Edited version of your written advice

Authorisation Number: 1051292171004

Date of advice: 20 October 2017

Ruling

Subject: Managed Investment Trust

Question 1

Will the Trust satisfy the requirements to be a managed investment trust (MIT) for the purposes of section 275-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Will the Trust satisfy the requirements to be an attribution managed investment trust (AMIT) for the purposes of section 276-10 of the ITAA 1997?

Answer

Yes.

Question 3

Will the Trust satisfy the requirements to be a withholding MIT under section 12-383 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)?

Answer

Yes, once the trustee of the Trust makes fund payments to unitholders of the Trust.

This ruling applies for the following periods:

XXXXXX to XXXXXX

The scheme commences on:

During the income year ended XXXXXX

Relevant facts and circumstances

Structure

The Trust was established as a unit trust with a company incorporated in Australia, as trustee of the Trust (Trustee).

HoldCo Trust and HoldCo, both residents of Country W, hold units in the Trust and do not carry on any business in Australia. HoldCo Trust holds 999 of the units in the Trust and HoldCo holds 1 unit in the Trust. HoldCo Trust owns 100 per cent of the shares in HoldCo.

The units in HoldCo Trust are held equally between non-residents Entity A and Entity C. Entity A is owned 100 per cent by Entity B and Entity C is 100 per cent owned by Entity D. Entity B is a government authority established pursuant to the laws of Country Y. The aim of Entity B is to develop, invest and manage Country Y state reserve funds and other assets assigned to it. All income and gains arising on the investments made by Entity B (including by its wholly-owned subsidiary Entity A) are for the sole and exclusive benefit of the government of Country Y. No other person other than Country Y has the right to the use or enjoyment or right of disposal of income and gains which arise on investments made by Entity B.

The SubTrust is an Australian resident trust whose units are 100 per cent owned by the Trust.

Flowchart was submitted in private rulings showing: The ownership structure.

The Trust and the SubTrust have entered into an Investment Management Agreement (IMA) with an Australian investment manager (Investment Manager). The Investment Manager is to provide services to the Trust and SubTrust under the IMA.

Activities of the Trust and its subsidiaries

The investment objective of the Trust is to acquire, via the SubTrust, real property (Initial Property), and potentially acquire additional real property through other trusts wholly-owned by the Trust. Presently, however, the sole asset of the Trust is its interest in the units issued by the SubTrust.

The SubTrust has entered into a contract for sale with the vendor of the Initial Property. Settlement for the Initial Property will occur when certification requirements as to the completion of a building to be constructed on the Initial Property in the contract for sale are satisfied.

Once completed, the building constructed on the Initial Property will be leased by the SubTrust to an independent operator (Operator) on commercial terms. In consideration for this leasehold interest in the Initial Property, the operator will pay to the SubTrust rental income. This will be the sole source of income to be derived by the SubTrust.

At present, the only asset of the SubTrust are its rights under the contract for sale of the Initial Property (i.e., it will not hold the Initial Property, nor will it derive any income, until such time that completion on the Initial Property occurs and it is leased to the operator).

Other

At all relevant times, the Trust is a managed investment scheme (MIS) as defined in section 9 of the Corporations Act 2001 (Corporations Act).

The Trustee holds an Australian financial services licence as defined in section 761A of the Corporations Act which covers operating the MIS.

The Trustee will have day-to-day control over the operations of the Trust within the meaning of the Corporations Act.

The Trust is not required to be registered under section 601EB of the Corporations Act pursuant to subsection 601ED(2) of the Corporations Act.

The only asset of the Trust will be the units in the SubTrust.

At least 75% of the gross rent to be derived by the SubTrust consists of rent, and none of the profits of the SubTrust constitute excluded rent (i.e., the rental income will not be calculated with reference to the profits or receipts of the operator)(section 102MB of the Income Tax Assessment Act 1936 (ITAA 1936)).

HoldCo and HoldCo Trust are not MITs for the purposes of section 275-10 of the ITAA 1997.

