Income Tax Act 2007 section 809FZB

Income-based carried interest: general rule

Section 809FZB establishes the general rule for determining what proportion of carried interest arising from an investment scheme is treated as income-based carried interest, based on the scheme's average holding period.

• Income-based carried interest is the "relevant proportion" of carried interest arising to an individual from an investment scheme, determined by how long the fund holds its investments on average.
• If the average holding period is less than 36 months, 100% of the carried interest is treated as income-based; this proportion then tapers down by 20 percentage points for each additional month.
• Once the average holding period reaches 40 months or more, none of the carried interest is classified as income-based, meaning it would all be taxed as a capital gain instead.
• This general rule is subject to further provisions elsewhere in the same Chapter, which may modify how it applies in specific circumstances.