Private ruling: Assessability of dividend
Date of advice: 30 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q2: Is the amount identified as ‘other non-assessable income’ in your tax distribution statement assessable? Answer: No.

Relevant facts and circumstances: You purchased units in a foreign managed investment trust (the fund) at the initial public offering price when listed in the ASX more than 10 years ago. Every year you received dividends by way of a distribution reinvestment plan. You declared the dividends as foreign source income in your tax return each year. After 10 years the amount of units you held had almost doubled. The fund voted to be wound up due to its poor performance and the majority of the capital was returned to its shareholders. You received three distributions for the relevant period. All distributions had similar announcements from the management of the fund. As an example, one announcement advised the final calculation of the fund’s distributable income for the relevant year. In this announcement the management identified distribution of income (Ordinary Distribution) per unit and a Special Distribution per unit. On the distribution statements: ● The total Ordinary Distributions for the year included Australian interest income and foreign income (foreign interest, foreign dividends and other foreign income). ● The Special Distributions for the year comprised capital gains and a component of tax deferred/return of capital amounts. Your tax distribution statement for the relevant year itemised the components of the distributions you received from units held in the fund into the following categories: Australian income Interest income Non-primary production Foreign income Assessable foreign source income Attributed controlled foreign Company (CFC) income Capital gains Capital gains: discounted method Capital gains: other method CGT concession amount Distributed capital gains/Net capital gains Other non-assessable amounts Tax deferred/Return of capital amounts Distributions before withholding Less tax file number (TFN) amounts withheld Less non-resident withholding tax Net distributions You have received further Ordinary and Special Distributions.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 6(1) | Income Tax Assessment Act 1936 Section 44(1) | Income Tax Assessment Act 1936 Section 47(1) | Income Tax Assessment Act 1936 Subsection 102L(10) | Income Tax Assessment Act 1997 Section 995-1

Reasons for decision: Summary: The assessable income of an Australian resident taxpayer includes ordinary income derived during the income year from all sources, whether in or out of Australia. A distribution of income from a managed investment trust falls within this category and is included in your assessable income. The fund voted to be wound up due to its poor performance and the majority of the capital was returned to its shareholders. The fund’s management confirmed the final calculation of its distributable income for the year was to be paid on a pro rata basis to unitholders. The distribution was to include an ‘Ordinary Distribution’ which comprised the fund’s distribution of income and a ‘Special Distribution’ which consisted of distribution of the fund’s capital. You received a distribution and a tax distribution statement for the relevant year that identified both assessable and non-assessable elements. Your statement itemised the components of the distribution you received from units held in the fund for that year as follows: | Detailed Reasoning - Australian income: Interest income Non-primary production | Detailed Reasoning - Foreign income: Assessable foreign source income Attributed controlled foreign Company (CFC) income | Detailed Reasoning - Capital gains: Capital gains: discounted method Capital gains: other method CGT concession amount Distributed capital gains/Net capital gains | Detailed Reasoning - Other non-assessable amounts: Tax deferred/Return of capital amounts | Detailed Reasoning - Distributions before withholding: Less tax file number (TFN) amounts withheld Less non-resident withholding tax | Detailed Reasoning - Net distributions: The ‘Ordinary Distribution’ paid to you in respect of the units you hold represented income of the fund and was assessable to you. The ordinary distribution included Australian interest income (assessable) and the assessable foreign source income component which is made up of foreign interest, foreign dividends and other foreign income and is also assessable. The ‘Special Distribution’ comprised ‘tax deferred/return of capital amounts’ which are non-assessable payments in relation to your units that are not included as assessable income. These non-assessable distributions may adjust the cost base of your units for capital gains tax (CGT) purposes. If these non-assessable distributions exceed the cost base of your units, any excess amount will be a capital gain and the cost base of your units will be reduced to zero. | Detailed Reasoning - Conclusion: According to your tax distribution statement you received an amount made up of ‘income’ derived by the fund which is assessable to you. The amount that comprised tax deferred/return of capital amounts is not assessable until the cost base of your units is reduced to zero.

Question 1: Is the amount identified as ‘assessable foreign source income’ in your tax distribution statement assessable?