The trustee of HoldCo Trust and HoldCo are each not a retail client within the meaning of sections 761G and 761GA of the Corporations Act.

The trustee of HoldCo Trust is a financial services business regulated under the Country W financial services regulations and holds a licence in relation to its regulated activities.

The Trustee of the Trust will make a choice for the Trust to be an AMIT.

The unitholders have been issued the same class of units which means that all units in the class rank equally.

While the Constitution does provide the Trustee with the right to issue different classes of units which have different rights, obligations and restrictions the power has not been exercised and, it is not intended that this power will be exercised.

The Constitution provides that the Trustee undertakes to use its best endeavours to ensure that a substantial portion of all investment management activities are carried out in Australia.

The Constitution further provides that a substantial portion of the investment management activities are performed by the Investment Manager under the IMA. As an Australian resident company, it is not anticipated that any of the management activities to be performed by the Investment Manager would be conducted outside of Australia. Additionally, there is a requirement that the Investment Manager must ensure that it does not knowingly, having regard to any specific tax advice that it receives, act in a way as to prejudice the Trust’s compliance with Subdivision 12-H of Schedule 1 to the TAA.

Assumption

The assets of the Trust may also include units in other unit trusts, whose sole asset will be real property that is used for the purpose of deriving rental income on the same basis as for the Initial Property.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 275-10

Income Tax Assessment Act 1997 Section 276-10

Taxation Administration Act 1953 Section 12-383 of Schedule 1

Reasons for decision

In this ‘Reasons for decision’ all legislative provisions are to the ITAA 1997 unless otherwise indicated.

Question 1

Detailed reasoning

Under section 275-10, there are various requirements that must be satisfied in order for a trust to qualify as a MIT in relation to an income year, subsection 275-10(1) provides:

A trust is a managed investment trust in relation to an income year if any of the following requirements are met:

(a) the trust is covered under subsection (3) of this section in relation to the income year (ordinary case);

(b) the trust is covered under section 275-45 in relation to the income year (only members of trust are managed investment trusts etc.).

As the units in the Trust are not wholly-owned by MITs, the relevant question is therefore whether the Trust would satisfy the ‘ordinary case’ requirements to be a MIT, as set out in subsection 275-10(3).

A trust is covered under subsection 275-10(3) in relation to an income year if it meets certain requirements. Broadly, those requirements are:

● the trustee was an Australian resident, or the management and control of the trust was in Australia (paragraph 275-10(3)(a));

● the trust is not a trading trust (paragraph 275-10(3)(b));

● the trust is a managed investment scheme (paragraph 275-10(3)(c));

● the trust is either a trust with wholesale membership, or the trust is registered under section 601EB of the Corporations Act (paragraph 275-10(3)(d));

● the trust satisfies the widely held requirement (paragraph 275-10(3)(e));

● the trust satisfies the closely held restriction (paragraph 275-10(3)(f)); and

● the trust satisfies the licencing requirement (paragraph 275-10(3)(g)).

Residency requirement

Paragraph 275-10(3)(a) 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

Subsection 995-1(1) defines an ‘Australian resident’ as a person who is a resident of Australia for the purposes of the ITAA 1936.

Subsection 6(1) of the ITAA 1936 defines a ‘resident or resident of Australia’ as including:

(b) a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

The Trustee is a company incorporated in Australia.

Relevantly, however, in order to satisfy the requirements in paragraph 275-10(3)(a) the Trustee must be an Australian resident at the time of the first fund payment or an earlier time in the income year.

Broadly, a ‘fund payment’ is defined in section 12-405 of Schedule 1 to the TAA 1953 to be a payment made by the trustee of a MIT that, in effect, represents a distribution of its net income, excluding:

(i) dividend, interest or royalty income;

(ii) capital gains and losses from a capital gains tax asset that is not taxable Australian property; and

(iii) amounts that are not from an Australian source.

