Edited version of your written advice

Authorisation Number: 1012708528770

Ruling

Subject: Managed investment trust withholding tax

Question

Will Trust X be a managed investment trust as defined in subsection 12-400(1) of Schedule 1 to the Taxation Administration Act 1953 (the TAA 1953) from the year commencing 1 January 2015?

Answer

Yes. Trust X will be a managed investment trust as defined in subsection 12-400(1) of Schedule 1 to the TAA 1953 from the year commencing 1 January 2015.

This ruling applies for the following periods:

Year ended 31 December 2015

Year ended 31 December 2016

Year ended 31 December 2017

Year ended 31 December 2018

The scheme commences on:

The scheme has not yet commenced.

Relevant facts and circumstances

Investment Structure

By way of an overview, the current investment structure can be summarised as follows:

The Pension Fund of Country X ('XPF') holds, directly and indirectly, 100% of the beneficial ownership in the units in Trust X. The specific holding structure of XPF's investment in Trust X is as follows:

• XPF directly holds X% of the units in Trust X.

• XPF indirectly holds Y% of the units in Trust X through its 100% owned subsidiary, ('Subsidiary X').

Trust X is an Australian tax resident unit trust established.

Trust X is a Managed Investment Scheme under section 9 of the Corporations Act 2001 and is not required to be registered in accordance with section 601ED of the Corporations Act 2001 because of subsection 601ED(2) that Act.

All units in Trust X are held by wholesale clients as defined in section 761G of the Corporations Act 2001.

Trustee X is the trustee for Trust X. Trustee X was incorporated in Australia and is therefore an Australian resident company.

Trust X holds 100% of the units in Trust Y. Currently, this is the only investment of Trust X.

Trust Y is an Australian tax resident unit trust.

The trustee for Trust Y is incorporated in Australia and is therefore an Australian resident company.

The trustee for Trust Y holds the legal title to a property in Australia (the Asset).

Trust Y holds the Asset as a long-term capital investment primarily for the purpose of deriving rental income.

XPF

XPS is a non-profit special corporation established in Country X to manage and operate the Pension Scheme of Country X (the 'Scheme'). XPS is resident of Country X.

XPS collects contributions, maintains records of insured persons, determines and pays benefits, implements welfare programs for the insured persons and pensioners, and performs other work entrusted by a Minister in the government of Country X (the 'Minister') in connection with the Scheme.

The relevant Ministry is exempt from tax in Country X.

XPF is the national pension fund of Country X. XPF was established under the Pensions Legislation of Country X to serve as a reserve fund to secure the financial resources necessary for the implementation of the Scheme and to finance the pension benefits under the Pensions Legislation. XPF is composed of contributions, profits accrued from XPF's operations, fixed reserves, and any surplus in the settled account of XPS.

XPF was established by the Minister under the Pensions Legislation to finance the pension benefits under the Pensions Legislation.

In terms of the Pensions Legislation, the Minister shall manage and operate the XPF. The Minister has entrusted XPS with the management of the XPF. XPS was established under the Pensions Legislation. XPS' duties include:

1. Imposition of contributions.

2. Determination and payment of benefits. The benefits under the Pensions Legislation are old age, disability and survivors pensions and lump sum refunds.

XPF generally has an intention to hold its investments for a long term to derive annuity income in order to ensure its long term solvency, stability and appropriate returns for its members. Accordingly, this investment is in line with XPF's investment policy.

Investment Management Agreement

The current investment manager entered into an Investment Management Agreement ('IMA') in relation to the investment in the Asset.

The current investment manager is engaged as an independent contractor to provide services relating to the acquisition, administration, promotion, management, operation, maintenance, improvement, leasing, financing and disposition of the Asset.

The current investment manager is also engaged under the IMA to source and recommend other investment opportunities in Australia which meet XPF's investment criteria. That is, the commercial intention underpinning the IMA was for the current investment manager to be engaged to provide investment management services for an Australian real property fund comprising core assets expected to be acquired by Trust X, without limiting the investment management activities to only one investment.

