Inserts for
Tax Laws Amendment (2012 Measures No. 4) Bill 2012: FIN 48

EXPOSURE‑DRAFT (06/03/2012)

Commencement information	
Column 1	Column 2	Column 3	
Provision(s)	Commencement	Date/Details	
1.  Schedule	The day this Act receives the Royal Assent.		

Schedule—Investment manager regime
  
Income Tax (Transitional Provisions) Act 1997
1  After Division 840
Insert:
Division 842—Exempt Australian source income and gains of foreign residents
Subdivision 842‑I—Investment manager regime
842‑205  Commissioner to disregard certain amounts in respect of IMR foreign funds
	(1)	This section applies to an IMR foreign fund that is a corporate tax entity in relation to an income year.
	(2)	Subsections (3) and (4) apply in relation to an income year of the entity if:
	(a)	the income year is the 2010‑11 income year or an earlier income year; and
	(b)	the IMR foreign fund has IMR income, an IMR deduction, an IMR capital gain or an IMR capital loss in relation to the 2010‑11 income year or an earlier income year; and
	(c)	the fund has not lodged an income tax return in relation to the 2010‑11 income year, or an earlier income year, before the day this Subdivision commences; and
	(d)	the Commissioner did not, before 18 December 2010, make an assessment of the taxable income of the fund for any income year.
Note:	For the purpose of this Act, IMR income is defined in section 842‑220, IMR capital gain is defined in section 842‑225 and IMR capital loss is defined in section 842‑230. IMR deduction has the meaning given to that term in subsection 842‑235(2) of the Income Tax Assessment Act 1997.
Certain amounts disregarded
	(3)	In working out the IMR foreign fund’s taxable income, tax loss or net capital loss for the income year apply the following rules:
	(a)	treat the fund’s IMR income for the income year as non‑assessable non‑exempt income of the fund;
	(b)	disregard the fund’s IMR deduction for the income year;
	(c)	disregard the fund’s IMR capital gain for the income year;
	(d)	disregard the fund’s IMR capital loss for the income year.
Certain losses disregarded
	(4)	The IMR foreign fund cannot utilise a tax loss or net capital loss in any future income year to the extent the loss is attributable to IMR income, an IMR capital gain, an IMR deduction or an IMR capital loss of the entity.
Fraud
	(5) 	Subsection (3) does not apply if the Commissioner is of the opinion there has been fraud by the IMR foreign fund.
Audit or compliance review
	(6)	Subsection (3) does not apply if before 18 December 2010 the Commissioner notified the IMR foreign fund that an audit or compliance review would be undertaken.
842‑213  Treatment of non‑resident beneficiary that is not a trust or partnership
	(1)	This section applies in relation to an income year if:
	(a)	an entity is a beneficiary of a trust in relation to the income year; and
	(b)	the entity is neither:
	(i)	a resident of Australia at any time during the income year; nor
	(ii)	a trust or partnership at any time during the income year; and
	(c)	the income year is the 2010‑11 income year or an earlier income year; and
	(d)	the entity has not lodged an income tax return in relation to the 2010‑11 income year, or an earlier income year, before the day this Subdivision commences; and
	(e)	the Commissioner did not, before 18 December 2010, make an assessment of the taxable income of the entity for any income year.
Note:	A trust that is an IMR foreign fund is subject to the general tax rules that apply to trusts: see Division 6 of Part III of the Income Tax Assessment Act 1936.
	(2)	In working out the entity’s taxable income, tax loss or net capital loss for the income year:
	(a)	calculate the trust’s non‑IMR net income in relation to the income year; and
	(b)	for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936, replace the entity’s share of the trust’s net income in relation to the income year with that same share of the non‑IMR net income of the trust for the income year; and
	(c)	for the purposes of subsection 98A(1) of that Act, replace the reference to the individual interest of the beneficiary in the net income of the trust with a reference to the individual interest of the beneficiary in the non‑IMR net income of the trust.
Non‑IMR net income
	(3)	The trust’s non‑IMR net income in relation to the income year is determined by calculating the net income of the trust for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 on the following assumptions:
	(a)	disregard IMR income, IMR capital gains, IMR deductions and IMR capital losses of the trust in relation to the income year;
	(b)	if the trust is a partner in a partnership, or a beneficiary of another trust—assume that:
	(i)	its individual interest in the net income or partnership loss of the partnership (if any) is replaced with its individual interest in the non‑IMR partnership net income or non‑IMR partnership loss of the partnership; and
	(ii)	disregard the trust’s capital gains and capital losses made in respect of financial arrangements covered by section 842‑245 of the Income Tax Assessment Act 1997 of an IMR foreign fund; and
	(iii)	its share of the net income of the trust (if any) is replaced with its share of the non‑IMR net income of the trust.
Note:	The non‑IMR net income of the trust is used to determine the amount that is included in the assessable income of the entity referred to in subsection (1). The trust’s non‑IMR net income does not impact the share of the net income of an entity that is not covered by subsection (1). For example, this will be the case if the entity is an Australian resident at any time in the income year.
