ATO Interpretative Decision
ATO ID 2003/73
Income Tax
Trading trust: Trading Business - Eligible Investment BusinessFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is a resident unit trust deriving income from rent and the provision of secretarial services, a 'trading trust' for the purposes of section 102N of Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. A resident unit trust deriving income from rent and the provision of secretarial services, is a 'trading trust' for the purposes of section 102N of Division 6C of the ITAA 1936.
Facts
A resident unit trust, carries on a business which consists of leasing premises from a third party, providing these premises as fitted out premises for rent, and providing secretarial services to the tenants of these premises.
The trust derives its income from renting the premises, and from the provision of secretarial services to the tenants.
The income derived from the provision of secretarial services to tenants represents approximately 25% of the total income derived by the trust each year.
Reasons for Decision
Division 6C of the ITAA 1936 is concerned with the income of certain public trading trusts. Section 102N of the ITAA 1936 defines what is meant by a 'trading trust' for the purposes of Division 6C of the ITAA 1936. A 'trading trust' is defined to include a unit trust that carries on a 'trading business' at any time during the year of income (paragraph 102N(a) of the ITAA 1936).
Section 102M of the ITAA 1936 defines 'trading business' to mean a business which does not consist wholly of 'eligible investment business'. The term 'eligible investment business' is also defined in section 102M of the ITAA 1936 and includes 'investing in land for the purpose, or primarily for the purpose, of deriving rent'.
The provision of secretarial services to tenants is an activity distinct from, and not properly part of, the 'eligible investment business' of investing in land for the purpose, or primarily for the purpose, of deriving rent. Therefore, the business of the trust does not consist wholly of 'eligible investment business'. Therefore the trust is carrying on a 'trading business' for the purposes of section 102M of the ITAA 1936.
Accordingly the resident unit trust is a 'trading trust' under section 102N for the purposes of Division 6C of the ITAA 1936.
Date of decision: 11 December 2002Year of income: Year ended 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
Division 6C
section 102M
section 102N
paragraph 102N(a)
Keywords
Eligible investment business
Public trading trusts
Trading trusts
ISSN: 1445-2782