As noted above, until such time that completion of the construction of the building on the Initial Property, and title to the Initial Property is transferred to the SubTrust, it will not be deriving rental income which, when distributed to the Trust will be ultimately distributed to unitholders as fund payments. Accordingly, until this time, neither the SubTrust nor the Trust will derive any income for the purposes of distribution.

However, notwithstanding that it is not expected that the Trust will make any fund payments until such time, this will not prohibit the Trust from being characterised as a MIT.

Section 275-50 provides for an extended definition of a MIT, for circumstances where:

(i) the trustee of the trust does not make a fund payment in relation to an income year; and

(ii) the trust would be a MIT if the trustee of the trust had made the first fund payment in relation to the income year on the first day of the income year when it came into existence; and

(iii) the trust would be a MIT in relation to the income year if the trustee of the trust had made the first fund payment in relation to the income year on the last day of the income year on which it was in existence.

Therefore, to the extent that the Trust would otherwise satisfy the requirements to be a MIT for the purposes of subsection 275-10(3), the fact that no fund payment may be made in a particular income year will not, of itself, prevent the Trust from being characterised as a MIT. Accordingly, the requirement in paragraph 275-10(3)(a) is satisfied.

Not a trading trust

Paragraph 275-10(3)(b) states:

the trust is not a trust covered by subsection (4) (trading trust etc.) in relation to the income year;

Subsection 275-10(4) provides:

A trust is covered by this subsection in relation to an income year if:

(a) in the case of a unit trust - the trust is a trading trust for the purposes of Division 6C of Part III of the Income Tax Assessment Act 1936 in relation to the income year; or

(b) in any other case - the trust at any time in the income year:

(i) carried on a trading business (within the meaning of that Division); or

(ii) 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 (within the meaning of that Division).

As the Trust is a unit trust, paragraph 275-10(4)(a) is relevant in determining whether the requirement in paragraph 275-10(3)(b) is satisfied.

Subsection 102N(1) of the ITAA 1936 states:

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.

The term ‘trading business’ is defined in section 102M of the ITAA 1936 as a business that does not consist wholly of eligible investment business.

Relevantly, section 102M of the ITAA 1936 defines an ‘eligible investment business’ to include:

(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;

As investing in units in a unit trust is an eligible investment business the Trustee of the Trust is not carrying on a trading business for the purpose of subsection 102N(1) of the ITAA 1936.

However, as the sole holder of units in the SubTrust, the Trustee will control or be able to control, directly or indirectly, the affairs or operations of the trustee of the SubTrust. Consequently, in determining whether the Trust is a trading trust within the meaning of subsection 102N(1) of the ITAA 1936, it is also necessary to consider whether the SubTrust is carrying on a trading business.

Is the trustee of the SubTrust carrying on a trading business?

With regard to whether the SubTrust is carrying on a trading business, the following matters are considered relevant:

● the IMA provides that the investment objective of the Trust, SubTrust and any other trust that subsequently agrees to be bound by the terms of the IMA is:

● the acquisition by the Trust of the Initial Property, and subsequently, where applicable, the potential acquisition of additional real property through other trusts owned by the Trust; and

● it is intended that real property acquired will be held for the purposes of generating rental income, and that in acquiring and holding real property, the relevant trusts may also acquire and hold incidental and ancillary property;

● the trustee of the SubTrust has entered into a contract of sale for the acquisition of the Initial Property (Contract of Sale);

● upon completion of the Contract of Sale, the Initial Property will be transferred from the vendor of the Initial Property to the trustee of the SubTrust;

● upon obtaining title to the Initial Property, the trustee of the SubTrust will lease the Initial Property to a third party service operator;

● the terms on which the Initial Property will be leased to the service operator will reflect those of an arm’s length agreement at market value;

● in consideration for this leasehold interest in the Initial Property, the service operator will pay to the trustee of the SubTrust rental income;

● the rental income will not be calculated by reference to the profits or receipts of the service operator (and thus, will not constitute ‘excluded rent’ – refer section 102MB of the ITAA 1936);

● the sole income to be derived by the SubTrust will be the rental income from the leasing of the Initial Property; and

● the only asset to be held by the SubTrust will be its interest in the Initial Property.

