Edited version of your written advice

Authorisation Number: 1051306225766

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

Date of advice: 10 November 2017

Ruling

Subject: Attribution Managed Investment Trust

Question 1

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

Answer

Yes

Question 2

Will each 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:

Years ending 30 June 2017 to 30 June 2021

The scheme commenced on:

1 July 2016

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 2017.

● 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 2017.

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.

● Under the Information Memorandum (IM), the 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 Trust Deed states that the beneficial interest in the Trust is divided into units.

● 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

1) The Trust will be a Managed Investment Trust for the purposes of Division 275.

2) Throughout the Ruling Period:

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

● No amendment to the Trust Deed will be executed which would cause ‘clearly defined interests’ (as per the meaning of that term in Subdivision 276-A of the ITAA 1997 and Law Companion Guideline LCG 2015/4 Attribution Managed Investment Trusts: 'clearly defined rights' (LCG 2015/4) to cease to exist.

● For each Unit Class, the Unit Class Terms (these terms are defined in the Trust Deed) will be established under the Trust Deed and in accordance with the Trust Deed.

● Any additional terms included in an Information Memorandum in relation to a Unit Class (if any) would:

● define rights that apply to all unitholders of that Unit Class;

● not result in there ceasing to be an objective benchmark for the Trustee to attribute amounts;

● enable attribution to be worked out on a fair and reasonable basis; and

● not include discretionary powers or rights of the Trustee that could materially diminish or expand the income/capital entitlements of unitholders.

3) 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

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 to be issued, 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 LCG 2015/4. In particular, paragraph 9 outlines five key tests in determining whether (under ordinarily principles) members would have clearly defined rights. These five tests are as follows:

Item 1: whether the constituent documents of the trust provide an objective benchmark for the trustee to attribute amounts to members annually

● The Trust Deed requires the Trustee to attribute Determined Trust Components of each Unit Class for the income year. This attribution must be performed in line with the principles contained in the Trust Deed. The Trust Deed states that the amount of each character of the Determined Member Component attributed to each unit holder of a class is so much of the Determined Trust Component of that character attributable to the units held by the unit holder.

● The Trust Deed requires for attribution to be performed in a way that is fair and reasonable (for example, this may include length of membership period as discussed in Law Companion Guide 2015/7 Attribution Managed Investment Trusts: attribution on a 'fair and reasonable' basis (LCG 2015/7) or other factors as referenced in LCG 2015/7). Irrespective of the fair and reasonable allocation adopted, the attribution methodology is required to make reference to the number of units held by the unit holder. As the number of units held is an objectively determinable factor, the constituent documents of the Trust therefore provide an objective benchmark for the determination of the amounts that the Trustee would attribute to members annually.

● Therefore, it is considered that the Trust Deed does effectively provide an objective benchmark for the Trustee to attribute amounts to members annually.

Item 2: whether, assuming that the trust is an AMIT for the income year in which the time occurs, the amount of each member component for the income year of each member of the trust can be worked out on a fair and reasonable basis in accordance with the constituent documents of the trust

● As stated above, the requirements for working out the member components for each member of the Trust are addressed in the Trust Deed, which states that the attribution and determination must be worked out on a fair and reasonable basis, in accordance with this deed and any other documents that constitute Constituent Documents for the Unit Class.

● It is considered that this would be a fair and reasonable basis for calculating each member component under the constituent documents.

Item 3: whether the right of each member of the trust to the income and capital of the trust can be materially diminished or expanded through the exercise of a power or right

● In relation to the Trustee’s powers, it is stated in the Trust Deed that the rights and powers of the Trustee in respect of any AMIT income year will be read down to the extent necessary to ensure that there are clearly defined rights with respect to each unit in each unit class.

● It is noted that any accumulated income will form a part of the assets of that Unit Class and that any distribution of capital of the Trust must occur on a pro rat basis in relation to each Unit Class.

● Thus, notwithstanding any other provision in the Trust Deed to the contrary, the Trustee’s powers would not prevail over the requirement to read down the power to the extent necessary so as not to result in a breach of the clearly defined rights test.

Item 4: whether the trustee has an obligation to treat members who hold units or interests of the same class equally and members who hold membership interests in different classes fairly

● As per the Trust Deed, each unit of a unit class will have equal undivided interest and will have an interest in the assets of the unit class as a whole, subject to the liabilities of the unit class. The rights arising from each membership interest in a particular unit class will be the same as the rights arising from every other of those membership interests in that unit class.

● It follows that the rights arising from each membership interest in a particular unit class are the same.

Item 5: whether the trustee can easily modify the rights of those membership interests to the income and capital of the trust by changing the constituent documents of the trust

● The Trustee may amend the Trust Deed. However, relevantly, such an amendment must not adversely affect the rights of Unitholders or must be passed by a 75% majority of Unitholders.

● Therefore, the Trustee cannot easily modify the membership rights to income or capital under the constituent documents of the Trust.

Conclusion

Based on the analysis above and 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 units for each 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 Attribution Managed Investment Trusts: choice to treat separate classes as separate AMITs (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 terms of the Trust Deed, the rights of all membership interests within a class are the same.

Currently, one class of units are on issue. 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 are the same.

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

As per clause 2.3 of 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.

Paragraph 14 of LCG 2015/5 and paragraph 2.31 of the relevant Explanatory Memorandum state 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), each 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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