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Edited version of private advice
Authorisation Number: 1012676281682
Ruling
Subject: 50% stake test
Question 1
Will the Trust pass the 50% stake test in Subdivision 269-C of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) in respect of the Loss for the period 1 July 2012 to 30 June 2013 at each relevant time in the test period that runs from 1 July 2012 to 30 June 2014?
Answer
Yes.
This ruling applies for the following periods:
1 July 2012 to 30 June 2014
The scheme commences on:
1 July 2012
Relevant facts and circumstances
The Trust Deed for the Trust was executed a number of years ago.
There are X unit holders (Unit Holders) in the Trust - they each hold a percentage of the Units.
The Trust is an 'unlisted widely held trust' for the purposes of section 272-110 of Schedule 2F to the ITAA 1936.
The Trustee incurred a tax loss in the income year ended 30 June 2013.
The Trustee will be in a position to recoup the tax loss for the income year ended 30 June 2014.
The profile of the X Unit Holders in the Trust is as follows:
• Unit Holder 1 - is a complying superannuation fund (as defined in subsection 6(1) of the Income Tax Assessment Act 1936) with over 50 members;
• Unit Holder 2 - is a government body (as defined in subsection 272-140(1) of Schedule 2F to the ITAA 1936);
• Unit Holder 3 - is the trustee of a widely held unit trust (as defined in section 272-105 of Schedule 2F to the ITAA 1936) with its unit holders consisting wholly of complying superannuation funds with over 50 members;
• Unit Holder 4 - is a listed public company as defined in section 272-135 of Schedule 2F to the ITAA 1936;
• Unit Holder 5 - is the trustee of a discretionary trust
In respect of Unit Holder 3 and Unit Holder 4 the Commissioner has exercised his discretion in subsection 272-30(3) of Schedule 2F to the ITAA 1936 to treat the trustee and company, respectively, as holding, at each relevant test time, the whole of its fixed entitlement as an individual and for the individual's own benefit.
No 'abnormal trading' in the Trust's Units occurred during the test period for the purposes of paragraph 266-90(1)(a) of Schedule 2F to the ITAA 1936
Relevant legislative provisions
Income Tax Assessment Act 1936 Schedule 2F
Income Tax Assessment Act 1936 section 266-75
Income Tax Assessment Act 1936 section 266-90
Income Tax Assessment Act 1936 section 269-50
Income Tax Assessment Act 1936 section 269-55
Income Tax Assessment Act 1936 section 272-25
Income Tax Assessment Act 1936 section 272-30
Income Tax Assessment Act 1936 section 272-105
Income Tax Assessment Act 1936 section 272-110
Income Tax Assessment Act 1936 section 272-135
Income Tax Assessment Act 1936 section 272-140
Reasons for decision
The 50% stake test is contained in Subdivision 269-C of Schedule 2F to the ITAA 1936.
Section 269-50 of Schedule 2F to the ITAA 1936 defines the term 'more than a 50% stake' in relation to the income and capital of a 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.
Section 269-55(1) of Schedule 2F to the ITAA 1936 defines the term 'passes the 50% stake test:
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 a trust; and
(b) the same individuals (who may be different from those in paragraph (a)) have more than a 50% stake in the capital of the trust;
the trust passes the 50% stake test for the period or in respect of the 2 times.
The relevant times at which the 50% stake test is required to be passed by a trust is determined by the conditions which apply to that particular type of trust.
In the case of the Trust, it is an 'unlisted widely held trust'. As such the conditions which the Trust must satisfy are contained within section 266-75 of Schedule 2F to the ITAA 1936 and are as follows:
266-75(1)
This section applies to a trust that:
(a) can in the income year deduct a tax loss from a loss year; and
(b) was an unlisted widely held trust at all times in the period (the test period) from the beginning of the loss year until the end of the income year; and
(c) was not a wholesale widely held trust at all times in the test period; and
(d) was not an unlisted very widely held trust at all times in the test period; and
(e) was not an excepted trust at all times in the test period.
…
266-75(3)
The trust cannot deduct the tax loss unless it meets the condition in section 266-90.
Subsection 266-90(1) relevantly provides:
If this section is being applied for the purposes of section 266-75 or 266-85, on each occasion when either of the following events occurs:
(a) an abnormal trading in the trust's units occurs during the test period;
(b) an income year of the trust ends during the test period (including at the end of the test period);
the trust must pass the 50% stake test in respect of the following times:
(c) the beginning of the test period;
(d) immediately after the event occurs.
Identification of individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements in the income and capital of the Trust
Unit Holding of Unit Holder 1
As Unit Holder 1 is a 'complying superannuation fund', as relevantly defined, with more than 50 members, the fixed entitlement to the income and capital of the Trust held by the trustee of Unit Holder 1 is treated as being held by an individual and for the individual's own benefit (per subsection 272-25(4) of Schedule 2F to the ITAA 1936).
Thus, the Unit Holder 1 Unit Holding constitutes a stake in the income and the capital of the Trust for the purposes of section 269-50 of Schedule 2F to the ITAA 1936.
Unit Holding of Unit Holder 2
As Unit Holder 2 is a 'government body' as relevantly defined the fixed entitlement to the income and capital of the Trust held by Unit Holder 2 is treated as being held by an individual and for the individual's own benefit (per subsection 272-25(4) of Schedule 2F to the ITAA 1936).
Thus, the Unit Holder 2 Unit Holding constitutes a stake in the income and the capital of the Trust for the purposes of section 269-50 of Schedule 2F to the ITAA 1936.
Unit Holdings of Unit Holder 3 & Unit Holder 4
In respect of Unit Holder 3 and Unit Holder 4 the Commissioner has exercised his discretion in subsection 272-30(3) of Schedule 2F to the ITAA 1936 to treat the trustee and company, respectively, as holding, at each relevant test time, the whole of its fixed entitlement as an individual and for the individual's own benefit.
Thus, the Unit Holder 3 and Unit Holder 4 Unit Holdings each constitute a stake in the income and the capital of the Trust for the purposes of section 269-50 of Schedule 2F to the ITAA 1936.
Unit Holding of Unit Holder 5
Individuals do not have fixed entitlements to the income and the capital of the Trust in respect of the Unit Holding of Unit Holder 5.
Therefore, individuals do not have a 'stake' in the income and capital of the Trust for the purposes of section 269-50 of Schedule 2F to the ITAA 1936.
Conclusion
In respect of answering the question of whether the Trust passes the 50% stake test in Subdivision 269-C of Schedule 2F to the ITAA 1936 at the relevant times during the test period that runs from 1 July 2012 to 30 June 2014 the following comments are made:
• No 'abnormal trading' occurred during the test period for the purposes of paragraph 266-90(1)(a) of Schedule 2F to the ITAA 1936;
• The respective Unit Holdings of Unit Holder 1, Unit Holder 2, Unit Holder 3 and Unit Holder 4, also represent stakes of individuals in the income and capital of the Trust which, between them, total a percentage.
• As such, the Trust will pass the 50% stake test in section 269-55 of Schedule 2F to the ITAA 1936 as, at all relevant times, the same individuals have more than a 50% stake (i.e., an % stake between them) in the income and capital of the Trust.
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