1051321155421 | Legal database

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Edited version of your written advice

Authorisation Number: 1051321155421

Date of advice: 3 December 2017

Ruling

Subject: Common contractual fund

This ruling applies for the following periods:

Income year ended 30 June 2018

Income year ended 30 June 2019

Income year ended 30 June 2020

The Scheme commences on

1 July 2017

Relevant Facts of circumstances

1. A Foreign umbrella Common Contractual Fund (Fund) is established under contract law by way of a Deed of Constitution (Deed).

2. The Fund currently has one sub-fund (Sub-Fund).

3. The Fund accepts applications to invest in the Fund from investors in many jurisdictions, including Australia.

4. The investors will purchase and hold units directly in the Sub-Fund, rather than in the Fund. For the purpose of this Ruling, the investors (also known as Unitholders) are Australian residents.

The Deed

5. The Fund is an unincorporated body that does not have legal personality and may only act through its manager (Manager) who is a Foreign tax resident.

6. The Deed provides the Manager with a wide range of discretion and power in relation to the administration and management of the Fund (and the Sub-Fund) and the assets of the Fund (and the Sub-Fund). For example, the Manager is authorised to:

● establish additional sub-funds or close any sub-funds at its discretion

● manage the assets of the Fund and Sub-Fund

● at its discretion appoint or remove a depositary

● appoint or delegate investment manager or administrator of the Fund or Sub-Fund

● determine the issue price of the units and impose restrictions on the type of person who may invest in the Fund

● borrow on behalf of the Fund

● deal with the assets of the Fund or Sub-Fund

● determine the net asset value of the Fund or Sub-Fund

● grant and process redemption request

● determine, declare and pay distribution to the Unitholders

● redeem or cancel units in the Fund or in Sub-Fund and use the proceeds to invest in another Fund or Sub-Fund

● terminate the Fund or Sub-Fund in its absolute discretion in certain circumstances, and

● distribute assets and cash to Unitholders upon termination of the Fund or Sub-Fund.

7. Under the Deed, the Manager is required to appoint a depositary (Depositary). The Depositary is primarily responsible for the following:

● Safekeeping of the assets of the Sub-Fund

● Monitor the cash flow of the Sub-Fund

● Hold the legal title of all financial instruments of the Sub-Fund, and

● Follow and act on the proper instructions from the Manager.

8. Both the Manager and the Depositary have the obligation under the Deed to act honestly, with due care, and fairly, solely and exclusively in the best interest of the Unitholders, specifically:

For the Depositary

● it is liable for the performance or non-performance of its duties, loss of financial instruments and all other losses resulting from the Depositary’s negligence or intentional failure to properly fulfil its oversight obligations, and

● it is indemnified against all other liabilities or third party actions.

For the Manager

● it is liable for breach of fiduciary duty, negligence, wilful default or fraud, and

● it is indemnified in respect of all liabilities and expenses properly incurred by its delegated investment manager.

9. The Manager and the Depositary will be remunerated and reimbursed for all reasonable expenses incurred for the benefit of the Fund or Sub-Fund.

The Unitholders

10. The Deed provides that each unit of the Sub-Fund represents an undivided co-ownership interest of a Unitholder as tenant in common with the other Unitholders in the assets of the Sub-Fund, but no unit confers any interest or share in any particular part of the asset of the Fund or Sub-Fund to its Unitholder.

11. Each Unitholder is beneficially entitled to the net income of the Sub-Fund as determined and declared by the Manager at or before each year end (i.e. 30 June) in proportion to the value of the units it holds.

12. The Manager is required to obtain the consent from majority of the Unitholders for material changes to investment objective of the Sub-Fund or material changes to the Deed.

Investments of Sub-Fund

13. The Sub-Fund will invest in primarily global listed equities and some Australian listed equities, as well as other securities and financial instruments.

Relevant legislative provisions

Subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)

Section 6B of the ITAA 1936

Section 97 of the ITAA 1936

Subsection 770-10(1) of the Income Tax Assessment Act 1997 ITAA (1997)

Division 207 of the ITAA 1997

Existence of a trust for income tax purposes

The Sub-Fund is considered a ‘trust estate’ for the purposes of section 97 of the ITAA 1936.

The beneficiaries will be taxed

The net income of the Sub-Fund for a financial year will be taxable in the hands of the Unitholders (rather than the Sub-Fund) to the extent they are Australian residents in the income year present entitlement arises (rather than the financial year the distribution is paid) for the purposes of section 97 of the ITAA 1936.

The sources of the dividend and interest income

The dividend and interest income of the Sub-Fund to which a Unitholder is entitled to and derived from a particular source will be deemed to be income attributable to dividend or interest in the hands of the Unitholders and that is derived from that source in accordance with section 6B of the ITAA 1936.

Entitlement to foreign income tax offset

The Unitholders of the Sub-Fund will be entitled to a foreign income tax offset, pursuant to subsection 770-10(1) of the ITAA 1997, for income tax paid by the Sub-Fund to the extent the beneficiaries are Australian residents in the income year present entitlement arises.

Tax offset under Division 207 of the ITAA 1997

The Unitholders of the Sub-Fund will be entitled to a tax offset pursuant to Division 207 of the ITAA 1997, to the extent they are Australian residents in the income year present entitlement arises and a Unitholder is an entity listed in section 207-45 of the ITAA 1997

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