Edited version of private advice

Authorisation Number: 1051757993928

Date of advice: 22 September 2020

Ruling

Subject: Fixed trust/ fixed entitlement

Issue 1

Is the Trust) a 'fixed trust' under section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) and section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Question 1

Does the Unitholder of the Trust have a fixed entitlement to all of the income and capital of the Trust as defined in subsection 995-1(1) of the ITAA 1997 and subsection 272-5(1) of Schedule 2F to the ITAA 1936?

Answer

No

Question 2

Will the Commissioner exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat the Unitholder of the Trust as having a fixed entitlement to all of the income and capital of the Trust?

Answer

Yes

Issue 2

Is the interest of the Unitholder of the Trust in the trust holding a fixed interest under former subsection 160APHL(10) of the ITAA 1936?

Question 3

Does the Unitholder of the Trust have a vested and indefeasible interest in so much of the corpus of the Trust as is comprised by the trust holding, for the purposes of former subsection 160APHL(11) of the ITAA 1936?

Answer

No

Question 4

Will the Commissioner exercise the discretion in former subsection 160APHL(14) of the ITAA 1936 to treat the Unitholder of the Trust as having a vested and indefeasible interest in so much of the corpus of the Trust as is compromised by the trust holding?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June XXXX

Year ending 30 June XXXX

Year ending 30 June XXXX

Year ending 30 June XXXX

The scheme commences on:

4 May XXXX

Relevant facts and circumstances

The Trust

The Trust was established by Deed (the 'Constitution').

The activity of the Trust is making investments in unlisted funds.

The Trust is an Australian unit trust. It is a resident trust for CGT purposes.

The Trust is not registered as a managed investment scheme (MIS) for the purposes of the Corporations Act 2001 (Corporations Act) and does not expect to become an MIS during the Ruling Period.

The Trust does not propose to list on the Australian Stock Exchange (ASX). Investment in the Trust does not require a Product Disclosure Statement to be issued. The Trust does not have a market capitalisation.

The Trustee of the Trust

The Trustee of the Trust is an Australian tax resident proprietary company limited by shares and is not a trustee for any other trusts.

The directors of the company trustee are all Australian residents for taxation purposes.

There are ten ordinary shares in the company trustee and the shares are beneficially held by Company X.

The directors of Company X are also the directors of the company trustee who are all Australian residents for taxation purposes.

Each director of Company X has their wholly owned private company which hold (non-beneficially) shares in Company X on equal holdings.

The company trustee is not a holder of Australian Financial Services licence (AFSL) for the purposes of Part 7.6 of the Corporations Act. However, Company X holds an AFSL licence.

The company trustee is not subject to any regulation by the Australian Prudential Regulation Authority or any other Australian Federal Government Authority.

The company trustee is not prevented from holding units in the Trust for its own benefit. However, the Trustee does not hold nor propose to hold any units in the Trust for its own benefit.

The Trustee for the Trust does not have the power to determine whether a receipt is to be treated as income or capital; or to stream income and capital to different unitholders.

Unitholder/s and Units in Trust

Currently, the Trust has one unitholder (Company Y) which is a company trustee of a trust.

Company Y is a sophisticated investor as that term is used in the Corporations Act.

Units in the Trust are not listed on any stock exchange and will not be listed during the Ruling Period.

No options or rights have been issued or proposed to be issued which have enabled or will enable Units to be issued in connection with them at a discounted price.

Units issued against application money in the form of a cheque or other payment order (other than in cleared funds) are voidable if the cheque or payment order is not cleared within 5 business days of being presented for payment.

Further units may be issued. Consistently with subsection 272-5(2) of Sch 2F to the ITAA 1936, Units may only be issued, or redeemed, for a price determined on the basis of the net asset value, according to Australian accounting principles, of the Trust at the time of the issue or redemption.

Units may not be compulsorily redeemed. No Units have been redeemed. Units may not be issued at a discount. The Trustee must only issue fully paid Units.

Units of different classes may not be issued.

Other relevant information

No amendments to the Constitution have been made since the Trust was established. It is not proposed to amend the Constitution during the Ruling period.

The Trust does not currently have any prior year tax losses. There are no forecasts for the Trust to have any tax losses, bad debts, or debt/equity swap losses during the Ruling period.

There's only one class of Units on issue. No Units of different class will be issued during the Ruling period.

