extent that they relate to any of the following:

(a) marketing of the scheme;

Example: Advertising, sales, sponsorship and entertainment.

(b) insurance, contingency funds or provisions (other than provisions for employee entitlements);

(c) financing;

(d) lobbying;

(e) general business overheads (but not overheads directly related to forestry);

(f) subscriptions to industry bodies;

(g) commissions for financial planners or financial advisers;

(h) compliance with requirements related to the structure and operations of the *forestry manager of the scheme;

Example: Product design and preparation of product disclosure statements.

(i) supervision and auditing of contracts, other than direct supervision of direct forestry activities (such as establishing trees for felling);

(j) legal fees relating to any matter mentioned in this subsection.

Exclusions - expenditure after harvest etc.

(4) Also, direct forestry expenditure under the scheme does not include amounts paid under the scheme to the extent that they relate to any of the following:

(a) transportation and handling of felled trees that happens after the earliest of the following:

(i) sale of the trees;

(ii) arrival of the trees at the mill door;

(iii) arrival of the trees at the port;

(iv) arrival of the trees at the place of processing (other than where processing happens in-field);

(b) processing;

(c) stockpiling (other than in-field stockpiling);

(d) marketing and sale of forestry produce.

Taxation Administration Act 1953

3   At the end of Part 5-25 in Schedule 1

Add:

Division 394 - Reporting about forestry managed investment schemes

Guide to Division 394

394-1 What this Division is about

A forestry manager of a forestry managed investment scheme must give the Commissioner information about initial contributions by participants in the scheme. The forestry manager must also inform the Commissioner if the trees are not established under the scheme within 18 months of the first investment in the scheme.

Table of sections

394-5 Statements about initial contributions to scheme

394-10 Statements about failure to establish trees within 18 months

394-5 Statements about initial contributions to scheme

(1) The *forestry manager of a *forestry managed investment scheme must give the Commissioner a statement in relation to the scheme if:

(a) the scheme satisfies the requirement in paragraph 394-10(1)(c) of the Income Tax Assessment Act 1997 (the *70% DFE rule); and

(b) the forestry manager (or an *associate of the forestry manager) receives an amount under the scheme that is included in the forestry manager’s (or the associate’s) assessable income under section 15-46 of that Act; and

(c) that amount is the amount that is first paid under the scheme by a *participant in the scheme.

Note: Section 286-75 provides an administrative penalty for breach of this subsection.

(2) A statement under subsection (1) must be in the *approved form.

(3) The statement must be given to the Commissioner within 3 months after the end of the income year in which the *forestry manager (or the *associate) receives the amount.

Note: Section 388-55 allows the Commissioner to defer the time for giving an approved form.

(4) The *approved form may require the statement to contain the following information:

(a) the name of the scheme;

(b) information relating to the identity of the *forestry manager (or the *associate);

(c) information relating to the amounts paid or payable under the scheme by *participants in the scheme.

(5) Subsection (4) does not limit the information that the *approved form may require the statement to contain.

394-10 Statements about failure to establish trees within 18 months

(1) If:

(a) a *forestry managed investment scheme satisfies the requirement in paragraph 394-10(1)(c) of the Income Tax Assessment Act 1997 (the *70% DFE rule); and

(b) the condition in subsection 394-10(4) of that Act is not satisfied in relation to the scheme;

the *forestry manager of the scheme must give the Commissioner a statement in relation to the reasons why that condition was not satisfied.

Note: Section 286-75 provides an administrative penalty for breach of this subsection.

(2) A statement under subsection (1) must be in the *approved form.

(3) The statement must be given to the Commissioner within 3 months after the end of the 18 months mentioned in subsection 394-10(4) of the Income Tax Assessment Act 1997.

Note: Section 388-55 allows the Commissioner to defer the time for giving an approved form.

(4) The *approved form may require the statement to contain the following information:

(a) the name of the scheme;

(b) information relating to the identity of the *forestry manager;

(c) information relating to the circumstances that gave rise to the condition not being satisfied.

(5) Subsection (4) does not limit the information that the *approved form may require the statement to contain.

Part 2   Other amendments

Income Tax Assessment Act 1936

4   Subsection 82KH(1) (after paragraph (p) of the definition of relevant expenditure )

Insert:

(pa) a loss or outgoing incurred by the taxpayer in respect of the establishment and tending of trees for felling on behalf of the taxpayer to the extent to which a deduction would, apart from section 82KL, be allowable to the taxpayer under section 394-10 of the Income Tax Assessment Act 1997 in respect of the loss or outgoing;

5   After paragraph 82KH(1G)(p)

Insert:

(pa) in a case where the relevant expenditure was incurred by the taxpayer in respect of the establishment and tending of trees for felling on behalf of the taxpayer - the establishment and tending of trees for felling on behalf of the taxpayer;

6   Paragraph 82KH(1L)(p)

After “paragraph (p)”, insert “or paragraph (pa)”.