Where XPF wishes to proceed with such an investment opportunity, the applicable duties or services described below in respect of the Asset will also be provided in respect of additional Assets to be acquired by XPF in Australia.

The specific duties of the current investment manager include:

• Assistance with respect to the acquisition of the Asset including negotiation of the sale and purchase agreements and completion of the acquisition.

• Preparation and implementation of Business Plans.

• Material capital expenditure not included in the Business Plans.

• Asset management including risk management and compliance.

• Property management.

• Assistance with negotiations of direct or indirect financing at XPS' request.

• Advice on appropriate restructuring and exit strategies.

However, there are specific significant/major decisions that cannot be made by the current investment manager without XPS' approval. These include:

• Appointment of any independent appraiser for the Asset.

• Matter that results in, or would result in, or would reasonably result in, additional capital investment.

• Direct or indirect financing or refinancing.

• Restructuring of the ownership structure.

• Disposal or liquidation of the Asset.

In this regard, whilst the current investment manager will perform the 'ground' work and make recommendations to XPF, the ultimate recommendation is subject to XPS' approval.

The current investment manager may, in its discretion, delegate any or all of its rights, powers, functions and obligations thereunder to any of its affiliates.

In this regard, the current investment manager subcontracted a portion of the services under the IMA to other overseas entities in the corporate management group.

With the increasing interest of potential the current investment manager clients in Australian real estate investments, the current investment manager is considering setting up a new wholly-owned subsidiary incorporated in Australia ('NewCo') to perform the investment management function with respect to stabilised Australian real estate assets. Furthermore, the current investment manager is considering assigning the IMA to NewCo. Some of the support services under the IMA - generally characterized as back office support - may continue to be performed by affiliates of NewCo.

Proposed investment management arrangement

It is proposed that the existing IMA will be novated by the current investment manager to provide for NewCo to act as investment manager and earn the management fee ('Novated IMA').

The services proposed to be provided by NewCo in Australia under the Novated IMA are:

• Preparation and implementation of business plans - includes strategic planning and senior oversight of the property and its operations; selection, review and continuous evaluation of key service providers.

• Provide recommendation on timing and method for a partial sell-down or complete asset disposition - based on property-specific and market conditions, the manager will review and evaluate potential exit opportunities for the owner.

• Structure and assist in refinancing the investment - based on operational or strategic financing considerations, the manager will investigate and evaluate available financing opportunities and relationships.

• Preparing performance reports in respect of the Asset - on a regular basis the manager will summarise, analyse and report investment performance, along with providing market commentary and reporting on other developments likely to impact the owner's indirect investment.

• Continue to source and recommend other investment opportunities in Australia which meet XPF's investment criteria.

In performing the services under the Novated IMA, NewCo will subcontract with the current investment manager to provide the following support services through its overseas affiliates:

• Support functions.

• Administrative support.

The overseas affiliates will be paid an arm's length fee for services provided to NewCo. The pricing of this fee will be supported by appropriate transfer pricing documentation.

Further, to perform the services under the Novated IMA, NewCo is planning to employ a suitable qualified and experienced real estate professional investment manager to perform its investment management obligations under the Novated IMA. At the launch of NewCo, a senior employee of an overseas entity in the corporate management group who was directly involved in the acquisition and subsequent management of Trust X and Trust Y will be seconded or transferred to NewCo to carry out the investment management activities in Australia. The senior employee is a real estate professional with many years of experience (including Australian real estate experience) in managing real estate investment funds. The senior employee will be re-located to Australia to perform the services. In the future, additional Australian based employees (with equally suitable experience and qualifications) may be hired by NewCo to work with or replace the re-located senior employee going forward.

NewCo will regularly provide investment management services (e.g. preparatory market analysis for the sale/acquisition of Australian assets, provide recommendations on restructure, refinancing or divestment options, market analysis, etc.) under the Novated IMA. The provision of investment management services will be clearly documented or evidenced by, for example, quarterly and annual reports presented to XPF, proposals presented to XPF for final approval. Management fees will be paid to NewCo under the Novated IMA for the provision of these investment management activities.

