Private ruling: Assessable Income
Published: June 2012
Ruling period: Year ended 30 June 2011 | Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the rebate of trail commissions received in relation to your investment in a superannuation fund assessable income in your hands? | A1: Yes

Relevant facts and circumstances: You have a superannuation fund. You appointed Y to be your nominated broker for your existing superannuation fund, which continued to be your only superannuation fund. You authorised Y to collect trail commissions paid by your superannuation fund. Y indicated that they will rebate to you, on an annual basis, a proportion of the trail commissions that they receive from your superannuation fund. Management costs, which include trail commissions, are paid out of the earnings of the superannuation fund.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 97 | Income Tax Assessment Act 1997 section 6-5

Reasons for decision: Summary: Commission income which is paid regularly under an agreement or understanding is regarded as income under ordinary concepts and is assessable under section 6-5 of the Income Tax Assessment Act 1997. Taxation Ruling TR 93/36 states that commission income which is received by an intermediary authority from an investment fund (other than an initial service fee or entry fee) and then passed on to the investor under an obligation or liability, is assessable in the hands of the investor. TR 93/36 states that if an investment advisor is legally entitled to receive a commission from an investment fund in relation to the capital of an investor but is under an obligation to pay that commission to the investor, the commission is received on behalf of the investor. The Ruling states that in those circumstances the commission is trust income, and is subject to the provisions of Division 6 of the Income Tax Assessment Act 1936 (ITAA 1936). Under section 97 of Division 6 of the ITAA 1936, a beneficiary who is not under a legal disability (that is, who is not a minor, bankrupt or insane) and is presently entitled to a share of the income of the trust, shall include that share of the net income of the trust as assessable income. You have appointed Y to be your broker for your superannuation fund. Y is entitled to receive trail commissions paid by your superannuation fund. Y has an obligation to you, to rebate a proportion of the trail commissions received from your superannuation fund. This places Y in the position of trustee as discussed in TR 93/36. A management cost, which is an ongoing fee to cover operating costs, including the trail commission paid to Y is charged by your superannuation fund to manage your superannuation fund. This charge is deducted from the income or growth of your superannuation fund. The ongoing management charge is deducted from the income of the superannuation fund prior to it being allocated to your superannuation fund. Only the 'net' amount of the income earned by your superannuation fund is assessed, that is, only the amount after the management charge has been deducted. As the management charge, which includes the trail commission is not assessed with the net income of the superannuation fund, the trail commission will be assessable income in the hands of the recipient. In your case, the amount retained by Y will be assessable income in their hands and the amount Y rebates to you will be assessable income in your hands.

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