CHAPTER 4
-
INTERNATIONAL ASPECTS OF INCOME TAX
History
Chapter 4 inserted by No 162 of 2001.
PART 4-5
-
GENERAL
History
Part 4-5 inserted by No 162 of 2001.
Division 842
-
Exempt Australian source income and gains of foreign residents
History
Div 842 inserted by
No 101 of 2006
, s 3 and Sch 2 item 757, effective 14 September 2006. For application and savings provisions see the
CCH Australian Income Tax Legislation archive
.
Subdivision 842-I
-
Investment manager regime
History
Subdiv 842-I substituted by No 70 of 2015, s 3 and Sch 7 item 1, effective 25 June 2015. Subdiv 842-I formerly read:
Subdivision 842-I
-
Investment manager regime
Guide to Subdivision 842-I
SECTION 842-200 What this Subdivision is about
This Subdivision includes rules about the taxation of certain foreign funds with investment income or losses which are treated as being attributable to a permanent establishment in Australia solely because the fund retains the services of an Australian based agent, manager or service provider.
Where the conditions in this Subdivision are satisfied:
•
returns or gains relating to financial arrangements (known as IMR income) are non-assessable non-exempt income or disregarded; and
•
deductions and losses relating to financial arrangements (known as IMR deductions) are disregarded; and
•
capital gains relating to financial arrangements (known as IMR capital gains) are disregarded; and
•
capital losses relating to financial arrangements (known as IMR capital losses) are disregarded.
These amounts are also disregarded if a foreign resident beneficiary of a trust, or a foreign resident partner in a partnership, receives them (or amounts attributable to them) through one or more interposed trusts or partnerships.
Operative provisions
SECTION 842-205 Objects of this Subdivision
842-205(1)
The objects of this Subdivision are to ensure that:
(a)
foreign funds are not subject to Australian income tax in respect of certain *
financial arrangements
solely because they engage the services of an Australian based agent, manager or service provider; and
(b)
Australian resident taxpayers continue to be subject to tax on their worldwide income; and
(c)
the benefits of the tax concessions in this Subdivision are only available where foreign funds are widely held and are not owned by a small group of investors.
842-205(2)
This is achieved by:
(a)
treating certain *
ordinary income
and *
statutory income
as *
non-assessable non-exempt income
; and
(b)
disregarding certain deductions; and
(c)
disregarding certain *
capital gains
and *
capital losses
; and
(d)
requiring foreign funds that seek to benefit from the tax concessions in this Subdivision to pass a widely held test and a concentration test to show that they are not controlled by a small group of investors.
SECTION 842-210 Treatment of IMR foreign fund that is a corporate tax entity
Objects
842-210(1)
The objects of this section are to ensure that:
(a)
a *
corporate tax entity
that is an *
IMR foreign fund
in relation to an income year is not subject to any Australian income tax in respect of its *
IMR income
and *
IMR capital gain
for that income year; and
(b)
the corporate tax entity
'
s *
IMR deduction
or *
IMR capital loss
in relation to an income year cannot be applied against the corporate tax entity
'
s other income and gains; and
(c)
this section does not provide any tax concession to an Australian resident who invests in the corporate tax entity (whether directly or indirectly through one or more interposed entities).
Application
842-210(2)
This section applies to a *
corporate tax entity
that is an *
IMR foreign fund
in relation to an income year.
Certain amounts disregarded
842-210(3)
In working out the *
corporate tax entity
'
s taxable income, *
tax loss
or *
net capital loss
for the income year:
(a)
treat its *
IMR income
in relation to the income year as *
non-assessable non-exempt income
; and
(b)
disregard its *
IMR deduction
in relation to the income year; and
(c)
disregard its *
IMR capital gain
in relation to the income year; and
(d)
disregard its *
IMR capital loss
in relation to the income year.
Certain losses disregarded
842-210(4)
The *
corporate tax entity
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 *
IMR income
, an *
IMR capital gain
, an *
IMR deduction
or an *
IMR capital loss
.
