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Edited version of your written advice
Authorisation Number: 1051362122828
Date of advice: 17 April 2018
Subject: Meaning of public trading trust within section 102R of the Income Tax Assessment Act 1936
Question
Will the Trust be a public trading trust within the meaning of section 102R of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936)?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
Year ending 30 June 2022
Year ending 30 June 2023
Year ending 30 June 2024
Year ending 30 June 2025
The scheme commences on:
1 July 2017
Relevant facts and circumstances
1) The Trust was established to assist the Club with ongoing expenses related to operating the sporting teams.
2) The trustee of the Trust is an incorporated company limited by shares.
3) The Trust provides that the sole Member of the Trust is the Club.
4) The Deed provides that the funds of the Trust are held on trust for the Member. The Member is entitled to the Trust Fund as an entirety and is not entitled to any particular security of investment comprised in the Trust nor any part of the Trust. The interest of the Member is not transferrable.
5) The Deed states:
a. The Trustee will collect, receive and obtain all dividends, interest, rents and other income from the investments of the Trust Fund.
b. The Trustee will pay out of the gross income of the Trust Fund all costs and disbursements and commissions, fees, taxes, management charges and other proper outgoings in respect of the investments and administration of the Trust.
6) The Trustee will hold so much of the Net Income of each Accounting Period that is not the subject of a Determination under the Deed in trust for the Member.
7) The Deed provides that the Trustee has, in addition to all the specific powers provided in the Deed:
a. all the powers authorities and discretions of a natural person;
b. all powers, authorities and discretions conferred by the common law, equity and by legislation on trustees; and
c. will not be restricted or obligated by provisions relating to trustees contained in any legislation of the Commonwealth of Australia or any of its States or Territories.
8) The Deed states that the Member has both the power to remove a Trustee in addition to appointing a new Trustee.
9) The Deed states that:
a. Subject to the Approval of the Member, the Trustee may by deed appoint a person or corporation to be a trustee of the Trust.
b. The Member must give approval to the form of the deed appointing a person or corporation as trustee of the Trust.
10) The Trustee has the power to vary the Deed and to declare new or other trusts, powers or discretions concerning the Trust Fund, or any part it, subject to the consent of the Member.
Relevant legislative provisions
Income Tax Assessment Act 1936, section 102R
Reasons for decision
Section 102R of the ITAA 1936 prescribes the meaning of a ‘public trading trust.’
A unit trust will be a public trading trust in a year of income if it satisfies subsection 102R(1)(b) of ITAA 1936. Subsection 102R(1) of the ITAA 1936 prescribes that a unit trust is a public trading trust if:
● The unit trust is a public unit trust in relation to the relevant year of income;
● The unit trust is a trading trust in relation to the relevant year of income;
● Either the unit trust is a resident unit trust in relation to the relevant year of income or it was a public trading trust in relation to a prior year of income.
The wording of section 102R of the ITAA 1936 makes it clear that a trust can only meet the definition of a ‘public trading trust’ if it is a ‘unit trust.’ The term ‘unit trust’ is not defined in the ITAA 1936.
The High Court considered the meaning of ‘unit trust’ in Elecnet (Australia) Pty Ltd v FCT [2016] HCA 51 (Elecnet). The Court determined that the meaning of ‘unit trust’ in Division 6C of the ITAA 1936 accorded with the common usage of the expression ‘unit trust’. A ‘unit trust’ is a trust whereby the beneficial interest in the trust estate is divided into units as discrete parcels of rights, analogous to shares, which, when created or issued, are to be held by the persons for whose benefit the trustee maintains and administers the trust estate.
In your case, the Trust is a fixed trust, under which the Club is the only beneficiary. The interest of the beneficiary in the Trust is not divided into units as discrete parcels of shares. Therefore, the Trust is not a ‘unit trust’.
As the Trust is not a ‘unit trust’ it cannot meet the definition of a ‘public trading trust in section 102R of the ITAA 1936. The Trust is not a ‘public trading trust’.
Other references (non ATO view)
Elecnet (Australia) Pty Ltd v FCT [2016] HCA 51
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