Edited version of your written advice

Authorisation Number: 1051244787310

Date of advice: 5 July 2017

Ruling

Subject: Attribution Managed Investment Trusts

Question 1

Does the Trust under its Trust Deed meet the Attribution Managed Investment Trusts (AMIT) definition requirement in paragraph 276-10(1)(b) of having 'clearly defined interests’?

Answer

Yes

Question 2

Will the Y class units (and each subsequent class offered in the Trust) satisfy the requirements of subsection 276-20(1) to be treated as a separate AMIT of the Trust?

Answer

Yes

This ruling applies for the following periods

Year ending 30 June 201Y

Year ending 30 June 201Z

The scheme commenced on

1 July 201X

Relevant facts and circumstances

Summary of transaction

● The Trust is an unlisted public unit trust and was established in Australia under the Trust Deed.

● The Trust Deed was drafted with the intention of meeting the requirements under the new AMIT regime introduced by the Tax Laws Amendment (New Tax System for Managed Investment Trusts) Act 2016, including the ability to set up classes of membership interests in the Trust.

● The Trustee intends to elect for the Trust to be an AMIT for the year ended 30 June 201Y.

● The Trustee intends to make the choice for the Trust to be a trust with multiple classes of membership interests for the year ended 30 June 201Y.

Key facts of the transactions

● The Trust is an unlisted public unit trust.

● The Trust is an unregistered managed investment scheme.

● The Trust Deed was drafted to comply with the requirements of the AMIT regime.

● The Trust was established under the Trust Deed and the Trustee intends to make a choice for the Trust to be an AMIT under subparagraph 276-10(1)(e)(i).

● The Trustee intends to make a choice under paragraph 276-20(1)(d) for the Trust to be a multi-class AMIT for the purposes of section 276-20, and accordingly, treat each class of membership interests as a separate AMIT.

● Each class of membership interests will be governed by the terms of the Trust Deed.

● One class has been created since the establishment of the Trust, being the Y class units.

● Under the Information Memorandum (IM) for the Y class units, this class is a class that accumulates its cash (i.e. generally does not make cash distributions).

● It is intended that additional classes will be added to the Trust.

The Y class units

● The Trust Deed states that the beneficial interest in the Trust is divided into units.

● As the IM does not contain other specific clauses in relation to rights, there are no restrictions attached to the unit of the unit class, and thus terms in the Trust Deed prevail.

● The Executive Summary of the IM includes a section on 'Income allocation’ and the IM also states that unitholders can elect to receive cash equivalent of their determine member components (allocated to them on a fair and reasonable basis) allocated for a particular period (e.g. at 30 June or 31 December), even if income and gains are accumulated in the Y class. In the event that a unitholder wishes to elect otherwise and not accumulate, they will receive a cash distribution by way of redemption.

● There are no specific clauses in the IM relating to wind-up/termination. The Trust Deed provides that upon termination, net proceeds from the realisation of the assets of the unit class (after discharging liabilities and expenses), must be distributed pro rata to unitholders according to their unitholdings.

Assumptions

The Trust will be a MIT for the purposes of Division 275.

The applicable requirements of paragraphs 276-10(1)(a), (c), (d) and (e) will be satisfied by the Trust.

Further unit classes, in addition to the Y class units, will be issued.

The Trustee of the AMIT will make a choice under paragraph 276-20(1)(d) that each unit class be treated as a separate AMIT.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 276

Income Tax Assessment Act 1997 Section 276-10

Income Tax Assessment Act 1997 Section 276-20

All legislative references in this document are to the Income Tax assessment Act 1997.

Reasons for decision

Question 1

Summary

The Trust under the Trust Deed will meet the AMIT definition requirement in paragraph 276-10(1)(b) of having 'clearly defined interests’.

Detailed reasoning

On the basis that the Trust is not registered, it is noted that whilst more than one class of units is on issue the members would be required to have clearly defined rights with respect to both income and capital of the Trust as per the ordinary meaning of that term.