No Units will be issued and/ or redeemed at a discount during the Ruling period.

It is not possible to stream income or capital to different Unitholders under the Constitution.

Context of 'fixed entitlement' for the Trust

The Trustee for the Trust is seeking to reduce compliance costs. The Trustee makes investments in investee entities which pay franked distributions. The Trustee wishes to pass on the franking credits to the Unitholder/s. The Trustee also wishes to recoup any tax losses which may be incurred and carried forward subject to the trust loss measures.

Relevant legislative provisions

Income Tax Assessment Act 1936

Schedule 2F

section 272-5

section 272-65

former subsection 160APHL

Income Tax Assessment Act 1997

paragraph 207-145(1)(a)

section 995-1

Other references

ATO Interpretative Decision ATO ID 2002/122

Minutes of meeting of the NTLG on 7 December 2006

Practical Compliance Guidelines PCG 2016/16

Practice Statement PS LA 2002/11

Taxation Determination TD 2007/11

Reasons for decision

Issue 1

Question 1

Summary

The Unitholder of the Trust does not have fixed entitlements to all of the income and capital of Trust as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and subsection 272-5(1) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936).

Detailed reasoning

The term 'fixed trust' is defined in subsection 995-1(1) of the ITAA 1997 and section 272-65 of Schedule 2F to the ITAA 1936 to mean a trust in which entities or persons (respectively):

... have fixed entitlements to all of the income and capital of the trust.

The definition of the term 'fixed entitlement' in subsection 995-1(1) of the ITAA 1997 provides that 'an entity has a fixed entitlement to a share of the income or capital of a trust if the entity has a fixed entitlement to that share within the meaning of Division 272 in Schedule 2F to the ITAA 936.'

Subsection 272-5(1) of Schedule 2F to the ITAA 1936 provides that 'if under a trust instrument, a beneficiary has a vested and indefeasible interest in a share of income of the trust that the trust derives from time to time, or of the capital of the trust, the beneficiary has a fixed entitlement to that share of the income or capital'.

Subsection 272-5(2) of Schedule 2F provides for the 'savings rule' as explained in Practical Compliance Guidelines PCG 2016/16 at paragraphs 18 to 20.

The word 'interest' is capable of many meanings. In the absence of a definition, one must infer its meaning from the context in which it is found (Gartside v Inland Revenue Commissioner [1968] AC 553 at 602-603 and 617-618; Commissioner of Stamp Duties (Queensland) v Livingston (1964) 112 CLR 12 at 28-29; and CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic) (2005) 224 CLR 98). There may be circumstances in which the word 'interest' could be interpreted broadly to include any right that a person might be able to claim with respect to the income or capital of the trust, whether present or future, ascertained or potential.

In the context of Schedule 2F to the ITAA 1936, it is clear however that, for an interest to be recognised as a fixed interest it must be a right with respect to a share of the income or of the capital of the trust that is susceptible to measurement. To adopt the words of Lord Wilberforce in Gartside v Inland Revenue Commissioners, the right must have 'the necessary quality of definable extent'.

The term 'vested and indefeasible' is not defined in the taxation legislation. The Explanatory Memorandum (EM) to the Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997 explains its ordinary meaning at paragraphs 13.4 to 13.9.

The meaning of the term 'vested and indefeasible' (in the context of Schedule 2F to the ITAA 1936) has not been judicially considered, other than a discussion in Colonial First State Investments Ltd v Commissioner of Taxation [2011] FCA 16; (2011) 192 FCR 298; 81 ATR 772; 2011 ATC 20-235 in the limited context of amending the constitution of a registered managed investment scheme under section 601GC of the Corporations Act 2001.

However, the term 'vested and indefeasible' does appear in subsection 95A(2) of the ITAA 1936 and has been considered in that context by the courts - refer to Estate Mortgage Fighting Fund Trust v FC of T 2000 ATC 4525; Walsh Bay Developments Pty Ltd v Commissioner of Taxation (1995) 95 ATC 4378; Dwight v Commissioner of Taxation (1992) 92 ATC 4192; Harmer v FC of T (1991) 173 CLR 264; 91 ATC 5000.

Also relevant are MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494; 99 ATC 4937; Queensland Trustees Ltd v Commissioner of Stamp Duties (1952) 88 CLR 54; and Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490.