An overseas affiliate currently provides quarterly and annual performance reports as well as Business Plans to XPF. The quarterly and annual reports provided to XPF contain the following key matters:

(i) Financial results overview summarizing the financial performance of the asset and the key drivers of the results;

(ii) Leasing update providing a summary of all key leasing activities at the asset, including new leases, potential deals, and status of existing tenancies;

(iii) Capital expenditure overview summarizing key capital projects at the asset;

(iv) Financial statements (audited statements for annual reports);

(v) Summary of budget to actual variations for the corresponding period;

(vi) Engineering and operations report providing key details of the physical condition and performance of the asset; and

(vii) Key financial records of rental collection and cash disbursement.

In addition, the overseas affiliate monitors the Australian real estate market closely and provides special memoranda and presentations to XPF on key matters which the overseas affiliate attends to as part of its role as investment manager (for example, negotiation and recommendations on key lease renewals and lease restructures, analysis, recommendation and proposals on refinancing and investment/divestment opportunities, financing restructures, market analysis, etc.) as and when required. Such services currently provided by the overseas affiliate will be subsequently undertaken by NewCo.

Assumptions

It has been assumed that Trustee X will resign as trustee and an appropriate Australian resident entity will be appointed as trustee. That entity will be a financial services licensee with an appropriate Australian financial services licence (AFSL) covering the provision of financial services (within the meaning of section 766A of the Corporations Act 2001) to wholesale clients (within the meaning of section 761G of the Corporations Act 2001) within the meaning of section 761A of the Corporations Act 2001.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 840-805

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1936 subsection 6(1)

Taxation Administration Act 1953 Schedule 1 section 12-400

Taxation Administration Act 1953 Schedule 1 section 12-401

Taxation Administration Act 1953 Schedule 1 section 12-402

Taxation Administration Act 1953 Schedule 1 section 12-402A

Taxation Administration Act 1953 Schedule 1 section 12-402B

Taxation Administration Act 1953 Schedule 1 section 12-403

Taxation Administration Act 1953 Schedule 1 section 12-404

Taxation Administration Act 1953 Schedule 1 section 12-405

Reasons for decision

Summary

Trust X will be a 'managed investment trust' as defined in subsection 12-400(1) of Schedule 1 to the TAA1953 from the income year commencing 1 January 2015.

Detailed reasoning

In order for a trust to qualify for the 'managed investment trust' ('MIT') withholding tax regime enacted by Subdivision 12-H of Schedule 1 to the TAA 1953, the trust must satisfy the definition of a MIT provided in subsection 12-400(1) of Schedule 1 to the TAA 1953.

This test is an annual test and the MIT definition must be satisfied each year if a trust were to be a MIT.

Trust X must satisfy the requirements detailed below.

Requirement 1 - Australian resident

The requirement in paragraph 12-400(1)(a) of Schedule 1 to the TAA 1953 states:

(a) at the time the trustee of the trust makes the first fund payment in relation to the income year, or at an earlier time in the income year:

(i) the trustee of the trust was an Australian resident; or

(ii) the central management and control of the trust was in Australia

Broadly, a 'fund payment' will be that part of a distribution from a MIT which is comprised of Australian sourced income other than dividends, interest, or royalties (e.g. net rental income) and capital gains in respect of taxable Australian property.

Requirement 1 will be satisfied because the new trustee will be a company incorporated in Australia and is therefore an Australian tax resident company.

Requirement 2 - Trading trust

The requirement in paragraph 12-400(1)(b) of Schedule 1 to the TAA 1953 states:

(b) the trust is not a trust covered by subsection (2) (trading trust etc.) in relation to the income year

In order for a trust to satisfy the definition of a MIT, the trust must not be a 'trading trust'. The provisions relating trading trusts are contained in Division 6C of the ITAA 1936.