In view of the above, it is considered that the business carried on by the SubTrust will wholly consist of eligible investment business as defined in section 102M of the ITAA 1936, being investing in land for the purpose, or primarily for the purpose, of deriving rent.

Accordingly, the Trustee will not control, or be 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 for the purpose of subsection 102N(1) of the ITAA 1936.

Therefore, as the Trust will not be a trust that is covered by subsection 275-10(4) in each relevant income year, the Trust satisfies the requirement in paragraph 275-10(3)(b).

The Trust is a managed investment scheme

Paragraph 275-10(3)(c) states:

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);

The Trust is a managed investment scheme within the meaning of section 9 of the Corporations Act.

Therefore, the Trust satisfies the requirement in paragraph 275-10(3)(c) (noting that, as discussed above, to the extent that a fund payment is not made in an income year, the expanded definition of a MIT in section 275-50 will apply (provided that all other requirements in subsection 275-10(3) are satisfied)).

Wholesale membership

Paragraph 275-10(3)(d) states:

at the time the payment is made:

(i) the trust is covered by section 275-15 (trusts with wholesale membership); or

(ii) if the trust is not covered by section 275-15 - the trust is registered under section 601EB of the Corporations Act 2001;

Subparagraph 275-10(3)(d)(i) applies to the Trust (see below).

Section 275-15 provides:

A trust is covered by this section at a time if, at that time:

(a) the trust is not required to be registered in accordance with section 601ED of the Corporations Act 2001 (whether or not it is actually so registered) because of subsection 601ED(2) of that Act (no product disclosure statement required) or because it is operated or managed by an entity covered by subsection 275-35(2) (Crown entities); and

(b) the total number of entities that had become a member of the trust because a financial product or a financial service was provided to, or acquired by, the entity as a retail client (within the meaning of sections 761G and 761GA of the Corporations Act 2001) is no more than 20; and

(c) the entities mentioned in paragraph (b) have a total MIT participation interest in the trust of no more than 10%.

The Trust is not required to be registered under section 601EB of the Corporations Act pursuant to subsection 601ED(2) of the Corporations Act.

The unit holders of the Trust (HoldCo Trust and HoldCo) are each not a ‘retail client’ within the meaning of sections 761G and 761GA of the Corporations Act.

Therefore, subject to the Trust making a fund payment, the requirements in paragraph 275-10(3)(d) are satisfied (again noting that, as discussed above, to the extent that a fund payment is not made in an income year, the expanded definition of a MIT in section 275-50 will apply (provided that all other requirements in subsection 275-10(3) are satisfied)).

Widely held requirement

Paragraph 275-10(3)(e) states:

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 275-15 - either or both of the widely-held requirements in subsections 275-20(1) and 275-25(1); or

(ii) if, at the time the payment is made, the trust is so registered and is not covered by section 275-15 - either or both of the widely-held requirements in subsections 275-20(2) and 275-25(1); or

(iii) if, at the time the payment is made, the trust is not so registered and is covered by section 275-15 - the widely-held requirements in subsection 275-20(1);

As discussed above, the Trust is not registered under section 601EB of the Corporations Act and is covered by section 275-15. Therefore, subparagraph 275-10(3)(e)(iii) is relevant.

Subsection 275-20(1) provides:

The trust satisfies the requirements in this subsection in relation to the income year if, at the time the payment mentioned in paragraph 275-10(3)(a) is made, the trust has at least 25 members.

The term ‘member’ in relation to an entity is defined in subsection 995-1(1) as having the meaning given by section 960-130.

Subsection 960-130(1) defines a member of a trust to be a beneficiary, unitholder or object of the trust.

Accordingly, the unitholders (HoldCo Trust and HoldCo) of the Trust, are the members of the Trust.