SECTION 842-215 Treatment of foreign resident beneficiary that is not a trust or partnership
Objects
842-215(1)
The objects of this section are to ensure that:
(a)
a foreign resident beneficiary of an *
IMR foreign fund
in relation to an income year is not subject to Australian income tax in respect of *
IMR income
or an *
IMR capital gain
of the fund (or in respect of an amount that is referable to IMR income or an 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)
IMR income of the fund (or referable to IMR income of the fund); or
(ii)
an IMR capital gain of the fund (or referable to an 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
842-215(2)
This section applies to a beneficiary of a trust in relation to an income year if the beneficiary:
(a)
is not a resident of Australia at any time during the income year; and
(b)
is not a trust or partnership at any time during the income year (other than a *
foreign superannuation fund
).
Note:
A trust that is an IMR foreign fund is 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
842-215(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 non-IMR net income (within the meaning of subsection
842-260(1)
of the
Income Tax Assessment 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 non-IMR net income (within the meaning of subsection
842-260(1)
of the
Income Tax Assessment 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 non-IMR Division
6E
net income (within the meaning of subsection
842-260(2)
of the
Income Tax Assessment Act 1997
); and
(d)
for the purposes of applying subsection
115-215(3)
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 *
non-IMR net capital gain
(or is referable to a non-IMR net capital gain of the trust estate); and
(e)
for the purposes of applying section
115-225
to the beneficiary:
(i)
replace references in that section to net income of the trust estate with references to *
non-IMR net income
of the trust estate; and
(ii)
replace the reference in that section to *
net capital gain
(if any) with a reference to *
non-IMR net capital gain
(if any).
842-215(4)
For the purposes of applying paragraph
115-225(1)(a)
to the beneficiary:
(a)
disregard a *
capital gain
of the *
IMR foreign fund
to the extent the capital gain is an *
IMR capital gain
; and
(b)
disregard an *
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 an 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)
.
SECTION 842-220 Treatment of foreign resident partner that is not a trust or partnership
Objects
842-220(1)
The objects of this section are to ensure that:
(a)
a foreign resident partner of an *
IMR foreign fund
in relation to an income year is not subject to any Australian income tax in respect of *
IMR income
or an *
IMR capital gain
(or in respect of an amount that is referable to IMR income or an 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)
IMR income of the fund (or referable to IMR income of the fund); or
(ii)
an IMR capital gain (or referable to an 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
842-220(2)
This section applies to a partner in a partnership in relation to an income year if the partner:
(a)
is not an Australian resident at any time during the income year; and
(b)
is not a trust or a partnership at any time during the income year (other than a *
foreign superannuation fund
).
Note:
A partnership that is an IMR foreign fund is 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
842-220(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 non-IMR partnership net income (within the meaning of section
842-265
of the
Income Tax Assessment Act 1997
) of the partnership; 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 non-IMR partnership loss (within the meaning of section
842-265
of the
Income Tax Assessment Act 1997
); and
(c)
disregard an amount to the extent that it is referable to an *
IMR capital gain
or an *
IMR capital loss
.
SECTION 842-225 Treatment of trustee of an IMR foreign fund
Objects
842-225(1)
The object of this section is to ensure that the following provisions interact appropriately with the tax concessions mentioned in paragraphs
842-210(1)(a)
and
(b)
, paragraphs
842-215(1)(a)
and
(b)
and paragraphs
842-220(1)(a)
and
(b)
:
(a)
subsection
115-220(2)
;
(b)
section
115-225
;
(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 Part
3-1
of this Act, and all other provisions of those Acts apply to the trustee of an IMR foreign fund, subject to the modifications in this section.
