ATO Interpretative Decision
ATO ID 2002/750
Income Tax
Superannuation Fund - vested and indefeasible interest in a trust.FOI status: may be released
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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does the trustee of the Superannuation Fund have a vested and indefeasible interest in the Unit Trust under subsection 160APHL(11) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No, the trustee of the Superannuation Fund does not have a vested and indefeasible interest under subsection 160APHL(11) of the ITAA 1936 in the Unit Trust.
Facts
The Superannuation Fund is a complying superannuation fund with only two members, husband and wife.
The Superannuation Fund owns (and has always owned) 100% of the issued units in the Unit Trust.
In the trust deed of the Unit Trust, upon termination of the trust, the trustee can use their discretion to pay or apply the whole or any part of the trust fund to all or any one of the discretionary beneficiaries with the approval of all the Ordinary Unit holders.
The trustee of the Unit Trust has the power with the unanimous approval of unit holders (except special unit holders) to issue special units at a price the trustee thinks fit. The trustee may redeem special units at any time for a value of one dollar.
Reasons for Decision
Under subsection 160APHL(11) of the ITAA 1936 the beneficiary's interest in the trust holding is a fixed interest to the extent that the interest is constituted by a vested and indefeasible interest in so much of the corpus of the trust as is comprised by the trust holding.
An interest may be defeasible if it is redeemable for less than its value, or if its value can be materially reduced by the creation of other interests in the trust. The interest is not defeasible where the units held by the taxpayer in a unit trust will be redeemed, or any further units will be issued, for a price determined on the basis of the unit trust's net asset value, according to Australian accounting principles, at the time of the redemption or issue.
In the trust deed of the Unit Trust, upon termination of the trust, the trustee can use their discretion to pay or apply the whole or any part of the trust fund to all or any one of the discretionary beneficiaries with the approval of all the Ordinary Unit holders.
The trustee also has the power with the unanimous approval of Unit holders (except Special unit holders) to issue special units at a price the trustee thinks fit. The trustee may redeem Special Units at any time for a value of one dollar.
The unit holders' interests in the corpus are not vested and indefeasible as the trustee has the discretion, with all the ordinary unit holders' consent, to issue special units at a price the trustee thinks fit and distribute capital to one or all discretionary beneficiaries.
The Superannuation Fund's interest in the corpus of the Unit Trust is not a fixed interest, as the Superannuation Fund does not have a vested and indefeasible interest in the corpus of the Unit Trust.
Date of decision: 3 May 2002Year of income: Year ending 30 June 2002
Legislative References:
Income Tax Assessment Act 1936
subsection 160APHL(11)
Related Public Rulings (including Determinations)
Taxation Determination TD 2007/11
ATO ID 2002/749
Keywords
Superannuation funds
Interposed entity election
Family trust distribution tax
Imputation credits
ISSN: 1445-2782
| Date: | Version: | |
| You are here | 3 May 2002 | Original statement |
| 21 March 2014 | Archived |
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