To satisfy subsection 275-20(1), subsection 275-20(3) prescribes the following calculation rules:

For the purposes of subsection (1) and paragraph (2)(b), determine the number of members of the trust as follows:

(a) first, by applying the rules in subsection (5), identify:

(i) the members of the trust that are not entities covered by subsection (4); and

(ii) the members of the trust that are entities covered by subsection (4);

(b) next, work out the number of members mentioned in subparagraph (a)(i);

(c) next:

(i) work out the MIT participation interest in the trust of each entity mentioned in subparagraph (a)(ii); and

(ii) for each of those entities, multiply the total of its MIT participation interest in the trust by 50 and round the result upwards to the nearest whole number; and

(iii) work out the total of the results of subparagraph (ii) for all of those entities;

(d) next, work out the total of the results of paragraphs (b) and (c).

Subsection 275-20(5) states that:

The rules are as follows:

(a) if an entity that is not a trust holds interests in the trust indirectly, through a chain of trusts:

(i) treat the entity as a member of the trust; and

(ii) do not treat a trust in the chain of trusts as a member of the trust;

(b) do not treat an object of the trust as a member of the trust;

(c) if the trust is mentioned in subparagraph 275-10(3)(d)(i) (trusts with wholesale membership) - do not treat an individual as a member of the trust (other than an individual who became a member of the trust because a financial product or a financial service was provided to, or acquired by, the individual as a wholesale client (within the meaning of section 761G of the Corporations Act 2001));

(d) the rules in subsection (7).

Subsection 275-20(6) states:

For the purposes of paragraph (5)(a), treat an entity covered by subsection (4) as an entity that is not a trust.

Therefore, the first step is to identify whether there are members of the Trust that are entities covered by subsection 275-20(4).

The term ‘chain of trusts’ is defined in subsection 995-1(1) as having the meaning given by section 104-71.

HoldCo is wholly-owned by HoldCo Trust. HoldCo Trust is a unit trust. The units in HoldCo Trust are held in equal proportions between Entity A and Entity C.

According to subsection 104-71(5):

a chain of trusts consists of 2 or more trusts where at least one of these conditions is satisfied for each of the trusts:

(a) the trustee of the trust owns units or interests in another of the trusts; or

(b) the trustee of another of the trusts owns units or interests in the trust.

As HoldCo Trust is a trust in that chain of trusts, it will not be treated as a member of the Trust for the purpose of subsection 275-20(1).

In accordance with paragraph 275-20(5)(a), as Entity A and Entity C are not trusts which hold interests in the Trust indirectly through a chain of trusts (HoldCo Trust and the Trust itself), they will be treated as members of the Trust for the purpose of subsection 275-20(1).

Neither Entity C nor HoldCo is an entity covered by subsection 275-20(4).

For the reasons discussed below, it is considered that Entity A is an entity covered by paragraph 275-20(4)(h).

Entity A is an entity covered by subsection 275-20(4)

Paragraph 275-20(4)(h) includes:

an investment entity that satisfies all of these requirements:

(i) the entity is wholly-owned by one or more foreign government agencies, or is a wholly-owned subsidiary of one or more foreign government agencies;

(ii) the entity is established using only the public money or public property of the foreign government concerned;

(iii) all economic benefits obtained by the entity have passed, or are expected to pass, to the foreign government concerned;

Consequently, in order for Entity A to qualify as a widely-held entity as specified in paragraph 275-20(4)(h), each of the following requirements must be satisfied:

● Entity A must be an investment entity;

● must be wholly-owned by one or more ‘foreign government agencies’, or be a wholly-owned subsidiary of one or more ‘foreign government agencies’;

● must be established using only the public money or public property of the foreign government concerned; and

● all economic benefits obtained by the Entity A have passed, or are expected to pass, to the foreign government concerned.

Investment entity

Entity B is a government authority of Country Y in accordance with statute of Country Y. The aim of Entity B is to develop, invest and manage the reserve funds and other assets assigned by the Government of Country Y.

For this reason, Entity B (and by extension Entity A as one of Entity B’s wholly-owned subsidiaries) was established to invest and manage the foreign government’s reserve funds and other property assigned to Entity B.

