Edited version of private ruling

Authorisation Number: 1011820171001

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Ruling

Subject: English Limited Partnership

Question

Is the Limited Partnership (the Partnership) an entity that is covered by the requirements of paragraph 12-402(3)(e) of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)?

Advice/Answers

Yes, the Partnership is an entity that is covered by the requirements of paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Relevant facts

The Partnership has more than 50 members and satisfies the requirements of a collective investment scheme as defined under the Financial Services and Markets Act 2000 (UK) (FSMA).

The contributions of the members are pooled as consideration to acquire rights to benefits produced by the Partnership.

No contributing member has control over the day-to-day operation of the Partnership.

Relevant legislative provisions

Taxation Administration Act 1953 paragraph 12-402(3)(e) to schedule 1

Does Part IVA, or any other anti-avoidance provision, apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.

We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.

Reasons for Decision

Subdivision 12-H of Schedule 1 to the TAA 1953 deals with 'Pay As You Go' withholding obligations for distributions of managed investment trust income.

As part of the 'widely-held requirements' for certain management investment trusts, subsection 12-402(3) of Schedule 1 to the TAA 1953 specifies certain widely-held entities whose participation interests in the trust are multiplied by 50 to provide a 'notional number' of members of the trust. This, in turn, is used to determine whether the trust satisfies the widely-held requirements in subsection 12-402(1) of Schedule 1 to the TAA 1953.

Paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 includes:

an entity that is recognised under a foreign law as being used for collective investment by means of pooling the contributions of at least 50 members of the entity as consideration to acquire rights to benefits produced by the entity, if the members of the entity do not have day-to-day control over the operation of the entity.

According to the Revised Explanatory Memorandum (EM) to the Tax Laws Amendment (2010 Measures No 3) Bill 2010 (TLAB (No 3) Bill 2010) at paragraph 5.79, paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 targets:

... a foreign collective investment vehicle, which is an entity with at least 50 members that is recognised under a foreign law as being used for collective investment where the member contributions are pooled together in exchange for rights to the benefits produced by the entity and where members do not have day-to-day control over the operation of the entity.

In order for the Partnership to be covered by paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953, it must be recognised under the foreign law being used for collective investment.

The Partnership must also satisfy the remaining three requirements of paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953. That is, the Partnership must involve:

the pooling of contributions of at least 50 members of the entity;

consideration to acquire rights to benefits produced by the entity; and

the members not having day to day control over the operation of the entity.

'recognised under a foreign law as being used for collective investment'

The Partnership is a limited partnership formed under the UK's Limited Partnerships Act 1907. (LP Act).

A 'foreign law' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 as a law of a foreign country. The LP Act is a law of the UK and is, accordingly, a 'foreign law' for the purposes of paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953.

The Partnership satisfies the requirements of a collective investment scheme as defined under the FSMA; hence, the Partnership is recognised under a foreign law as being used for collective investment.

'pooling of contributions of at least 50 members of the entity'

As there will be more than 50 members of the Partnership whose capital contributions are pooled, and who will not have any right to choose which investments made by the Partnership they can participate in as per the Agreement, this requirement that there is a pooling of contributions of at least 50 members of the entity in paragraph 12-402(3)(e) of the Schedule 1 to the TAA 1953 is satisfied.

'as consideration to acquire rights to benefits produced by the entity'

This requirement is satisfied as each member provides a capital contribution to the Partnership and receives their share of the investment proceeds.

'members of the entity do not have day-to-day control over the operation of the entity'

This requirement has its origins in the previous formulation of paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 which referred to the definition of 'managed investment scheme' in section 9 of the Corporations Act 2001. Context and legislative history demonstrate that this requirement, in conjunction with the aforementioned requirements, is intended to encapsulate entities where the members (essentially the investors) do not have day-to-day control over their investment but where that function is 'handed-over' and performed by a professional manager. That is, the requirement delineates between investments where control of the collective funds is vested in the group of investors and where control is vested in an entity who manages the funds on behalf of the group.

The organisation and management of the Partnership in this arrangement meets the latter description. The contributing members do not have day-to-day control over their investments, the investment decisions of the Partnership or the daily management of the Partnership.

Therefore, this element of the requirements in paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953 is satisfied.

Conclusion

As each of the widely-held requirements are satisfied, the Partnership is an entity that is covered by paragraph 12-402(3)(e) of Schedule 1 to the TAA 1953.

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