7   After subsection 262A(2)

Insert:

(2AAA) Subsection (1) applies to a participant in a forestry managed investment scheme in relation to the scheme even if the participant is not carrying on a business in relation to the scheme.

(2AAB) Subsection (2AAC) applies to the forestry manager of a forestry managed investment scheme if:

(a) the forestry manager (or an associate of the forestry manager) receives an amount under the scheme; and

(b) the amount is included in the forestry manager’s (or the associate’s) assessable income under section 15-46 of the Income Tax Assessment Act 1997.

(2AAC) The records to be kept under subsection (1) by the forestry manager include records about the basis on which the scheme satisfies the requirement in paragraph 394-10(1)(c) of the Income Tax Assessment Act 1997 (the 70% DFE rule).

8   Subsection 262A(6)

Insert:

associate has the same meaning as in the Income Tax Assessment Act 1997.

9   Subsection 262A(6)

Insert:

forestry managed investment scheme has the same meaning as in the Income Tax Assessment Act 1997.

10   Subsection 262A(6)

Insert:

forestry manager of a forestry managed investment scheme has the same meaning as in the Income Tax Assessment Act 1997.

11   Subsection 262A(6)

Insert:

participant in a forestry managed investment scheme has the same meaning as in the Income Tax Assessment Act 1997.

Income Tax Assessment Act 1997

12   Section 10-5 (at the end of table item headed "forestry agreement")

Add:

13   Section 10-5 (after table item headed "forestry agreement")

Insert:

14   Section 12-5 (after table item headed "foreign tax credits")

Insert:

15   After section 15-45

Insert:

15-46 Amounts paid under forestry managed investment schemes

(1) Your assessable income includes an amount you receive under a *forestry managed investment scheme if:

(a) you are the *forestry manager of the scheme, or an *associate of the forestry manager; and

(b) the entity that paid the amount can deduct or has deducted the amount under section 394-10 in relation to the scheme (disregarding subsection 394-10(5)).

The amount is included for the income year for which the entity that paid the amount can or has claimed a deduction for it (disregarding subsection 394-10(5)).

(2) No part of an amount included under subsection (1) is included in your assessable income for a later income year.

16   Section 112-97 (after table item 22)

Insert:

17   Subsection 995-1(1)

Insert:

70% DFE rule has the meaning given by section 394-35.

18   Subsection 995-1(1)

Insert:

direct forestry expenditure has the meaning given by section 394-45.

19   Subsection 995-1(1)

Insert:

forestry managed investment scheme has the meaning given by subsection 394-15(1).

20   Subsection 995-1(1)

Insert:

incidental forestry scheme receipts has the meaning given by subsection 394-30(4).

21   Subsection 995-1(1)

Insert:

initial participant in a *forestry managed investment scheme has the meaning given by subsection 394-15(5).

22   Subsection 995-1(1)

Insert:

forestry interest in a *forestry managed investment scheme has the meaning given by subsection 394-15(3).

23   Subsection 995-1(1)

Insert:

forestry manager of a *forestry managed investment scheme has the meaning given by subsection 394-15(2).

24   Subsection 995-1(1) (definition of participant )

Repeal the definition, substitute:

participant:

(a) participant , in relation to a *GST joint venture, has the meaning given by section 195-1 of the *GST Act; and

(a) participant in a *forestry managed investment scheme has the meaning given by subsection 394-15(4).

25   Subsection 995-1(1)

Insert:

total forestry scheme deductions has the meaning given by subsection 394-30(3).

Part 3   Application

26   Application

(1) The amendments made by this Schedule apply to amounts paid by a participant under a forestry managed investment scheme on or after 1 July 2007.

(2) Despite subitem (1), the amendments do not apply if any other amounts were paid by the participant or any other participant under the scheme before 1 July 2007.

(3) Despite subitem (1), sections 394-25 and 394-30 of the Income Tax Assessment Act 1997 apply to CGT events that happen on or after 1 July 2007.

(4) Despite subitem (1), sections 82KZMGA and 82KZMGB of the Income Tax Assessment Act 1936 apply to CGT events that happen on or after 1 July 2007.

