Edited version of private ruling

Authorisation Number: 1011907513689

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Ruling

Subject: Lodgment of Income Tax returns for the Trust

Question

When a trust has been set up solely for a specific purpose for another entity and that trust does not engage in any form of trading and the lodgment aspects of the other entity have been fulfilled, is the trust required to lodge an income tax return?

Answer

No, however this is on the proviso that:

· the Commissioner may require you to lodge an income tax return, and

· this exclusion from lodging an income tax return does not exempt a trustee from its responsibilities under Division 6 of the Income Tax Assessment Act 1936 (ITAA 1936)

This ruling applies for the following period:

Year ended 30 June 2009

Relevant facts and circumstances

The trust was set up for the acquisition of business real property by the self managed superannuation fund (SMSF).

The trust does not have any income or expenses to declare in its own right. The tax obligations of the SMSF will be fully complied with.

Relevant legislative provisions

Income Tax Assessment Act 1936, Section 161.

Reasons for decision

Summary

Dependent on the circumstances for the given year, you will not be required to lodge an income tax return each year where there are no activities carried on and no income derived by the trust. However this exclusion from lodging an income tax return does not exempt a trustee from its responsibilities under Division 6 of the ITAA 1936.

Detailed reasoning

Subsection 161(1) of the ITAA 1936 states:

Every person being a full self-assessment taxpayer (excluding trustees of superannuation funds, approved deposit funds and pooled superannuation trusts) not covered by Table N or Table O that during the year of income:

(1) is an Australian resident, and derived income (including capital gains) from sources in Australia or sources outside Australia; or

(2) is a non-resident of Australia, and derived income (including capital gains) that is taxable in Australia other than:

- dividend, interest or royalty income subject to withholding payments covered by Subdivision 12-F in Schedule 1 to the Taxation Administration Act 1953, and

- fund payments from managed investment trusts subject to withholding because of the amendments to Subdivision 12-H in Schedule 1 to the Taxation Administration Act 1953 made by Tax Laws Amendment (Election Commitments No 1) Act 2008 (relating to fund payments from managed investment trusts to non-residents).

There are other factors as outlined in the Legislative Instrument, in addition to the above, which provide circumstances where lodgment is required. Examples as contained in table A of the Legislative Instruments where an income tax return may be required to be lodged even though no income has been derived are:

- incurred a tax loss or made a net capital loss or is entitled to deduct a tax loss or apply a net capital loss of an earlier year of income, or being a company or trust estate has undeducted tax losses or unapplied net capital losses of any earlier year of income where those losses exceed $1,000 or, being a company, transfers a tax loss or net capital loss to another group company; or

- carried on a business; or

- was entitled to income as a beneficiary of a trust estate that has operated a 'primary production business' (as defined in section 995-1 of the Income Tax Assessment Act 1997) in Australia; or

- had an individual interest in the net income or partnership loss of a partnership which operated a primary production business (as defined) in Australia.

Where none of the above conditions required a taxpayer to lodge an income tax return are met then you should still advise the Commissioner that no income tax return will be lodged.

Although the Legislative Instrument states who is required to lodge a return and does allow for exemptions, it also specifically states, as follows, that the instrument does not remove the Commissioner's power to require lodgement of a return:

Notice of requirement to lodge a return or information

Nothing in this Instrument prevents me or an authorised officer of the Australian Taxation Office from issuing a notice, pursuant to section 162 or 163 of the Income Tax Assessment Act 1936, requiring a person to give me, in the approved form, a return, or further returns, or any information, statement or document about the person's financial affairs for any year of income.

Therefore even where no assessable income is derived, you may still be required to lodge an income tax return where the Commissioner directs you to do so.

Other Information

As a result of proposed changes to instalment warrants which were introduced in the 2011-12 Federal Budget the Commissioner has provided a statement under the heading:-

Tax relief for investors in instalment warrants

This measure treats the beneficiary of an instalment warrant trust as the taxpayer for income tax purposes in relation to the underlying asset in the trust. In previous announcements, the government proposed to treat:

· the investor in an instalment warrant over an exchange traded security in a company, trust or stapled security as the owner of the listed security for income tax purposes

· a superannuation trustee who enters into a limited recourse borrowing arrangement for the purpose of purchasing an asset, as permitted under former subsection 67(4A) of the Superannuation Industry (Supervision) Act 1993 (the SISA), now sections 67A and 67B SISA, as the owner of the asset for income tax purposes.

However, in the 2011-12 Federal Budget, the government further announced it will extend the look-through treatment beyond single exchange traded securities to include instalment warrants and receipts over:

· direct and indirect interests in listed securities

· unlisted securities in widely held entities

· bundles of these assets.

The changes will confirm the practice of treating an investor in an instalment warrant or instalment receipt over specified assets as the owner of the security for income tax purposes. As a result, there will be no capital gains tax applicable at the time the last instalment is paid for instalment warrants over these types of assets.

The income tax amendments will apply for assessments for the 2007-08 and later income years

Administrative treatment

The Commissioner will accept tax returns as lodged in the period up until the enactment of the proposed changes.

No compliance action will be taken by the ATO prior to the enactment of the proposed changes.

Based on the above comments, it has been decided that you will not be required to lodge an income tax return for the financial year ended 30 June 2009. However as mentioned earlier, this is on the proviso that;

(1) the Commissioner may require you to lodge an income tax return, and

(2) this exclusion from lodging an income tax return does not exempt a trustee from its responsibilities under Division 6 of the ITAA 1936.

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