The common law meaning of ‘investment’ is essentially the dictionary definition. In Melville v. Mutual Life and Citizens Assurance Co Ltd (1980) 31 ALR 649; (1980) 47 FLR 201; [1980] FCA 114, the Federal Court interpreted subsection 39(2) of the Life Insurance Act 1945 (Cth). Lockhart J stated:

"Invest" is not defined by the Act. It is defined by the Shorter Oxford English Dictionary, so far as relevant, as meaning: "to employ (money) in the purchase of anything from which interest or profit is expected … to make an investment … colloq. to lay out money".

In Inland Revenue Commissioners v. Rolls-Royce Ltd [1944] 2 All ER 340, MacNaghten J interpreted a provision in the Finance (No. 2) Act 1939 (UK). His Lordship stated:

The word "investment," though it primarily means the act of investing, is in common use as meaning that which is thereby acquired; and the primary meaning of the transitive verb "to invest" is to lay out money in the acquisition of some species of property…

Businesses consisting wholly or mainly in dealing in or holding investments would, as a general rule, be businesses where money, and nothing but money, is laid out in acquiring the investments.

As the acquisition of assets for money is what Entity A will do, it will be an investment entity.

Wholly-owned by one or more ‘foreign government agencies’, or is a wholly-owned subsidiary of one or more ‘foreign government agencies’

Subsection 995-1(1) states:

foreign government agency means:

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

(b) an authority of the government of a foreign country; or

(c) an authority of the government of part of a foreign country

Entity B is entirely controlled by the Government of Country Y. Accordingly, Entity B is an authority of the government of a foreign country under paragraph (b) of the definition of ‘foreign government agency’ in subsection 995-5(1).

It therefore follows that Entity A is wholly–owned by one or more ‘foreign government agencies’, or is a wholly–owned subsidiary of one or more foreign government agencies.

The entity is established using only the public money or public property of the foreign government concerned

This condition requires that the entity must be established by using public, or governmental, monies or property rather than private funds or property, or funds or property accruing to the benefit of individuals in their private capacity.

All funds provided to Entity B are provided by the Government of Country Y. It therefore follows that the only funds available to establish Entity B’s wholly-owned subsidiaries must come from the Government of Country Y, or must be the proceeds of sale of Entity B’s existing investments or the income generated by such investments.

Accordingly, Entity A meets this condition.

All economic benefits obtained by the entity have passed, or are expected to pass, to the foreign government concerned

With regard to whether all economic benefits obtained by Entity A will pass, or are expected to pass, to the Government of Country Y the following matters are relevant:

● Entity B must invest Country Y funds and assets assigned to it from the Government of Country Y in accordance with the policies of Country Y

● Entity B is entirely funded by the Government of Country Y

● Entity B is entirely controlled by the Government of Country Y

● all the income and gains arising on investments made by Entity B (including its wholly-owned subsidiaries are for the sole and exclusive benefit of the Government of Country Y; and

● no other person other than the Government of Country Y has the right to use, enjoy or dispose of the income gains which arise on such investments by Entity B.

In view of the above, it is accepted that all economic benefits obtained will pass, or is expected to pass, to the foreign government.

Accordingly, Entity A is a widely-held entity as specified in paragraph 275-20(4)(h).

The second step is to work out the number of members of the Trust that are not entities covered by subsection 275-20(4). As Entity C is not an entity covered by subsection 275-20(4), it will only count as one member (see subparagraph 275-20(3)(a)(i) and paragraph 275-20(3)(b)).

The third step is to work out the ‘MIT participation interest’ (MPI) in the trust for each entity that is covered by subsection 275-20(4), multiply that MPI by 50 and round the result upwards to the nearest whole number. A total of the results of this calculation for each entity is then calculated.

Section 275-40 states:

(1) An entity has a MIT participation interest in a trust if the entity, directly or indirectly:

(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.

(2) The MIT participation interest of the entity in the trust is the greatest of the percentages mentioned in paragraphs (1)(a), (b) and (c).