Schedule 9   Non-resident trustee beneficiaries

Income Tax Assessment Act 1936

1   Subsections 98(3) and (4)

Repeal the subsections, substitute:

(2A) If:

(a) a beneficiary of a trust estate who is presently entitled to a share of the income of the trust estate:

(i) is a non-resident at the end of the year of income; and

(ii) is not, in respect of that share of the income of the trust estate, a beneficiary in the capacity of a trustee of another trust estate; and

(iii) is not a beneficiary to whom section 97A applies in relation to the year of income; and

(iv) is not a beneficiary to whom subsection 97(3) applies; and

(b) the trustee of the trust estate is not assessed and is not liable to pay tax under subsection (1) or (2) in respect of any part of that share of the net income of the trust estate;

subsection (3) applies to the trustee in respect of:

(c) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and

(d) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia.

(3) A trustee to whom this subsection applies in respect of an amount of net income is to be assessed and is liable to pay tax:

(a) if the beneficiary is not a company - in respect of the amount of net income as if it were the income of an individual and were not subject to any deduction; or

(b) if the beneficiary is a company - in respect of the amount of net income at the rate declared by the Parliament for the purposes of this paragraph.

Note: If the trust estate’s net income includes a net capital gain, and the beneficiary is a company, Subdivision 115-C of the Income Tax Assessment Act 1997 affects the assessment of the trustee.

(4) If:

(a) a beneficiary of a trust estate (the first trust estate ) who is presently entitled to a share of the income of the first trust estate:

(i) is, in respect of that share of the income of the first trust estate, a beneficiary in the capacity of a trustee of another trust estate; and

(ii) is not a beneficiary to whom subsection 97(3) applies; and

(b) a trustee of the other trust estate is a non-resident at the end of the year of income;

the trustee of the first trust estate is to be assessed and is liable to pay tax in respect of so much of that share of the net income of the first trust estate as is attributable to sources in Australia at the rate declared by the Parliament for the purposes of this subsection.

Note: If the trust estate’s net income includes a net capital gain, Subdivision 115-C of the Income Tax Assessment Act 1997 affects the assessment of the trustee.

2   Subsection 98A(1)

Omit “or (4)”.

3   Paragraph 98A(2)(a)

After “trust estate”, insert “(including, for a beneficiary that is a company, any tax paid in respect of that interest because of section 115-220 of the Income Tax Assessment Act 1997)”.

4   At the end of section 98A

Add:

(3) If a beneficiary of a trust estate who is presently entitled to a share of the income of the trust estate:

(a) is not, in respect of that share of the income of the trust estate, a beneficiary in the capacity of a trustee of another trust estate; and

(b) is a non-resident at the end of the year of income;

the assessable income of the beneficiary includes so much of the individual interest of the beneficiary in the net income of the trust estate as is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4).

Note: If the trust estate’s net income includes a net capital gain, Subdivision 115-C of the Income Tax Assessment Act 1997 also affects the assessment of the beneficiary.

(4) To the extent that subsection (3) includes an amount in the assessable income of a beneficiary of a trust estate, the amount is not included by subsection (1) or section 100.

5   After section 98A

Insert:

98B Deduction from beneficiary’s tax

(1) This section applies to a beneficiary of a trust estate for a year of income if the assessable income of the beneficiary of the year of income includes an amount covered by subsection (2).

(2) This subsection covers an amount (the assessable amount ) if:

(a) the amount is included in the assessable income of the beneficiary under one of the following:

(i) section 97;

(ii) subsection 98A(3);

(iii) section 100; and

(b) the amount does not represent income of the trust estate to which the beneficiary is presently entitled in the capacity of a trustee of another trust estate; and

(c) the amount is reasonably attributable to an amount (the taxed net income ) in respect of which the trustee of another trust estate is assessed and liable to pay tax (the subsection 98(4) tax ) under subsection 98(4) (including any tax paid under subsection 98(4) in respect of the taxed net income because of section 115-222 of the Income Tax Assessment Act 1997).

(3) A proportion of the subsection 98(4) tax is to be deducted from the income tax assessed against the beneficiary of the year of income. That proportion is the same as the proportion of the taxed net income that gave rise to the assessable amount.

Note: To work out the proportion of the taxed net income that gives rise to assessable income for a beneficiary of another trust estate, you would have regard to the share of the income of each interposed trust estate to which a beneficiary (including a beneficiary in the capacity of a trustee) is presently entitled.

Example: The P Trust has two non-resident trustee beneficiaries, the trustees of the S Trust and the H Trust. Each trustee is presently entitled to a 1/2 share of the income of the P Trust. The net income of the P Trust is $100,000. The trustee of the P Trust pays tax of $22,500 under subsection 98(4) in respect of the trustee of the S Trust’s interest and $22,500 under subsection 98(4) in respect of the trustee of the H Trust’s interest.

The S Trust has a non-resident beneficiary, G, who is presently entitled to a 1/3 share of the income of the S Trust. The net income of the S Trust is $30,000. Subsection 98A(3) includes $10,000 in G’s assessable income.