Applying subsection 115-220(2)
842-225(2)
For the purposes of applying subsection
115-220(2)
to the beneficiary:
(a)
disregard a *
capital gain
of the *
IMR foreign fund
to the extent the capital gain is an *
IMR capital gain
; and
(b)
disregard an *
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 an IMR capital loss for the purposes of determining how much of a capital gain that is not an 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
is 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
842-225(3)
For the purposes of applying section
115-225
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 *
non-IMR net income
of the trust estate;
(b)
replace the reference in section
115-225
to net capital gain (if any) with a reference to *
non-IMR net capital gain
(if any).
Modifications to section 98 of the
Income Tax Assessment Act 1936
842-225(4)
For the purposes of applying section
98
of the
Income Tax Assessment Act 1936
, replace references in that section to net income with references to non-IMR net income (within the meaning of subsection
842-260(1)
of the
Income Tax Assessment 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 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
842-225(5)
For the purposes of applying section
99E
of the
Income Tax Assessment Act 1936
:
(a)
replace the reference in that section to so much of the net income with a reference to so much of the net income or non-IMR net income (within the meaning of subsection
842-260(1)
of the
Income Tax Assessment Act 1997
) as the case may be; and
(b)
replace the reference in that section to a part of the net income of another trust estate with a reference to a part of the non-IMR net income (within the meaning of subsection
842-260(1)
of the
Income Tax Assessment Act 1997
) of another trust estate.
Note:
The effect of this subsection is that the trustee of a trust that receives a distribution of 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
842-225(6)
The trust cannot *
utilise
a *
tax loss
or *
net capital loss
in relation to an income year, or any future income year, to the extent the loss is attributable to *
IMR income
, an *
IMR capital gain
, an *
IMR deduction
or an *
IMR capital loss
.
SECTION 842-230
SECTION 842-230
IMR foreign fund
842-230
An entity is an
IMR foreign fund
in relation to an income year if:
(a)
the entity:
(i)
is not an Australian resident at any time during the income year; and
(ii)
is not a resident trust estate for the purposes of subsection
95(2)
of the
Income Tax Assessment Act 1936
at any time during the income year; and
(b)
the entity does not carry on a trading business (within the meaning of section
102M
of the
Income Tax Assessment Act 1936
) at any time during the income year; and
(c)
subject to section
842-235
, the entity:
(i)
satisfies the widely held test at all times during the income year (see subsection
842-240(1)
); and
(ii)
does
not
breach the concentration test in subsection
842-240(4)
at any time during the income year.
SECTION 842-235
SECTION 842-235 Wind-down phases
842-235
If:
(a)
the entity ceases to exist during the income year; and
(b)
the entity was an *
IMR foreign fund
in relation to the preceding income year;
treat the requirements in paragraph
842-230(c)
as being satisfied.
SECTION 842-240 Widely held test and concentration test
Widely held test
842-240(1)
The entity satisfies the widely held test for the purposes of subparagraph
842-230(c)(i)
if:
(a)
units or shares in the entity are listed for quotation in the official list of an *
approved stock exchange
; or
(b)
the entity has at least 25 *
members
(ignoring objects of a trust); or
(c)
one or more of the entities covered by subsection (3) have a *
total participation interest
in the entity of more than 25%; or
(d)
all the membership interests in the entity are held, directly or indirectly, by one or more entities that satisfy the requirements in paragraph (a), (b) or (c); or
(e)
the entity is an entity of a kind specified in the regulations made for the purposes of this paragraph.
842-240(2)
For the purposes of subsection (1):
(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); and
(b)
treat the following entities as together being one 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).
Foreign widely held entities
842-240(3)
An entity is covered by this subsection if:
(a)
it is a life insurance company that is not an Australian resident at any time during the income year; or
(b)
it is a *
foreign superannuation fund
, being a fund that has at least 50 *
members
; or
(c)
it is an entity that is a fund established by an *
exempt foreign government agency
for the principal purposes of funding pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country.
Concentration test
842-240(4)
The entity breaches the concentration test if 10 or fewer entities have a *
total participation interest
in the entity of 50% or more.
