ATO ID 2001/647: Assessable Income - Reinvestment of Unit Trust Distributions
Date of decision: 5 September 2001
Year of income: Year ended 30 June 2001
Business line: Business and Personal Taxes

Issue
Has the taxpayer derived assessable income, pursuant to sections 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997), in respect of a unit trust distribution that was automatically reinvested on the taxpayer's instructions into additional units in the unit trust?

Decision
Yes. The taxpayer derived assessable income in respect of a unit trust distribution that was automatically reinvested into additional units in the unit trust. The income was applied or dealt with as the taxpayer directed.

Facts
The taxpayer, an Australian resident, invested in a unit trust. The unit trust paid regular distributions to the taxpayer during the income year. The distribution consisted of income in the form of interest and dividends. In accordance with the taxpayer's instructions, the net amount distributed was automatically reinvested into additional units in the unit trust. Each time a distribution was made, the trust unit holder received a statement which disclosed the amount of the trust distribution and the number of additional units acquired by the taxpayer from the income distribution. After the end of the income year, the taxpayer received a trust unit holder statement with details of the net amount distributed, tax credit (if any), imputation credits (if any) and gross assessable income paid to the taxpayer during the preceding income year.

Reasons for decision
Summary: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly from all sources during the income year. An example of ordinary income is interest income . Subsection 6-5(4) of the ITAA 1997 states that a taxpayer derives an amount of ordinary income when the amount is: The taxpayer receives a trust distribution consisting of ordinary income. The taxpayer acquires additional units in the unit trust from the proceeds of the distribution from the trust. Accordingly, when the taxpayer directs the trustee of the unit trust to reinvest the taxpayer's distribution into additional units in the unit trust, the taxpayer is taken to have received the trust distribution during the relevant year and derived assessable income pursuant to sections 6-5 of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 section 6-5 subsection 6-5(2) subsection 6-5(4)
Subject references: dividend unit trust distributions reinvestment