It is an essential element of subsection 272-5(1) of Schedule 2F to the ITAA 1936 that in order to have a fixed entitlement to a share of income or capital there must be a vested or indefeasible interest 'under a trust instrument'. In all cases, the determining factor in deciding if fixed entitlements exist will be the terms of the trust instrument under which the trust is constituted. Neither the form of the trust nor the labels that are attached to it can determine this question.

The first step in determining whether a beneficiary has a vested and indefeasible interest in a share of the income or capital of a trust is to ascertain the terms of the trust upon which the trust property is held. As the High Court stated in CPT Custodians Pty Ltd v Commissioner of State Revenue (Vic); Commissioner of State Revenue (Vic) v Karingal 2 Holdings Pty Ltd (2005) 224 CLR 98 at [15], in taking this step:

'...a priori assumptions as to the nature of unit trusts under the general law and principles of equity [will] not assist and would be apt to mislead. All depends, as Tamberlin and Hely JJ put it in Kent v SS "Maria Luisa" (No 2), upon the terms of the particular trust. The term "unit trust" is the subject of much exegesis by commentators. However, "unit trust", like "discretionary trust", in the absence of an applicable statutory definition, does not have a constant, fixed normative meaning which dictate the application to particular facts of the [relevant statutory definition]...'

There will be circumstances in which a trust instrument must be read subject to the operation of a certain rule, whether by common law, or statute. For example, the provisions of Chapter 5C of the Corporations Act which, if inconsistent with the constitution of a registered managed investment scheme, can have the effect of altering the scheme's constitution. It is possible for a constitution to be altered by operation of law irrespective of whether the trust instrument itself recognises the relevant common law or statute, and the entitlements of a beneficiary under the trust instrument are those as so altered by operation of law.

Practical Compliance Guidelines PCG 2016/16 explains (at paragraph 13) that in terms of the concept of 'fixed entitlement', an interest is 'vested' if it is vested in interest or vested in possession.

An interest is vested in possession when it gives its holder a right of present enjoyment, whereas an interest is vested in interest if it gives its holder a present right to future enjoyment.

An interest is defeasible if it can be defeated by the actions of one or more persons or by the occurrence of one or more subsequent events.

Vested interests

For the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936, the trust instrument consists of the Constitution of the Trust. It is accepted that the Constitution provides the Unitholder with a vested interest in the income and capital of the Trust.

Defeasible powers in the Constitution of the Trust

Under the Constitution of the Trust, the Unitholder may not be considered to have a vested and indefeasible interest in all of the income and capital of the Trust as the Constitution provides defeasible powers, for example, power to amend the Constitution where it allows the Trustee to amend with the consent of all the Unitholders.

Despite the Trustee's power to amend needs approval by all the Unitholders of the Trust, the mere existence of a power to amend a trust instrument constitutes a defeasible power (see Colonial First State Investments Ltd v Commissioner of Taxation [2011] FCA 16; (2011) 192 FCR 298; 81 ATR 772; 2011 ATC 20-235 at [106]).

Where unanimous approval by all Unitholders is required before an amendment is made, this will only be relevant to the consideration of the Commissioner for the purposes of determining the likelihood of a defeasance occurring for the purposes of subparagraph 272-5(3)(b)(ii) of Schedule 2F to the ITAA 1936.

Therefore, the Unitholder/s do not have a fixed entitlement to a share of the income or capital of the Trust for the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936.

Question 2

In view of the conclusion that the Unitholder/s of the Trust do not have fixed entitlements (vested and indefeasible interests), pursuant to subsection 272-5(1) of Schedule 2F to the ITAA 1936, subsection 272-5(3) may be considered.

Summary

The Commissioner considers that it is reasonable to exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat the Unitholder/s of the Trust as having fixed entitlements to all of the income and capital of the Trust.

Detailed reasoning

Subsection 272-5(3) of Schedule 2F to the ITAA 1936 contains a discretion, whereby in cases where beneficiaries do not have a fixed entitlement, the Commissioner may, for the purposes of the Act, treat such beneficiaries as having a fixed entitlement where it is reasonable to do so based upon the factors prescribed in paragraph 272-5(3)(b).

Paragraph 272-5(3)(b) stipulates that the Commissioner may treat a beneficiary as having a fixed entitlement (in cases where in fact beneficiaries do not have a fixed entitlement) having regard to:

(i)            the circumstances in which the entitlement is capable of not vesting or the defeasance can happen; and

(ii)           the likelihood of the entitlement not vesting or the defeasance happening; and

(iii)          the nature of the trust.