842-240(5)
In determining the number of entities for the purposes of subsection (4), do not count the following:
(a)
an *
IMR foreign fund
in relation to the income year;
(b)
an entity that satisfies the requirement in paragraph (1)(d), (3)(a), (3)(b) or (3)(c);
(c)
an entity that holds an *
indirect participation interest
in the entity through one or more entities covered by paragraph (a) or (b) of this subsection.
SECTION 842-245 Financial arrangements covered by this section
842-245(1)
A *
financial arrangement
is covered by this section unless subsection (2), (3) or (4) applies.
842-245(2)
A *
financial arrangement
is not covered by this section if:
(a)
the *
IMR foreign fund
has a *
total participation interest
in another entity of 10% or more; and
(b)
the financial arrangement is:
(i)
a *
debt interest
or an *
equity interest
in the entity; or
(ii)
the result of a *
financing arrangement
for the entity that is neither a debt interest nor an equity interest; or
(iii)
a *
derivative financial arrangement
that relates to a financial arrangement to which subparagraph (i) or (ii) applies.
842-245(3)
A *
financial arrangement
is
not
covered by this section if:
(a)
the financial arrangement is a *
derivative financial arrangement
that relates to a *
CGT asset
; and
(b)
the CGT asset is:
(i)
*
taxable Australian real property
(see section
855-20
); or
(ii)
an *
indirect Australian real property interest
(see section
855-25
).
842-245(4)
A *
financial arrangement
is
not
covered by this section if its terms allow the *
IMR foreign fund
to:
(a)
vote at a meeting of the Board of Directors (or other governing body) of the issuer of the financial arrangement; or
(b)
participate in making financial, operating or policy decisions in respect of the operation of the issuer of the financial arrangement; or
(c)
deal with the assets of the issuer of the financial arrangement.
842-245(5)
Subsection (4) does not apply if that subsection applies solely because the issuer of the *
financial arrangement
breached a term of the financial arrangement.
SECTION 842-250
IMR income
and
IMR deduction
IMR income
842-250(1)
The
IMR income
for an income year of an *IMR foreign fund in relation to the income year is the sum of the fund
'
s assessable income for the income year to the extent that:
(a)
the assessable income is attributable to a return or gain from a *financial arrangement covered by section 842-245; and
(b)
the fund has a *permanent establishment in Australia solely as a result of engaging an entity that is a resident of Australia to habitually exercise a general authority to negotiate and conclude contracts on its behalf; and
(c)
amounts are included in the assessable income of the fund only because:
(i)
in respect of an entity that is resident in a country that has entered into an *international tax agreement with Australia containing a *business profits article
-
amounts included in the assessable income of the fund are treated as having a source in Australia because they are attributable to a permanent establishment of the fund in Australia; or
(ii)
in respect of a fund that is resident in a country that has not entered into an international tax agreement with Australia containing a business profits article
-
amounts included in the assessable income of the fund are treated as having a source in Australia because of subsection 815-230(1); or
(iii)
the financial arrangement is a *CGT asset covered by item 3 of the table in section 855-15; or
(iv)
the financial arrangement is a CGT asset covered by item 4 of the table in section 855-15 because it is an option or right to *acquire a CGT asset covered by item 3 of that table.
