FRP Capital Brickworks Information Memorandum July 2023 - Flipbook - Page 23
Brickworks Marketplace
Tax
Information
Information Memorandum
in each year. Further, based on the proposed activities of the
Fund, it should only be undertaking “eligible investment business”
in the form of deriving rent from real property and other permissible
incidental activities. On this basis, under current tax law the Fund
should not have any liability for Australian income tax including
capital gains tax.
ISSUES AFFECTING THE CALCULATION
OF THE NET INCOME OF THE FUND
The taxation information provided below is a brief guide only and is
not intended to be tax advice. The following summary is intended for
Australian resident Investors and generally applies to Investors who
hold their investment for the purpose of realising a long-term return
and hold their investment in the Fund on capital account for
tax purposes.
The summary does not address the tax implications that may arise
for Investors that:
— acquire or hold their Units in the course of a business of trading
or dealing in securities or otherwise hold the Units on revenue
account or as trading stock;
— are exempt from Australian tax; or
— are non-residents or temporary residents of Australia.
Taxation issues are complex and taxation laws, their interpretation
and associated administrative practices may change over the term
of the Fund. The information contained in this section is of a general
nature only.
It is based on, and limited to, Australian tax law and practice in effect at
the date of this IM, subject to the comments provided below, regarding
certain proposed reforms. As the circumstances of each particular
Investor will vary, this IM cannot address all of the taxation issues
which may be relevant to a particular Investor. Each Investor must
take full and sole responsibility for their own investment in the Fund,
the associated taxation implications arising from that investment and
any changes in those taxation implications during the course of the
investment. Accordingly, prospective Investors should seek their own
tax advice which has regard to their own individual circumstances.
Under current tax law, the Fund should not be liable to pay Australian
income tax provided the Fund’s Investors are presently entitled to
all of the Fund’s taxable income in each year and the activities of the
Fund are limited to undertaking or controlling “an eligible investment
business” for Australian taxation purposes. It is expected that
Investors will be presently entitled to all of the Fund’s taxable income
The net income of the Fund for tax purposes will include interest
income and rental income derived from the Property less allowable
deductions such as expenses relating to rental income, capital
allowances deductions in respect of the Property, management
fees paid and other relevant expenses. The net income of the Fund
would also include net capital gain amounts realised on the sale
of the Property.
Managed investment schemes that fall within the tax definition of
a “Managed Investment Trust” (MIT) are able to make an election to
treat certain assets, such as real estate, as being on capital account
for tax purposes. It is intended that the Fund will make such an
election if it is eligible to do so. Whilst it is expected that the Fund
would be a MIT for tax purposes, this will depend, in part, on the
number and profile of Investors that hold Units in the Fund, which is
currently not known. Where an election is made, gains and losses
from the disposal of the Property will be subject to capital gains tax
regardless of whether they are held on revenue or capital account.
If an election is not able to be made for the Fund, it is nevertheless
expected that any gain on eventual disposal of the Property would be
a capital gain as it is the intention of the Fund to hold the Property to
derive long-term rental income.
TAX TREATMENT OF THE FUND
AUSTRALIAN TAX POSITION OF THE FUND
When an Investor becomes presently entitled to distributions
of income from the Fund during a particular financial year, the
corresponding proportion of the Fund’s net income for tax purposes
should be included in the Investor’s assessable income. Investors
will then be taxed on their portion of the Fund’s net income for tax
purposes at their relevant marginal tax rates. Investors will be entitled
to distributions as at 30 June of any given year and may not be paid
in cash until after that date, amounts may be assessable to investors
in respect of a particular financial year that are received in cash in a
subsequent year.
Where the Fund’s net income for tax purposes includes a capital gain
that has been discounted, Investors are required at first instance to
double their portion of the discounted gain to restore it to its gross
(pre-discount) amount and then to determine their own eligibility to
the CGT discount. Generally, the following rates of CGT discount
apply to the following particular types of Investors:
— Individuals or Trusts are eligible for a CGT discount of 50%
– this means that such Investors would include 50% of their
proportionate share of the gross (pre-discount) capital gain
amount in their assessable income;
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any subsequent tax deferred distributions. Such capital gains would
potentially be eligible for CGT discount treatment, depending on
whether the Investor has held the Units for at least 12 months.