Entity A directly holds 50 per cent of the units in HoldCo Trust. HoldCo Trust owns 100 per cent of the shares in HoldCo. As such, Entity A holds, directly or indirectly 50 per cent of the interests in the Trust. Therefore Entity A has an MPI of 50 per cent in the Trust.

In accordance with subparagraph 275-20(3)(c)(ii), the MPI is multiplied by 50 and rounded up to the nearest whole number. This produces a result of 25.

The fourth step is to work out the total of the results from the second and third steps.

Accordingly, the Trust has 26 members for the purpose of subsection 275-20(1) and therefore satisfies the requirement in paragraph 275-10(3)(e).

Closely held restriction

Paragraph 275-10(3)(f) states:

the trust satisfies the closely-held restrictions in subsection 275-30(1) in relation to the income year;

Subsection 275-30(1) states:

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 275-10(3)(d)(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.

As the Trust is a trust with wholesale membership under subparagraph 275-10(3)(d)(i), paragraph 275-30(1)(a) is relevant.

Subsection 275-30(2) states:

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

(a) if an entity covered by subsection 275-20(4) 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 275-20(4) - 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.

Subsection 275-30(3) states:

For the purposes of paragraph (2)(b), treat an entity covered by subsection 275-20(4) as an entity that is not a trust.

As Entity A is an entity covered by subsection 275-20(4), it is treated as not having a MPI in the Trust for the purpose of subsection 275-30(1) (paragraph 275-30(2)(b)).

Entity C is not an entity covered by subsection 275-20(4) and hence will not have its MPI in the Trust disregarded by the operation of subsection 275-30(2). Entity C has a MPI in the Trust of less than 75 per cent and is the only entity with a MPI in the Trust for the purpose of subsection 275-30(1).

Consequently, paragraph 275-30(1)(a) does not apply to the Trust’s circumstances.

In relation to paragraph 275-30(1)(c), there is no foreign resident individual with a MIT participation interest in the Trust of 10 per cent or more.

Accordingly, the Trust satisfies the closely held restrictions in subsection 275-30(1) as none of the situations in paragraphs 275-30(1)(a) to (c) apply. Therefore, the requirement in paragraph 275-20(3)(f) is satisfied.

Licencing requirement

Paragraph 275-20(3)(g) states:

if the trust is covered by section 275-15 at the time the payment is made - it satisfies the licensing requirements in section 275-35 in relation to the income year.

As discussed above, the Trust is covered by section 275-15.

Relevantly, subsection 275-35(1) states:

The trust satisfies the requirements in this section in relation to the income year if, at the time the payment mentioned in paragraph 275-10(3)(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).

The Trustee holds an Australian financial services licence as defined in section 761A of the Corporations Act, and it is the Trustee who has day-to-day control over the operations of the Trust. Therefore, subject to the Trust making a fund payment, the requirements in paragraph 275-10(3)(f) will be satisfied (noting that, to the extent that a fund payment is not made in an income year, the expanded definition of a MIT in section 275-50 will apply (provided that all other requirements in section 275-10(3) are satisfied)).

Conclusion

Accordingly, based on the above analysis the Trust will satisfy the requirements to be a MIT for the purposes of section 275-10.

Question 2

Subsection 276-10(1) states:

A trust is an attribution managed investment trust (or AMIT) for an income year if:

(a) the trust is a managed investment trust in relation to the income year; and

(b) the rights to income and capital arising from each of the membership interests in the trust are clearly defined (see section 276-15) at all times when the trust is in existence in the income year; and

(c) if the trust is a managed investment trust in relation to the income year solely because of paragraph 275-10(1)(b) - the only members of the trust are managed investment trusts in relation to the income year; and

(d) if the regulations specify criteria for the purposes of this paragraph - those criteria are satisfied in relation to the trust; and

(e) either:

(i) the trustee of the trust has made a choice for the purposes of this subparagraph in respect of that income year; or

(ii) the trust was an AMIT for an earlier income year.

The trust is a MIT

For the reasons set out in response to Question 1, the Trust will be a MIT for the relevant income year pursuant to section 275-10, thereby satisfying the condition in paragraph 276-10(1)(a).