History
S 842-250(1) amended by No 101 of 2013, s 3 and Sch 2 item 35, by substituting para (c)(ii), applicable: (a) in respect of tax other than withholding tax
-
in relation to income years starting on or after the date mentioned in subsection 815-15(2) of the
Income Tax (Transitional Provisions) Act 1997
, as inserted; and (b) in respect of withholding tax
-
in relation to income derived, or taken to be derived, in income years starting on or after that date. Para (c)(ii) formerly read:
(ii)
in respect of an entity that has not entered into an international tax agreement with Australia
-
the Commissioner makes a determination under section
136AE
of the
Income Tax Assessment Act 1936
; or
S 842-250(1) amended by No 126 of 2012, s 3 and Sch 1 item 2, by substituting paras (c)(i) and (ii), applicable to assessments for the 2010-11 income year and later income years. The paras formerly read:
(i)
in respect of a fund that is resident in a country that has entered into an agreement (within the meaning of the
International Tax Agreements Act 1953
) with Australia containing a *business profits article
-
amounts included in the assessable income of the fund are treated as having a source in Australia because they are attributable to a permanent establishment of the fund in Australia; or
(ii)
in respect of a fund that is resident in a country that has not entered into an agreement (within the meaning of the
International Tax Agreements Act 1953
) with Australia containing a business profits article
-
the Commissioner makes a determination under section 136AE of the
Income Tax Assessment Act 1936
; or
IMR deduction
842-250(2)
The
IMR deduction
for an income year of an *
IMR foreign fund
in relation to the income year is the sum of the fund
'
s deductions for the income year to the extent to which they are attributable to gaining *
IMR income
, an *
IMR capital gain
, *
pre-2012 IMR income
or a *
pre-2012 IMR capital gain
.
842-250(3)
Disregard the following provisions for the purposes of calculating an *
IMR foreign fund
'
s *
IMR income
or *
IMR deduction
:
(a)
subsection
842-210(3)
(which is about certain amounts of an IMR foreign fund being disregarded);
(b)
paragraph
842-260(1)(a)
(which is about non-IMR net income);
(c)
section
842-265
(which is about non-IMR partnership net income and non-IMR partnership loss).
SECTION 842-255
IMR capital gain
and
IMR capital loss
IMR capital gain
842-255(1)
The
IMR capital gain
for an income year of an *
IMR foreign fund
in relation to the income year is the sum of the fund
'
s *
capital gains
made in the income year to the extent that:
(a)
the fund has a *
permanent establishment
in Australia solely as a result of engaging an entity that is a resident of Australia to habitually exercise a general authority to negotiate and conclude contracts on its behalf; and
(b)
the capital gains are made in respect of *
CGT assets
covered by subsection (3) which are also *
financial arrangements
covered by section
842-245
.
IMR capital loss
842-255(2)
The
IMR capital loss
for an income year of an *
IMR foreign fund
for an income year is the sum of the fund
'
s *
capital losses
made in relation to the income year to the extent that:
(a)
the fund has a *
permanent establishment
in Australia solely as a result of engaging an entity that is a resident of Australia to habitually exercise a general authority to negotiate and conclude contracts on its behalf; and
(b)
the capital losses are made in respect of *
CGT assets
covered by subsection (3) which are also *
financial arrangements
covered by section
842-245
.
842-255(3)
A *
CGT asset
of an *
IMR foreign fund
is covered by this subsection if:
(a)
it is covered by item 3 of the table in section
855-15
in relation to the fund; or
(b)
it is covered by item 4 of the table in section
855-15
in relation to the fund because it is an option or right to *
acquire
a CGT asset covered by item 3 of that table in relation to the fund.
Partner
'
s IMR capital gain or IMR capital loss
842-255(4)
Where the *
IMR foreign fund
is a partnership, a *
capital gain
or *
capital loss
of a partner that arises in respect of the partner
'
s interest in the fund is treated as an *
IMR capital gain
or an *
IMR capital loss
(as the case may be) to the extent that the capital gain or capital loss is made in respect of *
CGT assets
covered by subsection (3) which are also *
financial arrangements
covered by section
842-245
.
SECTION 842-260
Non-IMR net income
,
non-IMR Division 6E net income
and
non-IMR net capital gain
842-260(1)
A trust
'
s
non-IMR net income
in relation to an income year is determined by calculating the *
net income
of the trust as follows:
(a)
disregard the *
IMR income
and *
IMR deduction
of the trust for the income year;
(b)
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 IMR income of the trust for the income year;
(c)
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 beneficiary, replace the references in that Division to share of the net income with references to share of the non-IMR net income (within the meaning of subsection
842-260(1)
of the
Income Tax Assessment 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 non-IMR Division
6E
net income (within the meaning of subsection
842-260(2)
of the
Income Tax Assessment Act 1997
);
(d)
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 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 non-IMR partnership net income or non-IMR partnership loss (within the meaning of those terms in section
842-265
of the
Income Tax Assessment 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.
