Facts
Scenario A:
Company C is an operating company and a base rate entity.
Company C pays dividends to Trust T (its sole shareholder).
Trust T distributes the dividend to Corporate Beneficiary B.
Corporate Beneficiary B’s sole purpose is to receive trust distributions.
Scenario B:
Trust T is an operating trust and a base rate entity.
Trust T distributes to Corporate Beneficiary B.
Corporate Beneficiary B’s sole purpose is to receive trust distributions.
Question
Is Corporate Beneficiary B a base rate entity?
Answer
Scenario A - No.
Scenario B – Yes.
Tax Tip
Scenario A:
Dividends are generally base rate entity passive income (BREPI).
Except, non-portfolio dividends are not BREPI.
A non-portfolio dividend is one paid to a shareholder (that is a company) that holds at least 10% of voting power (see section 317 ITAA 1936).
Corporate Beneficiary B, through the trust distribution, receives the dividends but is not paid the dividend from Company C because the dividend was paid to Trust T (see paragraph 20 LCR 2019/5).
The non-portfolio dividend exception does not apply and the dividend is BREPI.
Corporate Beneficiary B’s sole purpose is to receive trust distributions.
Therefore, Corporate Beneficiary B’s income is 100% BREPI.
Corporate Beneficiary B is not a base rate entity.
Scenario B:
BREPI includes assessable income of a beneficiary of a trust, to the extent it is referable to an amount that is otherwise BREPI (see section 23AB of the Income Tax Rates Act 1986 (Cth)).
Trust T is a base rate entity (assume its BREPI is a maximum 80%).
Therefore, the trust distribution has 80% BREPI.
Corporate Beneficiary B’s sole purpose is to receive trust distributions.
Therefore, Corporate Beneficiary B’s income, being the trust distribution, is referable to 80% BREPI.
Corporate Beneficiary B is a base rate entity.
If you would like to receive up to date tax tips directly to your email, subscribe below.
Comments