If the Fund’s net income for tax purposes exceeds its distributions,
then an Investor will be taxed by reference to his or her share of net
income, not just the distribution to which they were entitled.
An annual tax statement will be provided to each Investor setting out
details of his or her proportionate share of the Fund’s net income for
tax purposes and other distribution components within 2 months of
the end of each financial year.
TAX LOSSES INCURRED BY THE FUND
The Fund will not be able to distribute any tax losses of a revenue
nature incurred in an income year. However, if certain tests can be
satisfied, the Fund will be able to carry forward those losses and use
them in a future income year to offset assessable income. Similarly,
capital losses cannot be distributed to investors but can be carried
forward indefinitely for offset against future capital gains. Specific
loss testing rules do not currently exist for capital losses.
TAX IMPLICATIONS OF DISPOSING OF UNITS
— Complying superannuation funds are eligible for a CGT discount
of one third – this means that such Investors would include two
thirds of their proportionate share of the gross (pre-discount)
capital gain in their assessable income; and
Generally, on disposal of Units a “CGT event” will occur and the
Investor will need to determine whether a capital gain or capital loss
has been realised. As a general rule, where the capital proceeds on
disposal of the Units are greater than the cost base of those Units,
an Investor will realise a capital gain.
— Companies are not eligible for any CGT discount – this means that
companies would include 100% of their proportionate share of the
gross (pre-discount) capital gain in their assessable income.
The cost base of an Investor’s Units will essentially be the purchase
price or issue price paid for the Units, plus any incidental costs on
acquisition or disposal, less any tax deferred distributions received.
The capital gain on disposal of the Property will be determined as
the consideration received on the disposal of the Property less the
tax cost base of the Property. Unless the Property has been held for
less than 12 months, the capital gain will be eligible for the 50% CGT
discount, which means that 50% of the capital gain generated at the
Fund level is included in the net income of the Fund for tax purposes.
Implications of the CGT discount at the Investor level are outlined.
The Fund may make cash distributions to Investors that exceed
the Fund’s net income for tax purposes. This excess may arise for
a number of reasons, including the application of the CGT discount
at the Fund level as well as the claiming of capital allowances and
other deductions at the Fund level that reduce the net income for
tax purposes.
Subject to satisfying certain integrity rules, any capital gain made by
an individual or Trust can generally be reduced by 50% if the individual
or Trust has held the Units for longer than 12 months. Similarly, any
capital gain made by a superannuation fund can generally be reduced
by one third if the Fund has held the Units for longer than 12 months.
Companies are not entitled to this CGT discount.
In the event that the consideration received on the disposal of a
Property is less than the tax cost base of the Property, a capital loss
would arise within the Fund. Capital losses can be offset against
other pre- discount capital gains generated within the Fund and can
be carried forward indefinitely within the Fund for that purpose, but
capital losses would not otherwise be claimable in determining the
net income of the Fund for tax purposes. Capital losses are not able
to be distributed to Investors.
To the extent that the excess relates to the CGT discount amount, this
distribution would generally be tax free and would not reduce the tax
cost base of an Investor’s Units. However, if the excess arises due to
other factors, such as the claiming of capital allowances, this excess
distribution would generally be treated as a “tax deferred” amount.
Tax deferred distributions are not generally assessable to Investors,
but reduce the Investor’s tax cost base of the Units. If the total taxdeferred distributions received by an Investor equals an Investor’s
cost base in his or her Units, then the cost base will be reduced to
nil and the Investor will realise a capital gain as a consequence of
An Investor will incur a capital loss if the capital proceeds on disposal
are less than the “reduced cost base” of the Units sold. The reduced
cost base of a Unit is commonly the same as the cost base. Any
capital loss incurred on the disposal can generally be used by the
Investor to offset capital gains realised from other sources. If a capital
loss cannot be utilised in the year in which it is realised, it may be able
to be carried forward to be used to offset capital gains realised in
future income years. Capital losses cannot be used to offset ordinary
income or gains.