Non-IMR Division 6E net income
842-260(2)
A trust
'
s
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 *
IMR income
and *
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 are about adjustments of Division
6
assessable amounts) in relation to the income year.
Non-IMR net capital gain
842-260(3)
A trust
'
s
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 *
IMR capital gain
and *
IMR capital loss
in relation to the income year;
(b)
disregard any capital gain of the trust that is referable to an IMR capital gain of another *
IMR foreign fund
that is a trust.
SECTION 842-265
Non-IMR partnership net income
and
non-IMR partnership loss
842-265
A partnership
'
s
non-IMR partnership net income
or
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 *IMR income and *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 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 non-IMR net income (within the meaning of subsection 842-260(1) of the
Income Tax Assessment 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 non-IMR Division 6E net income (within the meaning of subsection 842-260(2) of the
Income Tax Assessment 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 partnership that is a 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 non-IMR partnership net income or non-IMR partnership loss (within the meaning of those terms in section 842-265 of the
Income Tax Assessment 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.
SECTION 842-270
Pre-2012 IMR income
and
pre-2012 IMR capital gain
Pre-2012 IMR income
842-270(1)
The
pre-2012 IMR income
for an income year that is the 2010-11 income year or an earlier income year of an *IMR foreign fund is the sum of the fund
'
s assessable income made in the income year in respect of *financial arrangements covered by section 842-245.
842-270(2)
Disregard subsection 842-210(3) (which is about certain amounts of an IMR foreign fund being disregarded) for the purposes of determining the *pre-2012 IMR income of the fund.
Pre-2012 IMR capital gain
842-270(3)
The
pre-2012 IMR capital gain
for an income year that is the 2010-11 income year or an earlier income year of an *IMR foreign fund is the sum of the fund
'
s *capital gains made in the income year in respect of *CGT assets that are *financial arrangements covered by section 842-245.
Subdiv 842-I inserted by No 126 of 2012, s 3 and Sch 1 item 1, applicable to assessments for the 2010-11 income year and later income years.
IMR concessions
SECTION 842-215
IMR concessions
Concessions relating to IMR financial arrangements
842-215(1)
The following consequences apply to an *IMR entity for an income year in relation to an *IMR financial arrangement if the requirements of subsection (3) or (5) are met in relation to the year:
(a)
what would otherwise be the entity
'
s assessable income for the year is *non-assessable non-exempt income of the entity, to the extent that it is attributable to a return or gain:
(i)
from the arrangement (if the arrangement is a *derivative financial arrangement); or
(ii)
from the entity disposing of, ceasing to own or otherwise realising the arrangement;
(b)
an amount is not deductible by the entity for the year, to the extent that it is attributable to an outgoing or loss:
(i)
from the arrangement (if the arrangement is a derivative financial arrangement); or
(ii)
from the entity disposing of, ceasing to own or otherwise realising the arrangement;
(c)
disregard a *capital gain or *capital loss that is from a *CGT event that happens in the year in relation to the arrangement.