At the National Taxation Liaison Group (NTLG), Trust Consultation Sub-group meeting on 28 November 2006, the ATO advised that:

In applying the discretion, the ATO would have regard to what the Office understands was the policy that underlay the provisions at the time they were enacted. The Commissioner would also have to apply the statutory tests having regard to the terms of the particular trust deeds and all the relevant circumstances. (Minutes of NTLG meeting - 7 December 2006)

The ATO issued PCG 2016/16 which outlines the factors the Commissioner will consider when deciding whether to exercise the discretion to treat an interest in the income or capital of a trust as being a fixed entitlement. However, the PCG does not apply, among other things, for the purposes of applying former subsection 160APHL(14) of the ITAA 1936 (about the holding period rule for franking credits).

Paragraph 272-5(3)(a) of Schedule 2F to the ITAA 1936: a beneficiary with an interest in a share of income that the trust derives from time to time, or of the capital of a trust, does not have a fixed entitlement to the share

Paragraph 272-5(3)(a) is satisfied because the Constitution of the Trust provides the Unitholder/s with vested interests in a share of the income that the Trust derives from time to time and a share of the capital of the Trust as explained above.

However, each Unitholder of the Trust does not have a fixed entitlement to the share of income and capital of the Trust.

Subparagraph 272-5(3)(b)(i) of Schedule 2F to the ITAA 1936:

In relation to the circumstances in which the entitlement is capable of not vesting or the defeasance happening, it is noted:

Amendments to Constitution - subject to the Law, the Trustee may amend the Constitution by deed with the consent of all the Unitholders. The Trustee's power to amend requires approval by all Unitholder/s. No amendments have been made to the Constitution since the inception of the Trust; and it is not proposed that the Constitution will be amended during the Ruling period.

Issue of Units - the Trustee may offer Units for subscription or sale at any time. The Trustee may issue further units. Consistently with the 'savings rule' in subsection 272-5(2) of Sch 2F to the ITAA 1936, Units may only be issued for a price determined on the basis of the net asset value, according to Australian accounting principles, of the Trust at the time of issue.

Withdrawal of Units - the Trustee may withdraw or redeem Units at the request of Unitholders subject to the minimum holding conditions and the Trustee has discretion to consider or not the request. The Trustee may withdraw or redeem Units. Consistently with the 'savings rule' in subsection 272-5(2) of Sch 2F to the ITAA 1936, Units may only be withdrawn or redeemed, for a price determined on the basis of the net asset value, according to Australian accounting principles, of the Trust at the time of withdrawal or redemption.

Subparagraph 272-5(3)(b)(ii) of Schedule 2F to the ITAA 1936:

In relation to the likelihood of the entitlement not vesting, or the defeasance happening, it is noted:

The Trustee's actions from the time the Trust was settled to the time of the Ruling application would be relevant. The defeasible powers contained in the Constitution have not been exercised by the Trustee. There is no proposal to amend the Constitution, to issue further Units and/ or withdraw or redeem Units during the Ruling period.

The Trustee must only issue fully paid Units. Units issued against application money in the form of a cheque or other payment order (other than in cleared funds) are voidable if the cheque or payment order is not cleared within 5 business days of being presented for payment.

Units may not be issued at a discount. Units may not be compulsorily redeemed. No Units will be issued and/ or redeemed at a discount during the Ruling period. No options or rights have been issued or proposed to be issued which have enabled or will enable Units to be issued in connection with them at a discounted price.

Units of different classes may not be issued. There's only one class of Units on issue. No Units of different class will be issued during the Ruling period. It is not possible to stream income or capital to different Unitholders under the Constitution.

Therefore, it is considered that the likelihood of defeasance happening is low.

Subparagraph 272-5(3)(b)(iii) of Schedule 2F to the ITAA 1936:

In relation to the nature of the trust, it is noted:

The Trust is a unitised trust. However, the units are not publicly listed on an approved stock exchange. The Trust is also not a managed investment scheme. Therefore, the circumstances and likelihood in which the Unitholder's entitlement is capable of not vesting or the defeasance happening is not reduced in this Trust.

The Trust has been established for the purpose of allowing the Unitholder/s to undertake commercial transactions and investments. The current Unitholder of the Trust is a sophisticated investor as that term is used in the Corporations Act 2001 (see Chapter 6D).

