Edited version of private advice

Authorisation Number: 1051770709300

Date of advice: 2 November 2020

Ruling

Subject: Division 6AAA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the non-resident trust

Question 1

Was the non-resident trust a 'non-discretionary trust estate' within the definition of the term in section 102AAB(1) of ITAA 1936 at all times during the income year ended 30 June 20xx?

Answer

Yes.

Question 2

Was the entity an attributable taxpayer in relation to the non-resident trust estate for the income year ended 30 June 20xx?

Answer

No.

This ruling applies for the following period:

1 July 20xx to 30 June 20xx

The scheme commences on:

1 June 20xx

Relevant facts and circumstances

The entity subscribed to additional units in the non-resident trust estate in the 20xx income year at the prevailing net asset value.

The trust deed of the non-resident trust estate (trust deed) states that all assets for the time being held by the Trustee pursuant to this Instrument (other than Income and any amounts standing to the credit of the Distribution Account) shall be held as a single common fund (the "Trust Fund") upon trust for the Holders in proportion to the number of Units held by them from time to time according to and subject to the provisions of this Instrument.

Relevant legislative provisions

Division 6AAA of Income Tax Assessment Act 1936 (ITAA 1936)

All legislative references below are to ITAA 1936.

Reasons for decision

Question 1

Was the non-resident trust estate a 'non-discretionary trust estate' within the definition of the term in section 102AAB(1) of ITAA 1936 at all times during the income year ended 30 June 20xx of the non-resident unit holder for the purposes of section 102AAT(1) of ITAA 1936.

Reasoning

As the definition of a non-discretionary trust estate is a trust estate other than a discretionary trust estate, we have to consider the meaning of a discretionary trust estate which is defined under section 102AAB as:

a trust estate where

(a) both of the following conditions are satisfied:

(i) a person (who may include the trustee) is empowered (either unconditionally or on the fulfilment of a condition) to exercise any power of appointment or other discretion;

(ii) the exercise of the power or discretion, or the failure to exercise the power or discretion, has the effect of determining, to any extent, either or both of the following:

(A) the identities of those who may benefit under the trust;

(B) how beneficiaries are to benefit, as between themselves, under the trust; or

(b) one or more of the beneficiaries under the trust have a contingent or defeasible interest in some or all of the corpus or income of the trust estate; or

(c) the trustee of another trust estate, being a trust estate where both of the conditions in paragraph (a) are satisfied, benefits, or is capable (whether by the exercise of a power of appointment or otherwise) of benefiting, under the first-mentioned trust estate.

The trust deed states that all trust assets shall be held in trust for the unit holders in proportion to the number of units held by them at the time. The trustee of the non-resident trust estate does not have any power of appointment or other discretion and the exercise of the power of discretion, or the failure to exercise the power of discretion, does not have the effect to determine, to any extent, either the identities of those who may benefit under the trust or how the beneficiaries are to benefit under the trust. Thus, sub-subparagraphs (a)(ii)(A) and (a)(ii)(B) of the definition of a discretionary trust estate under section 102AAB are not satisfied.

The beneficiaries also will not have a contingent or defeasible interest in some or all of the corpus or income of the trust estate and hence paragraph (b) of the definition of a discretionary trust estate will also not be satisfied.

Paragraph (c) of the definition of a discretionary trust estate under section 102AAB is not applicable because the facts do not point to the presence of another trustee of a discretionary trust estate being capable, whether by the exercise of a power of appointment or otherwise, of benefitting from the estate of the non-resident unit trust.

Therefore, the non-resident trust estate is a non-discretionary trust estate.

Question 2

Was the non-resident unit holder in the non-resident unit trust an attributable taxpayer for the purposes of Division 6AAA in the 20xx income year?

Reasoning

An entity is an attributable taxpayer in relation to a non-discretionary trust estate if the following conditions are satisfied under paragraph 102AAT(1)(a)(ii):

(ii) all of the following conditions are satisfied:

(A) the trust estate was a non-discretionary trust estate, or a public unit trust, at all times during the entity's current year of income when the trust estate was in existence;

(B) the entity has transferred property or services to the trust estate after the IP time and before or during the entity's current year of income;

(C) the underlying transfer was made for no consideration or for a consideration less than the arm's length amount in relation to the underlying transfer;

(D) it is not the case that the sole purpose of the underlying transfer was the acquisition of units in the trust estate where the parties to the underlying transfer were at arm's length with each other in relation to the underlying transfer and the trust estate was a public unit trust at all times during the entity's current year of income when the trust estate was in existence;

The entity transferred property to the trustee of the non-resident trust estate for the purpose of subscribing to additional units and thus satisfied sub-subparagraph 102AAT(1)(a)(ii)(B).

The relevant test in this case is whether pursuant to sub-subparagraph 102AAT(1)(a)(ii)(C) the underlying transfer by the non-resident unit holder was made for consideration less than the arm's length amount in relation to the additional units in the non-resident trust estate issued in the 20xx income year.

The issue price of the additional units in the non-resident trust estate was based on the net asset value as carried in its audited financial statements of that income year. The offer of subscription to all unit holders was pro rata to the number of units they held as shown in the register of the specified day.

Thus, the underlying transfer of property by entity was for an arm's length amount and hence does not satisfy sub-subparagraph 102AAT(1)(a)(ii)(C).

Hence, the entity is not an attributable taxpayer for the 20xx income year.

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