Disclaimer
This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051445068189

Date of advice: 28 February 2019

Ruling

Subject: Income tax - Tax losses - Trust losses - Fixed entitlements

Question 1

Do the unitholders in the Trust have fixed entitlements to all of the income and capital of the Trust under subsection 272-5(1) to Schedule 2F of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

If not, will the Commissioner exercise the discretion in subsection 272-5(3) to Schedule 2F of the ITAA 1936 to deem the beneficiaries of the Trust as having fixed entitlements to all of the income and capital of the Trust?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

Year ending 30 June 2022

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

Overview

Unit holdings of the Trust

Types of units

Other submissions

Relevant legislative provisions

Corporations Act 2001, Chapter 5

Corporations Act 2001, section 601GC

Income Tax Assessment Act 1936, Schedule 2F

Income Tax Assessment Act 1936, section 272-5 of Schedule 2F

Income Tax Assessment Act 1936, subsection 272-5(1) of Schedule 2F

Income Tax Assessment Act 1936, subsection 272-5(2) of Schedule 2F

Income Tax Assessment Act 1936, subsection 272-5(3) of Schedule 2F

Income Tax Assessment Act 1936, subsection 272-35 of Schedule 2F

Income Tax Assessment Act 1936, section 272-75 of Schedule 2F

Income Tax Assessment Act 1997, subsection 995-1(1)

Reasons for decision

Question 1

Do the unitholders in the Unit Trust (the Trust) have fixed entitlements to all of the income and capital of the Trust under subsection 272-5(1) to Schedule 2F of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

No. The terms of the Deed do not provide the unitholders of the Trust with vested and indefeasible interests in all of the income and capital of the Trust.

Detailed reasoning

Fixed entitlements

Meaning of the word ‘interest’

Meaning of the words ‘vested and indefeasible’

‘Trust instrument’

Applying the law to your circumstances

The ‘trust instrument’

Clauses in the ‘trust instrument’ which may indicate vested interests

Clauses in the ‘trust instrument’ which may contain defeasible powers

Impact of a Unitholders’ Agreement

Conclusion

Question 2

If not, will the Commissioner exercise the discretion in subsection 272-5(3) to Schedule 2F of the ITAA 1936 to deem the beneficiaries of the Trust as having fixed entitlements to all of the income and capital of the Trust?

Summary

Yes. The Commissioner will exercise his discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936, subject to the assumptions outlined above, to deem the beneficiaries of the Trust as having fixed entitlements to all of the income and capital of the Trust.

Detailed reasoning

Commissioner’s discretion

Paragraph 272-5(3)(a)

Paragraph 272-5(3)(b)(i)

Paragraph 272-5(3)(b)(ii)

Paragraph 272-5(3)(b)(iii)

Schedule 2F to the ITAA 1936 and tax losses

Conclusion


Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).