The taxed net income of the P trust is $50,000. The proportion of that taxed net income that gave rise to the $10,000 being included in G’s assessable income is 1/3.This is because G had a 1/3 share of the income of the S Trust. $7,500 (1/3 x $22,500) is deducted from the income tax assessed against G.

If section 97, subsection 98A(3) or section 100 also includes amounts in the assessable income of any beneficiaries of the H Trust, each of those beneficiaries also works out the amount of the deduction against the income tax assessed against them in the same way.

(4) If the amount to be deducted under subsection (3) is greater than the amount of the income tax assessed against the beneficiary, the Commissioner must pay to the beneficiary an amount equal to the difference between those 2 amounts.

Note: See Division 3A of Part IIB of, and section 105-65 in Schedule 1 to, the Taxation Administration Act 1953 for the rules about how the Commissioner must pay the entity. Division 3A of Part IIB allows the Commissioner to apply the amount owing as a credit against tax debts that the entity owes to the Commonwealth.

6   After paragraph 99B(2)(b)

Insert:

(ba) an amount that is non-assessable non-exempt income of the beneficiary because of section 802-17 of the Income Tax Assessment Act 1997;

7   After subparagraph 99B(2)(c)(ii)

Insert:

or (iii) that is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4);

8   After section 99D

Insert:

99E Later trust not taxed on income already taxed under subsection 98(4)

Sections 98, 99 and 99A do not apply to so much of the net income of a trust estate of a year of income as is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4).

9   Subsection 100(1) (note)

Omit “Note”, substitute “Note 1”.

10   At the end of subsection 100(1)

Add:

Note 2: An amount is not included in assessable income under this section to the extent that subsection 98A(3) already includes it: see subsection 98A(4).

11   After subsection 100(1A)

Insert:

(1B) If a beneficiary in a trust estate who is under a legal disability or is deemed to be presently entitled to any of the income of the trust estate by virtue of the operation of subsection 95A(2):

(a) is a resident at the end of the year of income; and

(b) is not a beneficiary in any other trust estate and does not derive income from any other source;

the assessable income of the beneficiary includes so much of the individual interest of the beneficiary in the net income of the trust estate as is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4).

Note 1: If the trust estate’s net income includes a net capital gain, Subdivision 115-C of the Income Tax Assessment Act 1997 also affects the assessment of the beneficiary.

Note 2: A credit is available under section 98B for an appropriate part of the subsection 98(4) tax.

Note 3: An amount is not included in assessable income under this section to the extent that subsection 98A(3) already includes it: see subsection 98A(4).

12   At the end of section 100

Add:

(3) However, an amount of tax is not to be deducted under subsection (2) from the income tax assessed against a beneficiary to the extent that the amount is deducted under section 98B from the income tax assessed against the beneficiary.

13   Subsection 128B(1) (note)

Omit “section 802-15”, substitute “sections 802-15 and 802-17”.

Income Tax Assessment Act 1997

14   Section 12-5 (table item headed "foreign residents")

Repeal the item.

15   Section 13-1 (table item headed "trusts")

Before:

insert:

16   Subparagraphs 115-215(2)(b)(ii) and (iii)

Repeal the subparagraphs, substitute:

(ii) under subsection 98A(1) or (3) of that Act; or

(iii) under section 100 of that Act.

17   Section 115-220 (heading)

Repeal the heading, substitute:

115-220 Special rule for assessing trustee under paragraph 98(3)(b) of the Income Tax Assessment Act 1936

18   Subsection 115-220(1)

Omit “subsection 98(3)”, substitute “paragraph 98(3)(b)”.

19   Subsection 115-220(2) (heading)

Repeal the heading, substitute:

Modification of paragraph 98(3)(b)

20   Subsection 115-220(2)

Omit “subsection 98(3)”, substitute “paragraph 98(3)(b)”.

21   After section 115-220

Insert:

115-222 Special rule for assessing trustee under subsection 98(4) of the Income Tax Assessment Act 1936

Purpose

(1) The purpose of this section is to ensure a trustee assessed under subsection 98(4) of the Income Tax Assessment Act 1936 (in respect of the share of the net income to which a beneficiary that is a foreign resident in the capacity of a trustee is entitled) does not get the benefit in that assessment of the *discount percentage.

Modification of subsection 98(4)

(2) The trustee is to be assessed (and pay tax) under subsection 98(4) of the Income Tax Assessment Act 1936 as if the part of the share that is attributable to a *capital gain of the trust that was reduced under step 3 of the method statement in subsection 102-5(1) were double the amount that it actually is.

