Private ruling: Commissioner's discretion under subsection 12-405(5) of Schedule 1 to the Taxation Administration Act 1953 (TAA)
Date of advice: 7 October 2015
Published: October 2015
Ruling period: For the income year 1 January 2014 to 31 December 2014
Date scheme commenced: 1 January 2014

Ruling: Q1: Will the Commissioner exercise his discretion pursuant to subsection 12-405(5) of Schedule 1 to the TAA to grant an extension of time? | A1: Yes.

Relevant facts and circumstances: The taxpayer (the Trust) satisfies the definition of a Managed Investment Trust (MIT) under section 12-400 of Schedule 1 to the TAA. The Trust is an Australia resident which derives income from passive investment in property. The Trust did not make distributions to its beneficiaries, being unitholders with address outside Australia, before the expiration of 3 months after the end of the income year. The delay was caused by lack of critical information from third party.

Relevant legislative provisions: Section 12-405 Taxation Administration Act 1953 | Subsection 12-405(4) Taxation Administration Act 1953 | Subsection 12-405(5) Taxation Administration Act 1953

Reasons for decision: Summary: 1. Subdivision 12-375 of Schedule 1 of the TAA sets out the circumstances in which the trustee of a management investment trust (MIT) is required to withhold an amount from payments that are made to non-residents which are from the MIT's Australian sourced income. 2. Broadly, subsection 12-385(1) and section 12-410 together provide that a trustee of a MIT must withhold an amount from a fund payment to a recipient who has an address outside of Australia. 3. Section 12-405 provides the meaning of the term 'fund payment'. Subsection 12-405(4) provides that an amount is not a 'fund payment' in relation to an income year unless it is paid: a) during the income year; or b) within 3 months after the end of the income year; or c) within a longer period (starting at the end of the period referred to paragraph (b) and not exceeding 3 months) allowed by the Commissioner. 4. The Commissioner may exercise his discretion to extend the period for which a payment can be made by the trustee of a MIT for the maximum period of 3 months after 31 March 2014 under paragraph 12-405(5) of Schedule 1 to the TAA only if he is of the opinion that the delay was due to circumstances beyond the influence or control of the trustee. 5. The Explanatory Memorandum (EM) to the Tax Laws Amendment (Election Commitments No. 1) Bill 2008 provides the following example at paragraph 1.62 of a circumstance that is considered to be beyond the influence or control of the trustee: An example of a circumstance where an extension of the time period may be warranted is where an unrelated trust, in which the trustee of the managed investment trust had made an investment, has not provided sufficient information about the constituent parts of a distribution made to the managed investment trust, despite all reasonable efforts by the trustee of the managed investment trust to obtain that information. Without this information, the managed investment trust is unable to accurately calculate its net income. 6. Where a payment satisfies the definition of a 'fund payment', subparagraph 12-385(3)(a)(iv) provides that the rate of withholding to be withheld by the trustee is 15%. However, if the payment does not satisfy the definition of 'fund payment', Division 6 of the Income Tax Assessment Act 1936 (ITAA 1936) will apply (rather than the withholding tax rules). 7. Specifically, subsection 98(2A) of the ITAA 1936 broadly states that if a non-resident beneficiary is presently entitled to income of the trust estate than subsection 98(3) will apply such that the trustee is liable to tax on the net income at a rate declared by Parliament (which is 48.5% for the 2014 income year). 8. Consequently, whether a payment made by an MIT meets the definition of 'fund payment' is relevant as it will influence the amount of tax either withheld by the trustee or paid by the trustee. 9. The Commission considers that your circumstances are similar to the example provided in the EM, in which the delay was caused by lack of critical information from third party. Accordingly, the Commissioner will exercise his discretion pursuant to subsection 12-405(5) of Schedule 1 to the TAA.

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