Section 102N of the ITAA 1936 states:

(1) For the purposes of this Division, a unit trust is a trading trust in relation to a year of income if, at any time during the year of income, the trustee:

(a) carried on a trading business; or

(b) controlled, or was able to control, directly or indirectly, the affairs or operations of another person in respect of the carrying on by that other person of a trading business.

A trading business is defined in s 102M of the ITAA 1936 as meaning:

A business that does not consist wholly of eligible investment business.

Section 102M provides that 'eligible investment business' means one or more of the following:

(a) investing in land for the purpose, or primarily for the purpose, of deriving rent; or

(b) investing or trading in any or all of the following:

…(iv) units in a unit trust…

Trust X's current investment comprises the units in Trust Y, (i.e. 'eligible investment business'). Trust Y will not be a trading trust as its only investment is the Asset which was acquired for long-term holding and is held for the purpose, or primarily for the purpose, of deriving rental income (i.e. 'eligible investment business'). Accordingly, Trust X will satisfy Requirement 2 as it does not control an entity that carries on a trading business.

Requirement 3 - substantial proportion of investment management activities in Australia

The requirement in paragraph 12-400(1)(c) of Schedule 1 to the TAA 1953 states:

(c) a substantial proportion of the investment management activities carried out in relation to the trust in respect of all of the following assets of the trust are carried out in Australia throughout the income year:

(i) assets that are situated in Australia at any time in the income year;

(ii) assets that are taxable Australian property at any time in the income year;

(iii) assets that are shares, units or interests listed for quotation in the official list of an approved stock exchange in Australia at any time in the income year

According to the Revised Explanatory Memorandum (EM) to the Tax Laws Amendment (2010 Measures No. 3) Bill 2010 which introduced the new MIT definition (the 'Revised EM'), paragraph 5.14, the policy intent behind the introduction of the requirement in paragraph 12-400(1)(c) of Schedule 1 to the TAA 1953 was to enhance the competitiveness of the Australian funds management industry and increase the level of foreign capital managed by Australian fund managers.

This requirement must be satisfied throughout each relevant income year.

This requirement is not currently satisfied. However, the question to be answered in the present ruling is whether this requirement will be satisfied in the income year following the establishment of NewCo and the novation of the IMA to NewCo (namely, the year ended 31 December 2015).

Investment Management Activities

The phrase 'investment management activities' is not defined in the legislation. The Revised EM provides some guidance as to the type of activities that are considered to be investment management activities as opposed to asset management activities. In particular, in comparing the activities involved in operating and managing a fund with investment management activities, it is noted in paragraphs 5.60 and 5.61 that:

5.60 At a practical level, the activities involved in operating and managing a fund are quite varied and diverse, and depend on the nature of the underlying investments of the fund. Activities include - but are not limited to - the provision of custodian services, the management and servicing of the underlying assets of the fund (for example, commercial property) and the provision of professional services in relation to various acquisitions, due diligences and disposals of underlying assets.

5.61 These activities can be compared to the investment management activities of a fund - the activities of the fund manager in relation to the investments of the fund. The manager of a MIS is generally appointed to invest and manage the assets of the MIS (the 'portfolio'). The manager must keep the portfolio under review, keep proper books of account in relation to the portfolio and is generally subject to investment instructions (as per the agreement between the manager and the operator of the fund) which may set out limitations to the manager's investment discretion.