22   Subparagraph 207-50(3)(b)(ii)

Omit “paragraph 98A(1)(a) or (b), or paragraph 100(1)(a) or (b),”, substitute “section 98A or 100”.

23   After section 802-15

Insert:

802-17 Trust estates and foreign resident beneficiaries - exempting CFI from Australian tax

Foreign resident beneficiaries

(1) So much of a share of the net income of a trust as is reasonably attributable to the whole or a part of the *unfranked part of a *frankable distribution made by an *Australian corporate tax entity that the entity declares, in its *distribution statement, to be *conduit foreign income:

(a) is not assessable income and is not *exempt income of a beneficiary of the trust who:

(i) is a foreign resident; and

(ii) is presently entitled to the share of the income of the trust; and

(b) is an amount to which section 128B (Liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply.

Note: A frankable distribution to which a part of the net income of a trust is reasonably attributable may be made by the Australian corporate tax entity to the trust directly, or to the trust indirectly through one or more interposed trusts.

(2) The declaration must be made on or before the day on which the *distribution is made.

Note: For a private company, this rule may bring forward the time at which the company is required to make its distribution statement: see section 202-75.

Trusts

(3) The trustee of a trust is not to be assessed (and pay tax) under section 98, 99 or 99A of the Income Tax Assessment Act 1936 in respect of so much of the net income of the trust as is *non-assessable non-exempt income of a beneficiary of the trust under subsection (1).

24   Subsection 855-40(3)

Repeal the subsection, substitute:

(3) You are not liable to pay tax as a trustee of a *fixed trust in respect of an amount to the extent that the amount gives rise to a *capital gain that is disregarded for a beneficiary under subsection (2).

25   Subsection 855-40(4)

After “subsection 98A(1)”, insert “or (3)”.

26   Subsection 855-40(9)

Repeal the subsection (including the notes).

Income Tax Rates Act 1986

27   Subparagraph 5(a)(iv)

Omit “subsection 98(3)”, substitute “paragraph 98(3)(b) or subsection 98(4)”.

28   Subparagraph 5(b)(iv)

Omit “subsection 98(3)”, substitute “paragraph 98(3)(b) or subsection 98(4)”.

29   Section 28

Repeal the section, substitute:

28 Rates of tax payable by certain trustees to whom section 98 of the Assessment Act applies

The rates of tax payable by a trustee of a trust estate in respect of a share of the net income of the trust estate in respect of which the trustee is liable to be assessed and to pay tax are:

(a) if paragraph 98(3)(b) of the Assessment Act applies - the rate specified in subsection 23(2) (about companies); and

(b) if subsection 98(4) of the Assessment Act applies - the maximum rate specified in column 3 of the table in Part II of Schedule 7 to this Act that applies for the year of income.

Note: If paragraph 98(3)(a) of the Assessment Act applies, see subsection 12(6).

30   Application

(1) Subject to items 31, 32 and 33 of this Schedule, the amendments made by this Schedule, other than items 13 and 23, apply in relation to income years starting on or after 1 July 2006.

(2) The amendments made by items 13 and 23 of this Schedule apply in relation to income years starting on or after 1 July 2005.

31   Transitional provision - trusts that ceased to exist before introduction

Subsection 98(4) of the Income Tax Assessment Act 1936, as inserted by item 1 of this Schedule, does not apply in relation to a trustee of a trust that ceased to exist before the Bill for this Act was introduced into the House of Representatives.

32   Transitional provision - managed investment trusts

(1) This item applies in relation to the following income years:

(a) the first income year starting on or after 1 July 2006;

(b) the income year immediately prior to the first income year starting on or after the first 1 July after the day on which this Act receives the Royal Assent;

(c) each intervening income year (if any).

(2) In this item, expressions mean the same as in the Income Tax Assessment Act 1997.

(3) Subsection 98(4) of the Income Tax Assessment Act 1936, as inserted by item 1 of this Schedule, does not apply in relation to a trustee of a trust in relation to an income year to which this item applies if the conditions in subitems (4) to (6) are satisfied for the trust for the income year.

(4) The trust must be a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 for the income year.

(5) At each of the times in the income year mentioned in subitem (9), the trust must be a managed investment scheme (as defined by section 9 of the Corporations Act 2001) and be operated by a financial services licensee (as defined by section 761A of that Act) whose licence covers operating such a managed investment scheme.

(6) At each of the times in the income year mentioned in subitem (9), one of the following must be satisfied:

(a) units in the trust must be listed for quotation in the official list of an approved stock exchange in Australia;

(b) the trust must have at least 50 members (ignoring objects of a trust);

(c) one of the entities covered by subitem (7) must be a member of the trust.

