ATO ID 2009/155: Beneficiary of a managed investment trust
Date of decision: 3 December 2009
Year of income: Year ended 30 June 2009
Business line: Public Groups and International

Issue
Is the recipient of a fund payment liable to pay managed investment trust withholding tax under subsection 840-805(1) of the Income Tax Assessment Act 1997 (ITAA 1997) where the recipient participated in a capital raising arrangement under a specific capital instrument?

Decision
Yes. The recipient of a fund payment is liable to pay managed investment trust withholding tax under subsection 840-805(1) of the ITAA 1997 where the recipient participated in a capital raising arrangement under a specific capital instrument where the terms of the instrument result in the recipient being a beneficiary of the managed investment trust.

Facts
A foreign resident (the investor) contributed funds to an Australian unit trust under a capital raising instrument. The investor contributed the funds on their own behalf, and not as trustee of another trust. The capital raising instrument carries an entitlement to payment of 10% per annum on the face value of the security and payment is at the absolute discretion of the payer. Under the terms of the capital raising instrument, the investor has a beneficial interest in the trust. The investor is paid the first payment in relation to the current income year. The payment is a fund payment as defined in subsection 12-405(1) of Schedule 1 to the Taxation Administration Act 1953 (TAA) in relation to the current income year. At the time that the payment is made:

Reasons for decision
Summary: A person is liable to pay managed investment trust withholding tax under subsection 840-805(1) of the ITAA 1997 where subsection 840-805(2) of the ITAA 1997 is satisfied. The requirements of subsection 840-805(2) are: The investor is paid an amount by the unit trust in relation to the current income year. Unit trust is a managed investment trust in relation to the current income year because, at the time that the payment is made: The payment is a fund payment in relation to the current income year. The investor is a foreign resident when they are paid the amount. The investor is a beneficiary of the unit trust. The investor is paid the amount in respect of the capital raising instruments which gives rise to the beneficial interest in the trust; therefore the investor is a beneficiary in respect of the amount paid. The investor is not paid the amount in the capacity of trustee of another trust. As all of the requirements of subsection 840-805(2) of the ITAA 1997 are met, the investor is liable to pay managed investment trust withholding tax on the payment under subsection 840-805(1) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 840-805(1) subsection 840-805(2)
Subject references: Beneficiaries Investment trusts