Further concessions relating to permanent establishments
842-215(2)
Without limiting subsection (1), the following further consequences apply to an *IMR entity for an income year if the requirements of subsection (5) are met in relation to the year:
(a)
income that relates to or arises under the *IMR financial arrangement, and that would otherwise be the entity
'
s assessable income for the year, is *non-assessable non-exempt income of the entity, to the extent that the income:
(i)
if the entity is resident in a country that has entered into an *international tax agreement with Australia containing a *business profits article
-
is treated as having a source in Australia because it is attributable to a permanent establishment (within the meaning of the relevant international tax agreement) of the entity in Australia; or
(ii)
if subparagraph (i) does not apply
-
is treated as having a source in Australia because of subsection
815-230(1)
;
(b)
an amount is not deductible by the entity for the year, to the extent that it is attributable to gaining income that is non-assessable non-exempt income of the entity because of paragraph (a);
(c)
disregard a *capital gain or *capital loss that is from a *CGT event that relates to or arises under the IMR financial arrangement, and that happens in the year in relation to a *CGT asset that:
(i)
is covered by item 3 of the table in section
855-15
in relation to the entity; or
(ii)
is covered by item 4 of the table in section
855-15
in relation to the entity because it is an option or right to *acquire a CGT asset covered by item 3 of that table in relation to the entity.
Direct investment by IMR widely held entity
842-215(3)
The requirements of this subsection in relation to the year are that:
(a)
during the whole of the year, the *IMR entity is an *IMR widely held entity; and
(b)
during the whole of the year, the interest of the entity in the issuer of, or counterparty to, the *IMR financial arrangement does not pass the *non-portfolio interest test (see section
960-195
); and
(c)
none of the returns, gains or losses for the year from the arrangement are attributable to:
(i)
if the entity is a resident of a country that has entered into an *international tax agreement with Australia containing a *permanent establishment article
-
a permanent establishment (within the meaning of the relevant international tax agreement) of the entity in Australia; or
(ii)
otherwise
-
a *permanent establishment of the entity in Australia; and
(d)
the IMR entity does not, during the year, carry on in Australia a trading business (within the meaning of section
102M
of the
Income Tax Assessment Act 1936
) that relates (directly or indirectly) to the arrangement; and
(e)
subsection
842-225(2)
does not apply to the IMR financial arrangement.
842-215(4)
For the purposes of paragraph (3)(a), disregard any part of the year during which the entity did not exist.
Indirect investment through independent Australian fund manager
842-215(5)
The requirements of this subsection in relation to the year are that:
(a)
the *IMR financial arrangement was made, on the *IMR entity
'
s behalf, by an entity that is an *independent Australian fund manager for the IMR entity for the income year (see section
842-245
); and
(b)
if the issuer of, or counterparty to:
(i)
the IMR financial arrangement referred to in paragraph (a), if it is a *financial arrangement; or
(ii)
otherwise
-
the IMR financial arrangement to which that arrangement relates;
is an Australian resident, or a *resident trust for CGT purposes
-
during the whole of the year, the interest of the entity in the issuer or counterparty does not pass the *non-portfolio interest test (see section
960-195
); and
(c)
the IMR entity does not, during the year, carry on in Australia a trading business (within the meaning of section
102M
of the
Income Tax Assessment Act 1936
) that relates (directly or indirectly) to the arrangement.
Withholding taxes etc.
842-215(6)
If what would otherwise be the *IMR entity
'
s assessable income is *non-assessable non-exempt income of the entity because of subsection (1) or (2), for the purposes of determining an entity
'
s liability to pay, in relation to that income:
(a)
*withholding tax; or
(b)
an amount that must be withheld under Division
12
in Schedule
1
to the
Taxation Administration Act 1953
(even if the amount is not withheld);
assume that any *independent Australian fund manager for the IMR entity is not a *permanent establishment of the IMR entity.
842-215(7)
For the purposes of subparagraphs (2)(a)(i) and (3)(c)(i), an entity is taken to be a resident of a country that has entered into an *international tax agreement with Australia if the entity is such a resident within the meaning of that agreement.
History
S 842-215 substituted by No 70 of 2015, s 3 and Sch 7 item 1, effective 25 June 2015. For former wording, see note under Subdiv
842-I
heading.
S 842-215 inserted by No 126 of 2012, s 3 and Sch 1 item 1, applicable to assessments for the 2010-11 income year and later income years.
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