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Edited version of private ruling
Authorisation Number: 1011718030455
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Ruling
Subject: Effect of legislative amendment
Question 1
Could section 51AD or Division 16D of the Income Tax Assessment Act 1936 (ITAA 1936) apply to Entity 1 or Entity 2, as trustee of a Trust (the Trustee) as a result of the enactment of new State legislation?
Answer
No.
Question 2
If the answer to Question 1 is No, will Division 250 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to Entity 1 or the Trustee as a result of the enactment of the new State legislation?
Answer
No.
Question 3
Does the enactment of the new State legislation result in Entity 1 or the Trustee entering into a 'legally enforceable arrangement' for the purposes of Item 71 of Part 3 of the Tax Laws Amendment Act (2007 Measures No.5) Act 2007?
Answer
No.
Reasons for decision
Question 1
Summary
It is considered that the enactment of the new State legislation will not affect the day to day control of the asset, which remains with Entity 1.
Therefore, section 51AD and Division 16D of the ITAA 1936 would not apply to the applicants as a result of the enactment of that subsection.
Detailed reasoning
Section 51AD
In this case, the enactment of the new State legislation is relevant to the issue of control of the asset. It is a condition for the application of section 51AD of the ITAA 1936 that a person other than the taxpayer controls, will control, or will be able to control, directly or indirectly, the use of property (subparagraph 51AD(4)(b)(ii)).
The elements relevant to determining 'effective control' for the purposes of section 51AD are discussed at paragraphs 40 to 47 of Taxation Ruling TR 96/22. The effect of these paragraphs is to emphasise that the issue of effective control depends on the facts of the particular case, considering the substance of the arrangement (see paragraphs 42 and 47).
In this case, the new State legislation will result in the State having the ability to exercise certain powers, but only as agreed with the applicants.
It is considered that the day to day control of the asset still lies with Entity 1.
Therefore section 51AD would not apply to the applicants as a result of the enactment of the Sate legislation.
Division 16D
Where there is considered to be no control of the use of an asset by the State for the purposes of section 51AD, the arrangement will also not be a 'qualifying arrangement' under subsection 159GG(1) of the ITAA 1936.
Accordingly, Division 16D of the ITAA 1936 would not apply to the arrangement.
Question 2
Summary
The enactment of the new State legislation does not constitute a material alteration to the existing arrangement, such as to trigger the application of Division 250.
Detailed reasoning
Division 250 of the ITAA 1997 effectively replaces section 51AD and Division 16D of the ITAA 1936 as from 1 July 2007. It may apply to arrangements where the tax preferred use of an asset starts on or after 1 July 2007.
Under the transitional provisions relating to the introduction of Division 250, certain arrangements that commenced prior to 1 July 2007 may become subject to the operation of Division 250.
The transitional provisions are set out in item 71 in Part 3 of Schedule 1 to the Tax Laws Amendment Act (2007 Measures No.5) Act 2007. Under subitem 71(7), Division 250 may apply where a material alteration to a relevant arrangement is made on or after 1 July 2007.
In this case, in view of the practical effect of its enactment, as described above, it is not considered that the enactment of the new State legislation will (all other facts remaining as originally described) constitute a material alteration to the arrangement.
Question 3
Summary
The enactment of the new State legislation does not give rise to a new arrangement between the applicants and the State.
Therefore, the applicants do not, as a result of its enactment, enter into a 'legally enforceable arrangement' for the purposes of item 71 in Part 3 of Schedule 1 to the Tax Laws Amendment Act (2007 Measures No.5) Act 2007.
Detailed reasoning
The enactment of the new State legislation will not affect the continued operation of the arrangement.
The Commissioner agrees with the applicants' contention that the documents as listed in the Previous Rulings constitute the relevant legally enforceable arrangement.
Therefore, the applicants do not, as a result of the enactment of the new State legislation, enter into a 'legally enforceable arrangement' for the purposes of item 71 in Part 3 of Schedule 1 to the Tax Laws Amendment Act (2007 Measures No.5) Act 2007
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