The rights to income and capital arising from each of the membership interests are clearly defined (section 276-15)

‘Membership interests’ are defined in section 960-135 as each interest, or set of interests in an entity or each right or set of rights in relation to an entity, that a member has (in this case being the unitholders in the Trust).

In accordance with subsection 276-15(1), rights to income and capital arising from membership interests in a trust are clearly defined if either:

(i) the trust is registered under section 601EB of the Corporations Act; or

(ii) the rights to income and capital arising from each of the membership interests in the trust are the same (disregarding fees or charges imposed on members, issue and redemption prices of membership interests and foreign exchange exposure).

The Trust is not required to be registered under section 601EB of the Corporations Act pursuant to subsection 601ED(2) of the Corporations Act. Accordingly, it needs to be established that unitholders rights to income and capital are clearly defined.

The unitholders have been issued the same class of units which means that all units rank equally. As a result, all of the rights to income of the issued membership interests in the Trust are the same.

While the Constitution does provide the Trustee with the right to issue different classes of units which have different rights, obligations and restrictions this power has not been exercised and, it is not intended that this power will be exercised. Accordingly, the unitholders will have rights to income and capital of the Trust that are clearly defined.

On the basis of the above, the Trust satisfies the requirements of paragraph 276-15(1)(b).

Trust is a MIT in relation to the income year solely because of section 275-10(1)(b)

As the units in the Trust are not wholly-owned by MITs, the Trust is not a MIT under paragraph 275-10(1)(b).

Regulation requirements

As there are currently no regulations that have been released which specify criteria for the purposes of paragraph 276-10(1)(d), this requirement is satisfied.

Trustee of the trust made a choice for this income year or was an AMIT last income year.

The Trustee of the Trust will make a choice for the Trust to be an AMIT.

Conclusion

Accordingly, based on the above analysis, the Trust will be an AMIT in the income year in which the Trustee makes a choice to become an AMIT.

Question 3

Detailed reasoning

Section 12-383 of Schedule 1 to the TAA states:

A trust is a withholding MIT in relation to an income year if:

(a) it is a managed investment trust in relation to that income year because of paragraph 275-10(1)(a) or (2)(b) of the Income Tax Assessment Act 1997; and

(b) 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.

The Trust is a MIT

The Trust is currently a MIT only by virtue of section 275-10(2)(a), and accordingly, at this time, the requirement in paragraph 12-383(a) of Schedule 1 to the TAA would not be satisfied.

However, once the Trust receives distributions from the SubTrust and commences making fund payments to unitholders, it would qualify as a MIT under subsection 275-10(1)(a). At this time, the requirement in paragraph 12-383(a) of Schedule 1 to the TAA would be satisfied by the Trust.

A substantial proportion of the investment management activities are carried out in a way specified by paragraph 12-383(b) of Schedule 1 to the TAA

The units owned by the Trustee in the SubTrust are ‘taxable Australian property’ within the meaning given by section 855-15, being an ‘indirect Australian real property interest’ as defined under section 855-25.

Therefore subparagraph 12-383(b)(ii) of Schedule 1 to the TAA 1953 is relevant.

As an Australian resident company, it is not anticipated that any of the management activities to be performed by the Investment Manager under the IMA would be conducted outside of Australia. Additionally, there is a requirement that the Investment Manager must ensure that it does not knowingly, having regard to any specific tax advice that it receives, act in a way as to prejudice the Trust’s compliance with Subdivision 12-H of Schedule 1 to the TAA.

On the basis of the above, as a substantial proportion of the investment management activities with respect to the units in the SubTrust (the assets of which comprise the Initial Property) would be carried out in Australia, this requirement would be satisfied.

On this basis, once the Trust is in a position where it is receiving distributions from the SubTrust to distribute as fund payments to unitholders, it would satisfy the requirements to be a withholding MIT in relation to an income year for the purposes of section 12-383 of Schedule 1 to the TAA 1953.

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