Fraud
	(4) 	Subsection (2) does not apply if the Commissioner is of the opinion there has been fraud by the entity or the IMR foreign fund.
Audit or compliance review
	(5)	Subsection (2) does not apply if before 18 December 2010 the Commissioner notified the entity or the IMR foreign fund that an audit or compliance review would be undertaken.
842‑216  Treatment of a non‑resident partner that is not a trust or partnership
	(1)	This section applies in relation to an income year if:
	(a)	an entity is a partner in a partnership in relation to the income year; and
	(b)	the entity is neither:
	(i)	an Australian resident at any time during the income year; nor
	(ii)	a trust or a partnership at any time during the income year; and
	(c)	the income year is the 2010‑11 income year or an earlier income year; and
	(d)	the entity has not lodged an income tax return in relation to the 2010‑11 income year, or an earlier income year, before the day this Subdivision commences; and
	(e)	the Commissioner did not, before 18 December 2010, make an assessment of the taxable income of the entity for any income year.
Note:	A partnership that is an IMR foreign fund is subject to the general tax rules that apply to partnerships: see Division 5 of Part III of the Income Tax Assessment Act 1936.
	(2)	In working out the entity’s taxable income, tax loss or net capital loss for the income year:
	(a)	calculate the partnership’s non‑IMR partnership net income or non‑IMR partnership loss in relation to the income year; and
	(b)	for the purposes of Division 5 of Part III of the Income Tax Assessment Act 1936, replace the entity’s individual interest in the partnership’s net income or partnership loss (as the case may be) with that same interest in the non‑IMR partnership net income or non‑IMR partnership loss of the partnership (as the case may be); and
	(c)	disregard the entity’s capital gains and capital losses made in respect of financial arrangements covered by section 842‑245 of the Income Tax Assessment Act 1997 of an IMR foreign fund.
Non‑IMR partnership net income and non‑IMR partnership loss
	(3)	The partnership’s non‑IMR partnership net income or non‑IMR partnership loss in relation to the income year is determined by calculating the net income or partnership loss of the partnership for the purposes of Division 5 of Part III of the Income Tax Assessment Act 1936 as follows:
	(a)	disregard *IMR income and *IMR deductions of the partnership in relation to the income year;
	(b)	if the partnership is a partner in another partnership, or a beneficiary of a trust—assume that:
	(i)	its individual interest in the net income or partnership loss of the partnership (if any) is replaced with its individual interest in the non‑IMR partnership net income or non‑IMR partnership loss of the partnership;
	(ii)	disregard the partner’s capital gains and capital losses made in respect of financial arrangements covered by section 842‑245 of the Income Tax Assessment Act 1997 of an IMR foreign fund; and
	(iii)	its share of the net income of the trust (if any) is replaced with its share of the non‑IMR net income of the trust.
Note:	The non‑IMR partnership net income of the partnership is used to determine the amount that is included in the assessable income of the entity referred to in subsection (1). The partnership’s non‑IMR net income does not impact an entity’s individual interest in the net income of a partnership if the entity is not covered by subsection (1). For example, this will be the case if the entity is an Australian resident at any time in the income year.
Fraud
	(4) 	Subsection (2) does not apply if the Commissioner is of the opinion there has been fraud by the entity or the IMR foreign fund.
Audit or compliance review
	(5)	Subsection (2) does not apply if before 18 December 2010 the Commissioner notified the entity or the IMR foreign fund that an audit or compliance review would be undertaken.
842‑220  IMR income
		The IMR income of an IMR foreign fund for an income year is the amount of the fund’s assessable income for the income year to the extent that it is attributable to a return or gain from a financial arrangement covered by section 842‑245 of the Income Tax Assessment Act 1997.
842‑225  IMR capital gain
		The IMR capital gain of an IMR foreign fund for an income year is the sum of the fund’s capital gains made in the income year in respect of a CGT asset that is a financial arrangement covered by section 842‑245 of the Income Tax Assessment Act 1997.
842‑230  IMR capital loss
		The IMR capital loss of an IMR foreign fund for an income year is the sum of the fund’s capital losses made in the income year in respect of a CGT asset that is a financial arrangement covered by section 842‑245 of the Income Tax Assessment Act 1997.

Note: Provisions will be drafted to ensure that a trust that has a tax loss in respect of its non‑IMR net income will only be able to claim a deduction in future years in respect of that loss to the extent that the loss offsets other non‑IMR net income.

Note: Provisions will be drafted to ensure that subsections 98(2A), (3) and (4), and sections 99, 99A and 99E of Part III of the Income Tax Assessment Act 1936 do not give rise to tax in respect of IMR income or IMR capital gains.

Note: These provisions will be redrafted to ensure that this Subdivision interacts correctly with Division 6E of Part III of the Income Tax Assessment Act 1936 which deals with assessable amounts in relation to capital gains, franked distributions and franking credits.