It is also noted that:

Where the manager delegates any of its investment management obligations to another entity, the investment management activities include the activities undertaken in relation to the trust by that other entity. It is these activities that are central to the policy objectives of the MIT withholding tax rules - the policy being that a substantial portion of the investment management functions in relation to the assets of the fund that have a relevant connection with Australia should be carried out in Australia. (paragraph 5.62)

The physical location of investment management activities does not only refer to the place where the final decision to invest (or not) is taken. The fund management activities of the entity must be examined holistically - including market analysis, identification of potential investments, carrying out due diligence, culminating in the particular investment decision. (paragraph 5.63)

The other activities - such as asset management - that flow from attracting foreign capital into Australia are merely incidental to the fund management activities. (paragraph 5.64)

The Supplementary Explanatory Memorandum to the Tax Laws Amendment (2010 Measures No. 3) Bill 2010 ('Supplementary EM') includes the following example:

Example 1.3 Offshore fund manager for Australian assets

PT unit trust is an Australian trust holding commercial property in Australia. The asset management, custodial services, accounting and legal services are provided in Australia, but the fund is managed by SFM Co - a fund manager based in Singapore. SFM Co does preparatory work around market analysis, identifying potential investments and carrying out due diligence on potential investments. Officers of SFM Co are flown to Australia on two occasions over the course of the income year. While in Australia these officers make certain investment management decisions as to the purchase of the property and carry out final due diligence work associated with that purchase by PT unit trust. SFM Co has no physical presence in Australia and has carried out preparatory activities in relation to the investment management in Singapore. As the substantial proportion of investment management activities in relation to the Australian assets of PT unit trust are undertaken from an office in Singapore, PT unit trust would not satisfy the investment management requirement and could not qualify as a MIT.

In the original Explanatory Memorandum, there was a further example where assuming the facts in the example set out above,

…although SFM Co is a fund manager based in Singapore, it has an office through which it operates in Australia. The fund is managed by SFM Co through its office in Australia and all of the investment management activities in relation to the PT unit trust are carried out through SFM Co's permanent establishment in Australia. In this case, the requirement that the investment management activities be carried out in Australia is satisfied.

As noted above, NewCo will perform specific services under the proposed Novated IMA including, structuring and assisting in arranging significant transactions, performing market analysis in order to provide recommendation in respect of an asset disposition and identifying potential investments. These activities correspond closely to the investment management activities discussed in paragraph 5.61 of the Revised EM, as opposed to the activities described as 'operating and managing a fund' in paragraph 5.60 of the Revised EM (e.g. custodian services and managing or servicing the underlying asset).

NewCo may outsource certain support functions relating to the operation of Trust X to an overseas affiliate and the current investment manager. However, to the extent that these operating or administrative support services are not 'investment management activities', the fact that these services are carried out outside of Australia will not impact the analysis of whether the investment management activities are carried out in Australia.

Application to Trust X

NewCo will:

(i) make recommendations in relation to the investment;

(ii) identify new investments pursuant to XPF's investment criteria; and

(iii) make further investment management decisions (e.g. decision to restructure, refinance or divest, incidental market analysis, etc.) in relation to the specific investment.

In the present case, the following services will be provided in Australia under the Novated IMA by NewCo:

• Preparation and implementation of business plans and senior oversight of the property;

• Provide recommendation on timing and method for a partial sell-down or complete asset disposition;

• Structure and assist in refinancing the investment.

• Preparing performance reports in respect of the Asset.

• Continue to source and recommend other investment opportunities in Australia which meet XPF's investment criteria.

NewCo will employ suitably qualified and experienced real estate investment professionals to perform the investment management services in Australia.

It is considered that these investment management activities which are to be performed in Australia by NewCo are a substantial part of the investment management activities even though the final investment decision will be made by XPF.

Requirement 4 - managed investment scheme ('MIS')

The requirement in paragraph 12-400(1)(d) of Schedule 1 to the TAA 1953 states:

(d) at the time the payment is made, the trust is a managed investment scheme (within the meaning of section 9 of the Corporations Act 2001)

Section 9 of the Corporations Act 2001 states:

'managed investment scheme' means:

a) a scheme that has the following features:

(i) people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

(iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or

b) a time-sharing scheme.

It is not necessary for the Commissioner to determine whether this requirement would be met because it was acknowledged in the Relevant facts and circumstances that Trust X is a 'managed investment scheme'. Accordingly, in light of the facts upon which this ruling is based, Requirement 4 will be satisfied.

