| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private ruling
Authorisation Number: 1011640480676
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Subject: Unit Trust - Fixed Entitlement
Question 1
Does the Commissioner consider it fair and reasonable to treat the Company as holding, at each of the test times from 1 January 2008 to 31 December 2009, the whole or part of its fixed entitlement to the income and capital of the Trust as an individual and for the individual's own benefit pursuant to subsection 272-30(3) of Schedule 2F of the Income Tax Assessment Act 1936 ('ITAA 1936')?
Answer
Yes
Relevant facts
The Trust is not quoted on the official list of approved exchanges. The Trust is an 'unlisted widely held trust' as defined in section 272-110 of Schedule 2F to the ITAA 1936 at all times during the test period.
The Trust, since its establishment has had two non-resident beneficiaries. The beneficiaries are subsidiaries of the Company which is a publically listed company.
The top 50 shareholders in the Company are institutional shareholders and no institutional shareholder held more than 5% of the shares in the Company in each of the test periods. There has been no abnormal trading in the Trust.
Relevant legislative provisions
Income Tax Assessment Act 1936 Schedule 2F Section 272-30
Reasons for decision
The Trust is an unlisted widely held trust.
Subsection 266-75(3) of the ITAA 1936 provides that the Trust cannot claim a tax loss unless it meets the conditions in section 266-90 of the ITAA 1936.
Subsection 266-90(1) of the ITAA 1936 requires that, for the Trust to satisfy section 226-90, it must pass the 50% stake test in respect of the following times:
§ the beginning of the test period;
§ immediately after,
o any abnormal trading in the trust's units; and
o the end of every income year during the test period.
Subdivision 269-B of Schedule 2F of the ITAA 1936 defines 'abnormal trading'. The Trust has not experience abnormal trading in accordance with subdivision 269-B of Schedule 2F of the ITAA 1936.
Section 269-50 of the ITAA 1936 explains what it means to have more than 50% stake of the income and capital of the trust.
More than a 50% stake in income
269-50(1)
If there are individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the income of a trust, those individuals have more than a 50% stake in the income of the trust.
More than a 50% stake in capital
269-50(2)
If there are individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the capital of the trust, those individuals have more than a 50% stake in the capital of the trust.
Under subsection 269-55(1) of the ITAA 1936 the 50% stake test will be passed if, at all times during a period or at 2 times:
(a) the same individuals have more than a 50% stake in the income of the Trust; and
(b) the same individuals (who may be different from those in paragraph (a) above) have more than a 50% stake in the capital of the Trust.
Subsection 269-55(2) of the ITAA 1936 states that if a trust is a widely held unit trust, it is taken to pass the 50% stake test for the period in question if it is reasonable to assume that the requirements of subsection 269-55(1) of the ITAA 1936 are met. However, this provision is conditional on there being fixed entitlement by the individuals.
Where an interposed listed public company, at the test time, has directly or indirectly, a fixed entitlement to a share of the income or capital of the main entity (the Trust), then subsection 272-30(3) of ITAA 1936 provides that the company is treated as holding, at the test time, the whole or part of its fixed entitlement as an individual and for the individual's benefit if the Commissioner considers it fair and reasonable to the treat the company as so holding the whole or part of its fixed entitlement.
The Applicant has sought from the Commissioner, under subsection 272-30(3) of the ITAA 1936, to consider it fair and reasonable to treat the Company as holding, at the test times, the whole or part of its fixed entitlement as an individual and for the individual's own benefit.
Subsection 272-30(4) of the ITAA 1936 provides a list of matters the Commissioner is required to have regard to in considering whether the discretion is exercised for the purposes of paragraph 272-30(3)(b) of the ITAA 1936.
Paragraphs 13.43 and 13.44 of the Explanatory Memorandum to Taxation Law Amendment (Trust Loss and other Deductions) Bill 1997 (Cth) (EM), in reference to subsections 272-30(3) and (4) of the ITAA 1936 states as follows:
13.43 There are considerable practical difficulties in tracing interests in or through listed public companies, because of the large number of shareholders and the likelihood that individuals will not hold shares in the listed public company directly. Similar problems arise for widely held unit trusts. The main problem is that it may be difficult, in particular cases, to identify all the direct and indirect holders of fixed entitlements in those entities.
13.44 A provision has been included in the Bill to assist in overcoming difficulties in appropriate cases. This provision will allow the Commissioner to treat all or part of the fixed entitlements in a trust (or interposed entity where relevant) held, directly or indirectly, by a listed public company or widely held unit trust as being held by that company or trust as an individual for its own benefit.
The EM acknowledges that there are considerable practical difficulties in tracing interests through listed public companies to the individual shareholders due to the large number of shareholders and the likelihood that individuals will not hold shares in the listed company directly. Therefore, the Commissioner is empowered under subsection 272-30(3) of the ITAA 1936 and after having regard to the matters in subsection 272-30(4), to treat the listed public company as holding its fixed entitlements as if it were being held by an individual for its own benefit.
Paragraph 272-30(4)(a) - The practicability of identifying any individuals who at the test time have fixed entitlements to a share of the income or capital of the main entity indirectly through the company for their own benefit
Taking into account the circumstances of the Company and the guidance provided by the EM the Commissioner accepts that, in this case, it is not practicable to trace individual shareholding for the purposes of the 50% stake test.
Paragraph 272-30(4)(b) - Any change before or after the test time in the individuals who can be identified as having fixed entitlement of the kind mentioned in paragraph (a); and
The Applicant states that they are not aware of any change before or after the test time in the individuals who can be identified. .
Paragraph 272-30(4)(c) - Any other matters that the Commissioner considers relevant
The Applicant has indicated that there has been no change in the units in Trust since its establishment in 1996 and that there are no intentions to change or amend the trust unit structure the Trust.
Having considered the relevant matters stated above, the Commissioner consider it fair and reasonable to treat the Company as holding, at each of the test times the whole or part of its fixed entitlement to the income and capital of the Trust as an individual and for the individual's own benefit pursuant to subsection 272-30(3) of the ITAA 1936
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
