Income Tax Assessment Act 1997

CHAPTER 3 - SPECIALIST LIABILITY RULES  

PART 3-6 - THE IMPUTATION SYSTEM  

Division 207 - Effect of receiving a franked distribution  

Subdivision 207-E - Exceptions to the rules in Subdivision 207-D  

Exempt institutions

SECTION 207-128   Reinvestment choice  

207-128(1)    
If, apart from this section, paragraph 207-120(2) (a) or (d) or section 207-124 would apply to an entity (the receiving entity ) to whom a *franked distribution is made or *flows indirectly, that paragraph or section is taken not to apply to the receiving entity if:

(a) instead of receiving the distribution, or the *trust share amount concerned, by a payment of money, the receiving entity chooses to be issued with:

(i) if the distribution is made to the receiving entity - *shares in the *corporate tax entity making the distribution; or

(ii) if the distribution flows indirectly to the receiving entity - a fixed interest in the trust in relation to which the trust share amount arises; and

(b) the choice is genuine and furthers the purpose for which the entity was established; and

(c) the choice is not made for the purpose, or purposes that include the purpose, of benefiting the corporate tax entity, trust or any of their *associates (other than the receiving entity); and

(d) any benefit *derived by the corporate tax entity, trust or any of their associates (other than the receiving entity) because of that choice is one which is an ordinary incident of issuing the shares or interests to the receiving entity or of the receiving entity ' s holding of those shares or interests; and

(e) the parties that were involved in the *distribution event or *arrangement concerned deal with one another on an *arm ' s length basis in relation to the event or arrangement.

A vested and indefeasible interest constitutes a fixed interest

207-128(2)    
The receiving entity ' s interest in a trust is a fixed interest if the interest is a vested and indefeasible interest in the trust ' s capital.

Special rule about whether interests in unit trusts are defeasible

207-128(3)    
If:

(a) the trust is a unit trust and the receiving entity holds units in the unit trust; and

(b) the units are redeemable or further units are able to be issued; and

(c) the units held by the receiving entity will be redeemed, or any further units will be issued:

(i) if units in the unit trust are listed for quotation in the official list of an *approved stock exchange - for the price at which other units of the same kind in the unit trust are offered for sale on the exchange at the time of the redemption or issue; or

(ii) if the units are not listed as mentioned in subparagraph (i) - for their *market value at the time of the redemption or issue;

then the mere fact that the units are redeemable, or that the further units are able to be issued, does not mean that the receiving entity ' s interest, as a unit holder, in the trust ' s capital is defeasible.

Commissioner ' s power to treat an interest in a trust as being a fixed interest

207-128(4)    
If:

(a) the receiving entity has an interest in the trust ' s capital; and

(b) apart from this subsection, the interest would not be a vested or indefeasible interest; and

(c) the Commissioner considers that the interest should be treated as being vested and indefeasible, having regard to:

(i) the circumstances in which the interest is capable of not vesting, or the defeasance can happen; and

(ii) the likelihood of the interest not vesting or the defeasance happening; and

(iii) the nature of the trust; and

(iv) any other matter the Commissioner thinks relevant;

the Commissioner may determine that the interest is to be taken to be vested and indefeasible.

207-128(5)    
A determination made under subsection (4) has effect according to its terms.