Requirement 5 - Widely held

The requirement in paragraphs 12-400(1)(e) and (f) of Schedule 1 to the TAA 1953 states:

(e) at the time the payment is made:

(i) the trust is covered by section 12-401 (trusts with wholesale membership); or

(ii) if the trust is not covered by section 12-401-the trust is registered under section 601EB of the Corporations Act 2001; and

(f) the trust satisfies, in relation to the income year:

(i) if, at the time the payment is made, the trust is registered under section 601EB of the Corporations Act 2001 and is covered by section 12-401-either or both of the widely-held requirements in subsections 12-402(1) and 12-402A(1); or

(ii) if, at the time the payment is made, the trust is so registered and is not covered by section 12-401-either or both of the widely-held requirements in subsections 12-402(1A) and 12-402A(1); or

(iii) if, at the time the payment is made, the trust is not so registered and is covered by section 12-401-the widely-held requirements in subsection 12-402(1)

Trust X is a wholesale trust (as defined in section 12-401 of Schedule 1 to the TAA 1953) and therefore will need to satisfy subparagraph 12-400(1)(f)(iii) of Schedule 1 to the TAA 1953 in order to be considered widely held.

According to subsection 12-402(1) of Schedule 1 to the TAA 1953, a trust will be widely held if a trust has more than 25 'members'.

In order to calculate the number of members of the trust, there are concessions for certain entities ('Qualifying Entities') whereby their MIT participation interest is multiplied by 50 in order to determine the number of members for their interest.

Pursuant to section 12-404 of Schedule 1 to the TAA 1953, an entity's MIT participation interest in a trust is the greater of the following direct or indirect interests of the entity in the trust:

(a) holds, or has the right to acquire, interests representing a percentage of the value of the interests in the trust; or

(b) has the control of, or the ability to control, a percentage of the rights attaching to *membership interests in the trust; or

(c) has the right to receive a percentage of any distribution of income that the trust may make.

XPF and Subsidiary X will hold 100% of the MIT participation interests in Trust X.

Qualifying Entity

Pursuant to paragraph 12-402(3)(f) of Schedule 1 to the TAA 1953, a Qualifying Entity includes:

An entity, the principal purpose of which is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country, if:

(i) The entity is a fund established by an *exempt foreign government agency; or

(ii) The entity is established under a foreign law for an exempt foreign government agency; or

(iii) The entity is a wholly owned subsidiary of an entity mentioned in sub-paragraph (i) or (ii)

Principal purpose to fund pensions for the citizens or other contributors

The Pensions Legislation states that the purpose of the Pensions Legislation is to promote national welfare by providing pension benefits in old-age, disability or death.

XPF was established by the Minister under the Pensions Legislation to finance the pension benefits.

The Minister shall manage XPF. It is understood that the Minister has entrusted XPS with the management of the XPF. XPS was established under the Pensions Legislation. XPS' duties include:

1. Imposition of contributions.

2. Determination and payment of benefits. The benefits under the Pensions Legislation are old age, disability and survivors pensions and lump sum refunds.

In light of the above, it is considered that the principal purpose of the XPF (for the purposes of the MIT rules) is to fund pensions (including disability and similar benefits) for the citizens or other contributors in Country X.

A fund established by an exempt foreign government agency

An 'exempt foreign government agency' is defined in section 995-1 of the ITAA 1997 as:

(a) the government of a foreign country, or part of a foreign country; or

(b) an authority of the government of a foreign country, if the authority is of a similar nature to an authority that is an exempt Australian government agency; or

(c) an authority of the government of part of a foreign country, if the authority is of a similar nature to an authority that is an exempt Australian government agency.

Pursuant to the Pensions Legislation, XPF is established by the Minister. The Minister is the head of the relevant Ministry. The Ministry forms part of the Government of Country X. Accordingly, the Minister in his capacity as the head of the relevant Ministry is part of the Government of Country X. In this case, the Minister in his capacity as the head of the Ministry is an 'exempt foreign government agency' for these purposes.