The Trustee does not hold an Australian Financial Services Licence (AFSL) for the purposes of Part 7.6 of the Corporations Act. However, the Trustee is wholly owned by Company X which is a holder of an AFSL.

Schedule 2F to the ITAA 1936 and tax losses

PCG 2016/16 (at paragraph 36) explains that the concept of 'fixed entitlement' is central to the operation of the trust loss rules, the purpose of which is to prevent the transfer of the tax benefit of those losses or deductions. The tax benefit of a loss is transferred when a person who did not bear the economic loss at the time it was incurred by the trust obtains a benefit from the trust being able to deduct the loss.

This indicates that when looking at the facts of a case in the context of the criteria specified in subsection 272-5(3) of Schedule 2F to the ITAA 1936 regard should always be had as to whether a fixed entitlement in the circumstances could result in the transfer of the benefit of the tax loss.

In this case, the Trust does not currently have any prior year tax losses. The Trustee does not forecast any tax losses, bad debts, or debt/equity swap losses for the Trust during the Ruling period.

There appears to be no arrangements that can give any benefits of tax losses to any of the Unitholder/s.

Despite the Trustee has powers to amend the Constitution, to issue further Units and to withdraw or redeem Units, there are no proposals to do so during the Ruling period.

Units may not be issued at a discount. Units may not be compulsorily redeemed. No Units will be issued and/ or redeemed at a discount during the Ruling period. No options or rights have been issued or proposed to be issued which have enabled or will enable Units to be issued in connection with them at a discounted price.

Under the Constitution, only one class of Units may be issued. As such no Units of different class will be issued during the Ruling period. Currently, there's only one class of Units on issue. Based on the Constitution, it is not possible to stream income or capital to different Unitholders.

Having regard to the conditions of subparagraphs 272-5(3)(b)(i), (ii) and (iii) of Schedule 2F to the ITAA 1936, there is a reasonable case for the Commissioner to exercise the discretion pursuant to subsection 272-5(3) to treat the interests of the Unitholder/s in the income and capital of the Fund as fixed entitlements.

Issue 2

Question 3

Summary

The terms of the trust instrument do not provide the Unitholder/s with a vested and indefeasible interest in so much of the corpus (capital) of the Trust as is comprised by the trust holding, for the purposes of former subsection 160APHL(11) of the ITAA 1936.

Detailed reasoning

A taxpayer must be a 'qualified person' to be entitled to a franking credit in respect of a dividend. To be a qualified person, a taxpayer must satisfy the 45-day holding period rule. Although the related payments rule is applied by reference to the repealed provisions of the ITAA 1936, Taxation Determination TD 2007/11 explains that the ITAA 1936 rules have ongoing application as a result of being 'imported' into the ITAA 1997 regime via the anti-manipulation rule in paragraph 207-145(1)(a) of the ITAA 1997.

In the case of a trust distribution consisting wholly or partly of dividend income, generally the trustee must be a qualified person and the beneficiary must be at risk for a prescribed period during the qualification period in respect of the taxpayer's interest in the membership interest from which the dividend income is derived (former section 160APHL of the ITAA 1936).

The effect of deemed long and short positions under former sections 160APHL(7) and (10) relating to shares held is that unless a beneficiary has a fixed interest constituted by a vested and indefeasible interest in the capital of the trust or an exception applies, a beneficiary in a non-widely held trust will typically have a net position of zero. This means the beneficiary will not be sufficiently at risk, meaning that franking credits will not pass to the beneficiary through the trust as explained in ATO ID 2002/122.

Practice Statement PS LA 2002/11: 'Issues concerning fixed entitlements to a share of the income or capital of a trust' has application to former sections 160APA and 160APHD of the ITAA 1936 but not directly to former section 160APHL (only indirectly via the definition of 'widely held trust' which, in part, relies upon the definition of 'fixed trust' in Schedule 2F to the ITAA 1936).

For the purposes of former section 160APHL of the ITAA 1936 the Trust is in the category of 'all other non-widely held trusts' apart from family trusts, deceased estates and employee share scheme trusts.

A 'fixed interest' in the trust holding is defined in former subsection 160APHL(11) of the ITAA 1936 as 'a vested and indefeasible interest in so much of the capital of the trust as is comprised by the trust holding.' [emphasis added]

Is there an 'interest in so much of the corpus or capital of the trust as is comprised by the trust holding'?