(7) 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 that satisfies the conditions in subitems (4) and (5) and also satisfies the condition in paragraph (a) or (b) of subitem (6);

(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 subitems (4) and (5) are satisfied for the trust, or for each trust in the chain.

(8) The condition in subitem (6) 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.

(9) The times in an income year are:

(a) for a trust that was in existence throughout the income year - the first day and the last day of the income year; and

(b) for a trust that comes into existence in the income year - the time that is 1 month after the time the trust comes into existence, and the last day of the income year; and

(c) for a trust that ceases to exist in the income year - the first day of the income year and the time that is 1 month before the time the trust ceases to exist.

33   Transitional provision - intermediaries

(1) This item applies in relation to the following income years:

(a) the first income year starting on or after 1 July 2006;

(b) the income year immediately prior to the first income year starting on or after the first 1 July after the day on which this Act receives the Royal Assent;

(c) each intervening income year (if any).

(2) In this item, expressions mean the same as in the Income Tax Assessment Act 1997.

(3) Subsection 98(4) of the Income Tax Assessment Act 1936, as inserted by item 1 of this Schedule, does not apply to a trustee of a trust in relation to so much of the net income of the trust of an income year to which this item applies as:

(a) represents income applied by the trustee in making a payment covered by subitem (4); and

(b) is attributable to a payment made by a trustee of another trust, if the conditions in subitems 32(4) to (6) of this Schedule are satisfied for the other trust for the income year in which the payment made by the trustee of the other trust is made.

(4) A payment made by a trustee of a trust is covered by this subitem if:

(a) the payment is made to an entity that is a foreign resident at the time of the payment; and

(b) at the time of the payment, the trust is carrying on a business 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

(c) the payment is made in the course of the business; and

(d) either:

(i) the trust is a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 for the income year in which the payment is made; or

(b) the business is carried on in Australia through an Australian permanent establishment.

34   Transitional provision - application of former subsection 768-605(4) and former section 768-615 of the Income Tax Assessment Act 1997

(1) Former subsection 768-605(4) of the Income Tax Assessment Act 1997 applies in relation to income years starting on or after 1 July 2006 as if the reference in that subsection to subsection 98A(1) were instead a reference to subsection 98A(1) or (3).

(2) Former section 768-615 of the Income Tax Assessment Act 1997 does not apply in relation to income years starting on or after 1 July 2006.

Schedule 10   Distributions to foreign residents from managed investment trusts

Part 1   Main amendments

Taxation Administration Act 1953

1   At the end of Division 12 in Schedule 1

Add:

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

Guide to Subdivision 12-H

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).

Table of sections

Operative provisions

12-380 Object

12-385 Withholding by trustee of managed investment trust

12-390 Withholding by intermediary

12-395 Meaning of managed investment trust

12-400 Meaning of fund payment

12-405 Meaning of intermediary

12-410 Entity to whom payment is made

12-415 Notices

12-420 Agency rules

Operative provisions

12-380 Object

(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).

(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.

12-385 Withholding by trustee of managed investment trust

(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.

(2) The amount the trustee must withhold is:

12-390 Withholding by intermediary

(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.

(2) The amount the entity must withhold is:

12-395 Meaning of managed investment trust

(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.

(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

(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

(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

(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).

12-400 Meaning of fund payment

(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.

(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.

(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.

(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.

(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.

12-405 Meaning of intermediary

(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.

(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.

12-410 Entity to whom payment is made

(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.

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

12-415 Notices

(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.

(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.

(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.

12-420 Agency rules

(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.

(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.

2   At the end of Subdivision 18-A in Schedule 1

Add:

Entitlement to credit: amount attributable to fund payment

18-50 Credit: amount attributable to fund payment

(1) This section applies to an entity if:

(a) the entity is a beneficiary of a trust and the assessable income of the entity for an income year includes an amount (the assessable amount ) under section 97, 99F or 100 of the Income Tax Assessment Act 1936; or

(b) the entity is a trustee of a trust and is assessed and is liable to pay tax under section 99 or 99A of that Act on an amount (also the assessable amount ) for an income year;

and an assessment has been made of the income tax payable by the entity for the income year.

(2) The assessable amount includes any amount included in the assessable income of the beneficiary because of subsection 115-215(3) of the Income Tax Assessment Act 1997.

(3) The entity is entitled to a credit if the assessable amount is represented by or reasonably attributable to a *withholding payment from which an amount was withheld under Subdivision 12-H (about distributions to foreign residents from managed investment trusts).

(4) The amount of the credit is worked out using the formula:

where:

attributable part of the payment is so much of the assessable amount as is represented by or reasonably attributable to the *withholding payment.

