The issue was raised at the March 2006 meeting of the NTLG, and referred to the newly formed Trust Consultation Sub-group (TCSG) for discussion at a meeting in May 2006.
The ATO advised the TCSG at its November 2006 meeting that, after consideration by the Public Rulings Panel, even on a purposive and contextual interpretation of the actual words used in the legislation, it could not reach an interpretative position that aligned with industry expectations. The indefeasibility requirement as interpreted by the ATO is significant in that respect. The views of the Rulings Panel on this point were closely aligned with those of the ATO.
Regard must be had to the saving rule in subsection 272-5(2) and/or the discretion in subsection 272-5(3) to determine whether in a particular case a beneficiary may be considered to have a fixed entitlement.
In applying the discretion, the ATO would have regard to what the Office understands was the policy that underlay the provisions at the time they were enacted. The Commissioner would also have to apply the statutory tests having regard to the terms of the particular trust deeds and all the surrounding circumstances. Where, however, a trust is a unitized trust registered as a managed investment scheme under the Corporations Act 2001 with a single class of unit holders who deal with the responsible entity on an arm's length basis, the nature of the trust would be one that would weigh in favour of an exercise of the discretion.
For unit trusts whose units are listed for quotation in the official list of an Australian 'approved stock exchange' (as defined in the Income Tax Assessment Act 1997), and where both the trust and the exchange are subject to the Corporations Act 2001, it would only be in exceptional circumstances that the Commissioner would not exercise the discretion in subsection 272-5(3) of Schedule 2F to the Income Tax Assessment Act 1936.
For unlisted unit trusts (including those that are not registered managed investment schemes for the purposes of the Corporations Act 2001) with a single class of units on issue, it would generally be expected that the Commissioner would exercise the discretion on a year by year basis or for a certain point in time (depending on the relevant legislative provision) provided that, for the relevant year or time:
(a) any issue or redemption of units was actually done at a price determined on the basis of the net asset value at the time of the redemption or issue (that is, the price does not necessarily have to equate precisely to the net asset value, provided that the deviation from that value does not unduly favour or prejudice particular unit holders, is done in the best interests of all unit holders, complies with any relevant ASIC relief, and the Commissioner considers the extent of the deviation to be reasonable in all the circumstances); and
(b) no amendments have been made to the trust's constitution that have had the effect of significantly defeasing a beneficiary's interest in the income or capital of the trust.
For trusts not covered above, the Commissioner may exercise the discretion depending on the specific facts and circumstances.
If a trust is said not to have fixed entitlements, that does not mean that its losses cannot be offset; other tests will be relevant in determining whether or not they can be.
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