The ATO’s views on this test are contained in Law Companion Guide 2015/4 (LCG 2015/4). In particular, paragraph 9 outlines five key tests in determining whether (under ordinarily principles) members would have clearly defined rights.

Based on a detailed review of the Trust Deed in light of the factors outlined by the Commissioner in LCG 2015/4, no terms of the constitution have been identified that would result in members rights to income and capital not being clearly defined.

Accordingly, it is considered that the rights of unit holders to income and capital would satisfy the definition of being 'clearly defined’.

On the basis of all of the above, and with the inclusion of the assumption that the applicable requirements of paragraphs 276-10(1)(a), (c), (d) and (e) will be satisfied, the Trust will qualify as an AMIT under section 276-10 for the income year in respect of which the choice under subparagraph 276-10(1)(e)(i) is made.

Question 2

Summary

The Y class units (and each subsequent class offered in the Trust) will satisfy the requirements of subsection 276-20(1) to be treated as a separate AMIT of the Trust.

Detailed reasoning

In order to treat each class of interest as a separate AMIT under section 276-20, the Trust would need to meet the criteria in subsection 276-20(1). The criteria are as follows:

● The membership interests of the trust must be divided into classes (paragraph 276-20(1)(a)).

● The rights arising from each of those membership interests in a particular class are the same as the rights arising from every other of those membership interests in that class (paragraph 276-20(1)(b)).

● Each of those membership interests in a particular class are distinct from each of those membership interests in another class (paragraph 276-20(1)(c)).

● The trustee of the trust has made a choice for the purposes of subsection 276-20(1) that applies to the income year (paragraph 276-20(1)(d)).

Once the above criteria are satisfied, each class of interest in the AMIT is then treated as a separate AMIT. The choice applies to the income year and each subsequent income year, and is irrevocable (subsections 276-20(4) and (5)).

Condition 1: The membership interests are divided into classes

In Law Companion Guide 2015/5 (LCG 2015/5), paragraph 13 states the following with respect to the meaning of a class of membership interests.

Subsection 995-1(1) specifies that a “class” of membership interests in a trust exists if the interests have the same, or substantially the same, rights. One class of interest will be distinct from another class if the terms relating to the class of interest provide interest holders of the first class with rights to the income and/or capital of the AMIT that are not substantially the same as those obtained by the holders of interests in the second class.

In this case, the Trust Deed has been executed with the intention of its membership interests being divided into unit classes, and per The Trust Deed the rights of all membership interests within a class are the same.

Currently, only one class of units is on issue (the Y class units). However, further classes of units will be issued.

Therefore, the requirements of paragraphs 276-20(1)(a) and 276-20(1)(b) will be satisfied.

Accordingly, the Trust will be divided into separate classes of units.

Condition 2: The rights of each member of a class are the same

The second condition requires that the rights of each membership interest in a class to be the same. In this case, as stated above, the rights of all membership interests within a class will be the same.

Condition 3: Each member of a class is distinct from another class

As per the Trust Deed, the Trustee will ensure that the assets of each class are clearly identified as such and will, to the extent practicable, hold the assets of each class so that they are separately identifiable within the records of the Trustee from the assets of other classes of the Trust and any property of any other trust or entity managed by the Trustee. The assets of a class are subject to the liabilities of the class, and no assets of a class may be applied to meet the liabilities of another class.

This effectively means that, the Trustee will ensure, to the extent practicable, that each membership interest of a particular class is clearly distinct from each membership interest in another class of the Trust.

In relation to this requirement, paragraph 14 of LCG 2015/5 references paragraph 2.31 of the relevant Explanatory Memorandum which, in part, states that:

An attribution MIT may have more than one class of membership interests if, for example, different members have exposure to different groups of assets of the attribution MIT.

Therefore, on this basis, the requirements in paragraph 276-20(1)(c) will be satisfied.

Conclusion

Based on the above, and as the Trustee of the Trust will make the choice under paragraph 276-20(1)(d), the Y class units (and each subsequent class offered in the Trust) will satisfy the requirements of subsection 276-20(1) to be treated as a separate AMIT of the Trust.

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