(5) Paragraph (1)(a) does not apply to a beneficiary of a trust in relation to an amount included in the beneficiary’s assessable income under section 97 of the Income Tax Assessment Act 1936 if the beneficiary has the amount included in the capacity of a trustee of another trust.

(6) However, subsection (5) does not stop paragraph (1)(a) applying to a trustee of:

(a) a *complying superannuation fund, a *non-complying superannuation fund, a *complying approved deposit fund, a *non-complying approved deposit fund or a *pooled superannuation trust; or

(b) a *corporate unit trust; or

(c) a *public trading trust.

Part 2   Consequential amendments

Income Tax Assessment Act 1936

3   Subsection 6(1)

Insert:

fund payment has the same meaning as in the Income Tax Assessment Act 1997.

4   Subsection 6(1)

Insert:

intermediary has the same meaning as in the Income Tax Assessment Act 1997.

5   Subsection 6(1)

Insert:

managed investment trust has the same meaning as in the Income Tax Assessment Act 1997.

6   Before section 100

Insert:

99F Assessable income includes amounts attributable to fund payments

If a beneficiary of a trust estate who is presently entitled to a share of the income of the trust estate:

(a) is a non-resident at the end of the year of income; and

(b) is not, in respect of that share, a beneficiary in the capacity of a trustee of another trust estate;

the assessable income of the beneficiary includes so much of the individual interest of the beneficiary in the net income of the trust estate as is represented by or reasonably attributable to an amount from which an entity is required to withhold an amount under Subdivision 12-H in Schedule 1 to the Taxation Administration Act 1953.

99G Payments covered by withholding requirement

(1) Sections 98, 99 and 99A do not apply to so much of the net income of a trust estate of a year of income as:

(a) represents income to which a beneficiary is presently entitled; and

(b) is represented by or reasonably attributable to an amount from which an entity is required to withhold an amount under Subdivision 12-H in Schedule 1 to the Taxation Administration Act 1953.

(2) Subsection 98(4) does not apply to so much of the net income of a trust estate as represents income to which a beneficiary is presently entitled and gives rise to an amount from which an entity is required to withhold an amount under that Subdivision.

99H Late payments

(1) This section applies if:

(a) a beneficiary of a trust estate that is a managed investment trust is presently entitled to a share of the income of the trust estate of a year of income; and

(b) the beneficiary is a non-resident at the end of the year of income; and

(c) all or part of that share of the net income of the trust estate (the late amount ) has not been paid to the beneficiary by the end of the period applicable under subsection 12-400(4) in Schedule 1 to the Taxation Administration Act 1953; and

Note: That subsection requires payments to be made before the end of 3 months after the end of the relevant year of income or within a longer period allowed by the Commissioner.

(d) if the late amount had been paid to the beneficiary within that period, the payment would have been a fund payment made by the trustee of the managed investment trust.

(2) This Division applies as if that portion of the beneficiary’s income that represents the late amount were income to which no beneficiary was presently entitled.

(3) In working out the net income of the trust estate for the year of income for the purposes of subsection (1), disregard these amounts ( excluded amounts ):

(a) a dividend (as defined in Division 11A of Part III) that is subject to, or exempted from, a requirement to withhold under Subdivision 12-F in Schedule 1 to the Taxation Administration Act 1953;

(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 a source in Australia;

and disregard deductions relating to excluded amounts.

7   Before subsection 100(2)

Insert:

(1C) If a beneficiary in a trust estate who is under a legal disability or is deemed to be presently entitled to any of the income of the trust estate by virtue of the operation of subsection 95A(2):

(a) is a resident at the end of the year of income; and

(b) is not a beneficiary in any other trust estate and does not derive income from any other source;

the assessable income of the beneficiary includes so much of the individual interest of the beneficiary in the net income of the trust estate as is represented by or reasonably attributable to a payment from which an entity was required to withhold an amount under Subdivision 12-H in Schedule 1 to the Taxation Administration Act 1953.

Note: A credit is available under section 18-50 in Schedule 1 to the Taxation Administration Act 1953 for an appropriate part of the amount withheld.

8   Paragraph 202EE(1)(c)

After “Subdivision 12-F”, insert “or 12-H”.

9   Subsection 255(2A)

After “natural resource payments)”, insert “or Subdivision 12-H in that Schedule (about distributions to foreign residents from managed investment trusts)”.

Income Tax Assessment Act 1997

10   At the end of paragraph 115-215(2)(b)

Add:

; or (iv) under section 99F of that Act.

11   Subsection 995-1(1)

Insert:

fund payment has the meaning given by section 12-400 in Schedule 1 to the Taxation Administration Act 1953.

