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Edited version of private advice
Authorisation Number: 1012678723887
Ruling
Subject: Fixed entitlements
Question 1
Is the Trust a fixed trust for the purposes section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
No
Question 2
Will the Commissioner exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to deem the beneficiaries of the Trust as having fixed entitlements to all of the income and capital of the trust?
Answer
Yes
This ruling applies for the following periods:
1 July 2013 to 30 June 2014
The scheme commences on:
1 July 2013
Relevant facts and circumstances
The Trust is not a Managed Investment Scheme for the purposes of the Corporations Act 2001.
The Trustee of the does not hold an Australian Financial Services Licence.
The Trust has had a single unit holder since it was settled.
No additional units have been issued since the Trust was settled.
No units have been redeemed.
The Trust will only have one class of units.
There has been no amendment or variation made in respect of the trust deed since it was settled.
The Trust has no carried forward tax losses and will not have a tax loss in respect of the income year ended 30 June 2014.
Relevant legislative provisions
Income Tax Assessment Act 1936 Schedule 2F
Income Tax Assessment Act 1936 section 272-5 of Schedule 2F
Income Tax Assessment Act 1936 subsection 272-5(1) of Schedule 2F
Income Tax Assessment Act 1936 subsection 272-5(2) of Schedule 2F
Income Tax Assessment Act 1936 subsection 272-5(3) of Schedule 2F
Income Tax Assessment Act 1936 section 272-65 of Schedule 2F
Reasons for decision
Section 272-65 of Schedule 2F to the ITAA 1936 provides that a trust is a 'fixed trust' if persons have fixed entitlements to all of the income and capital of the trust.
Subsection 272-5(1) of Schedule 2F to the ITAA 1936 provides that 'if under a trust instrument, a beneficiary has a vested and indefeasible interest in a share of income of the trust that the trust derives from time to time, or of the capital of the trust, the beneficiary has a fixed entitlement to that share of the income or capital'.
It is accepted that unit holders in the Trust have an interest, by way of their entitlement as unit holders, in the Trust.
The trust deed (the relevant trust instrument) contains certain clauses by which a beneficiary's interest in a share of the income or capital of the Trust may be defeased. Therefore, it is considered reasonable to conclude, in accordance with subsection 272-5(1) of Schedule 2F to the ITAA 1936, that all unit holders in the Trust do not have fixed entitlements to all the income and capital of the Trust.
Having regard to the requirements of subparagraphs 272-5(3)(b)(i), (ii) and (iii) of Schedule 2F to the ITAA 1936 there is a reasonable case for the Commissioner to exercise the discretion pursuant to subsection 272-5(3) to treat the interests of the unitholder in the income and capital of the Trust as fixed entitlements.
As such, persons have fixed entitlements to all of the income and capital of the Trust and the Trust will be a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936 for the period from 1 July 2013 to 30 June 2014.
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