Former section 160APHL provides that in calculating the extent of a beneficiary's interest, it is necessary to distinguish between the interest of a beneficiary in shares held by a widely held trust and the interest of a beneficiary in shares held by other trusts.

The Trust is not a 'widely held trust' for the purposes of former section 160APHD of the ITAA 1936.

This necessitates that a 'look through' approach will be required to determine the interest that a Unitholder has in each of the underlying shares in the Trust [refer to paragraphs 4.26, 4.77 and 4.88 of the EM which accompanied the Taxation Laws Amendment Bill (No. 2) 1999.]

Although the method of calculating the interest that a beneficiary has in the trust holding differs as between 'widely held' trusts and trusts 'other than widely held', the beneficiaries of both types of trusts do have an interest in the trust holding.

No vested and indefeasible interest

It has already been determined, in relation to Question 1, that the Unitholder/s of the Trust do have a vested interest in a share of the capital of the Trust but not an indefeasible interest in a share of the capital of the trust.

Therefore, it follows that the Unitholder/s of the Trust do not have a vested and indefeasible interest in so much of the capital of the Trust as is comprised by the trust holding.

Question 4

Summary

The Commissioner considers that it is reasonable to exercise the discretion in former subsection 160APHL(14) of the ITAA 1936 to treat the Unitholder/s of the Trust as having a vested and indefeasible interest in so much of the capital of the Trust as is comprised by the trust holding.

Detailed reasoning

In view of the conclusion above that the Unitholder/s of the Trust do not have a vested and indefeasible interest in so much of the capital of the Trust as is comprised by the trust holding (being the Trustee's ownership of shares) pursuant to former subsection 160APHL(11) of the ITAA 1936, the only way that the Unitholder/s can have such a vested and indefeasible interest is if the Commissioner will exercise the discretion in former subsection 160APHL(14).

Former subsection 160APHL(14) of the ITAA 1936 provides that in cases where beneficiaries do not have a vested and indefeasible interest in so much of the capital of the trust as is comprised by the trust holding, the Commissioner may determine that the interest is to be taken to be vested and indefeasible.

The requirements to be satisfied in respect of the discretion are contained in former subsections 160APHL(14)(a), (b) and (c) of the ITAA 1936.

In terms of former paragraph 160APHL(14)(a)

The taxpayer has an interest in so much of the corpus (capital) of the trust as is comprised by the trust holding:

As discussed above, the Unitholder/s in the Trust do have an interest in so much of the capital of the trust as is comprised by the trust holding.

In terms of former paragraph 160APHL(14)(b)

Apart from this subsection, the interest would not be a vested or indefeasible interest:

As discussed above, although a Unitholder's interest in the capital of the Trust is vested, the Constitution of the Trust contains certain clauses by which a Unitholder's interest in a share of the capital of the Trust may be defeased.

In terms of former paragraph 160APHL(14)(c)

Having regard to the factors prescribed in former paragraph 160APHL(14)(c):

These factors are:

(i)    the circumstances in which the interest is capable of not vesting or the defeasance can happen; and

(ii)   the likelihood of the interest not vesting or the defeasance happening; and

(iii)  the nature of the trust; and

(iv)  any other matter the Commissioner thinks relevant.

It has already been determined, in relation to Issue 1 Question 2, that the Commissioner will exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 so that the Unitholder/s of the Trust will be treated as having a fixed entitlement to (or a vested and indefeasible interest in) all of the capital of the Trust.

The factors in former paragraph 160APHL(14)(c) are identical, mutatis mutandis, to the factors in paragraph 272-5(3)(b) of Schedule 2F to the ITAA 1936, except for an additional factor in subparagraph (iv) of former paragraph 160APHL(14)(c).

The saving rule in former subsection 160APHL(13) of the ITAA 1936 is identical, mutatis mutandis, to the saving rule in subsection 272-5(2) of Schedule 2F to the ITAA 1936.

Therefore, for the reasons given in relation to Issue 1 Question 2, the Commissioner will exercise the discretion in former subsection 160APHL(14) of the ITAA 1936 to treat the Unitholder/s of the Trust as having a vested and indefeasible interest (fixed entitlement) in so much of the capital of the Trust as is comprised by the trust holding (being the Trustee's ownership of shares).

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