12   Subsection 995-1(1)

Insert:

intermediary has the meaning given by section 12-405 in Schedule 1 to the Taxation Administration Act 1953.

13   Subsection 995-1(1)

Insert:

managed investment trust has the meaning given by section 12-395 in Schedule 1 to the Taxation Administration Act 1953.

Taxation Administration Act 1953

14   Subsection 10-5(1) in Schedule 1 (at the end of the table)

Add:

15   Subsection 12-5(2) in Schedule 1 (before table item 1)

Insert:

16   Subsection 15-15(1) in Schedule 1

After “or 12-145”, insert “or Subdivision 12-H”.

17   Subsection 15-15(1) in Schedule 1 (at the end of the note)

Add “Subdivision 12-H is about distributions to foreign residents from managed investment trusts (except dividends, interest and royalties).”.

18   Subsection 15-35(1) in Schedule 1

After “section 12-325”, insert “, 12-385 or 12-390”.

19   After subsection 16-153(3) in Schedule 1

Insert:

(4) An entity must give a report to the Commissioner in the *approved form if the entity is required to withhold amounts under Subdivision 12-H in relation to *fund payments made by a particular *managed investment trust (the paying trust ) in relation to an income year of that trust.

Note: The entity may be the managed investment trust itself or an intermediary.

(4A) The report under subsection (4) must be given:

(a) not later than 14 days after the end of 6 months after the end of the income year of the *managed investment trust in relation to which the relevant *fund payments were made; or

(b) within a longer period allowed by the Commissioner.

20   Paragraph 16-155(1)(a) in Schedule 1

Omit “or 12-317”, substitute “, 12-317, 12-385 or 12-390”.

21   After section 16-155 in Schedule 1

Insert:

16-157 Payment summary for Subdivision 12-H

(1) An entity (the payer ) must give a *payment summary to another entity (the recipient ) if the payer made *withholding payments covered by section 12-385 or 12-390 to the recipient in relation to *fund payments made by a particular *managed investment trust (the paying trust ) in relation to an income year of that trust.

Note: The entity may be the managed investment trust itself or an intermediary.

(2) The *payment summary:

(a) must cover each of the *withholding payments mentioned in subsection (1); and

(b) may be in electronic form; and

(c) must be given:

(i) not later than 14 days after the end of 6 months after the end of the income year of the *managed investment trust in relation to which the relevant *fund payments were made; or

(ii) within a longer period allowed by the Commissioner.

22   Paragraph 16-160(1)(a) in Schedule 1

Omit “or 12-317”, substitute “, 12-317, 12-385 or 12-390”.

23   Subsection 16-170(1) in Schedule 1

After “ payment summary ”, insert “(except one relating to Subdivision 12-H)”.

24   After subsection 16-170(1) in Schedule 1

Insert:

(1AA) A payment summary relating to Subdivision 12-H is a statement that:

(a) names the payer and the recipient; and

(b) if the recipient has given the recipient’s *tax file number or *ABN to the payer - states the tax file number or ABN; and

(c) states the total of the *withholding payments (if any) that it covers, and the total of the *amounts withheld by the payer from those withholding payments; and

(d) specifies the income year of the relevant *managed investment trust to which it relates.

25   Subsection 16-175(1) in Schedule 1

After “16-155,”, insert “16-157,”.

26   Subsection 16-175(1) in Schedule 1

After “16-170(1),”, insert “(1AA),”.

27   At the end of section 18-15 in Schedule 1

Add:

(3) An entity is not entitled to a credit under this section in relation to a *withholding payment if the entity is entitled to a credit under section 18-50 in relation to that withholding payment.

28   At the end of section 18-25 in Schedule 1

Add:

(9) An entity is not entitled to a credit under this section in relation to a *withholding payment if the entity is entitled to a credit under section 18-50 in relation to that withholding payment.

29   Paragraph 20-35(3)(a) in Schedule 1

After “*payment summary”, insert “(except one relating to Subdivision 12-H)”.

30   Paragraph 20-35(3)(b) in Schedule 1

Before “a payment summary”, insert “such”.

31   At the end of section 20-35 in Schedule 1

Add:

(4) A person must not, with the intention of obtaining a credit, a payment or any other benefit, present:

(a) a *payment summary relating to Subdivision 12-H, or a copy of such a payment summary; or

(b) a document purporting to be such a payment summary or a copy of such a payment summary;

which is not a payment summary, or a copy of a payment summary, duly given to the person.

Penalty: 60 penalty units, or imprisonment for 12 months, or both.

Note: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit.

Part 3   Application

32   Application

The amendments made by this Schedule apply to the first income year starting on or after the first 1 July after the day on which this Act receives the Royal Assent and later income years.