Based on the above, XPF is a fund established by an exempt foreign government agency.

A wholly-owned subsidiary of an entity mentioned above

Under the current investment structure, 100% of the shares in Subsidiary X are held by XPF. Accordingly, this requirement has also been satisfied in the case of Subsidiary X.

Requirement 5 - Overall

Accordingly, given that both Subsidiary X and XPF are Qualifying Entities, Requirement 5 (the widely held requirements) has been satisfied (i.e. 100% x 50 = 50 members).

Requirement 6 - Closely held

The requirement in paragraph 12-400(1)(g) of Schedule 1 to the TAA 1953 states:

(g) the trust satisfies the closely-held restrictions in subsection 12-402B(1) in relation to the income year

Section 12-402B of Schedule 1 to the TAA 1953 states:

(1) The trust satisfies the requirements in this subsection in relation to the income year unless, at any time in the income year, any of the following situations exist:

(a) for a trust mentioned in subparagraph 12-400(1)(e)(i) (trusts with wholesale membership) - 10 or fewer persons have a total MIT participation interest in the trust of 75% or more;

(b) if paragraph (a) does not apply - 20 or fewer persons have a total MIT participation interest in the trust of 75% or more;

(c) a foreign resident individual has a MIT participation interest in the trust of 10% or more.

(2) For the purposes of paragraphs (1)(a) and (b):

(a) if an entity covered by subsection 12-402(3) has a MIT participation interest in the trust - treat that entity as not having a MIT participation interest in the trust; and

(b) if an entity that is not a trust has a MIT participation interest in the trust because it holds interests in the trust indirectly, through a chain of trusts:

(i) if the entity is covered by subsection 12-402(3) - do not treat it as having a MIT participation interest in the trust; and

(ii) do not treat a trust in the chain of trusts as having a MIT participation interest in the trust.

(3) For the purposes of paragraph (2)(b), treat an entity covered by subsection 12-402(3) as an entity that is not a trust.

(4) For the purposes of paragraphs (1)(a) and (b), apply the rules in subsection 12-402(6).

XPF and Subsidiary X are Qualifying Entities. Accordingly, their MIT participation interests are excluded for the purposes of the closely held test.

Trust X will satisfy Requirement 6 (the closely held requirement) as XPF and Subsidiary X hold 100% of the MIT participation interests in Trust X and therefore no person other than a Qualifying Entity will have an interest of 75% or more in Trust X.

Furthermore, there is no foreign resident individual who has any MIT participation interest in Trust X.

Requirement 7 - Licensing

The requirement in paragraph 12-400(1)(h) of Schedule 1 to the TAA 1953 states:

(h) if the trust is covered by section 12-401 at the time the payment is made-it satisfies the licensing requirements in section 12-403 in relation to the income year.

The licensing requirements in section 12-403 of Schedule 1 to the TAA 1953 are:

The trust satisfies the requirements in this section in relation to the income year if, at the time the payment mentioned in paragraph 12-400(1)(a) is made (the time of the first fund payment for the income year):

(a) the trust is operated or managed by:

(i) a financial services licensee (within the meaning of section 761A of the Corporations Act 2001) holding an Australian financial services licence whose licence covers it providing financial services (within the meaning of section 766A of that Act) to wholesale clients (within the meaning of section 761G of that Act); or

(ii) an authorised representative (within the meaning of section 761A of that Act) of such a financial services licensee; or

(b) the trust is operated or managed by an entity covered by subsection (2); or

(c) the trust is operated or managed by an entity that:

(i) is a wholly-owned subsidiary of an entity covered by subsection (2); and

(ii) is an entity covered by subsection (3).

It is not necessary for the Commissioner to determine whether this requirement would be met because, as noted in the Assumptions, the Commissioner has assumed that this requirement will be satisfied.

Conclusion

As Requirements 1 to 7 have been satisfied, it follows that Trust X will be a 'managed investment trust' as defined in subsection 12-400(1) of Schedule 1 to the TAA1953.

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