| Disclaimer This edited version will be removed from the Database after 30 September 2025. If you believe the issues detailed in this edited version warrant retention in an alternative form, email publicguidance@ato.gov.au This edited version has been archived due to the length of time since original publication.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 private ruling
Authorisation Number: 1011480151101
This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.
Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.
Ruling
Subject: Categorisation of trust
Question
Is the trust a unit trust for the purposes of Division 6C of the Income Tax Assessment Act 1936?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commences on:
1 July 2005
Relevant facts and circumstances
According to the trust deed of the Trust, there is only one beneficiary (the beneficiary).
The beneficiary is a tax exempt entity pursuant to Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997). The beneficiary will have a vested indefeasible interest in both the income and capital of the Trust.
The trust deed provides that the beneficiary will not have the right to sell down or transfer their interest in the Trust until such time as there is a call to wind the trust up.
The Arrangement
The Trust entered into a partnership with another fixed trust to establish a business.
The benefit of the Trust investing via a fixed trust structure is that it reduces the risk that the Association could be personally sued by a creditor of the business.
The Trust has now established the business.
Apart from the establishment of the business, there has been no material change to the Trust.
A copy of the relevant documentation was provided.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 102M,
Income Tax Assessment Act 1936 section 102R and
Income Tax Assessment Act 1997 section 995-1.
Reasons for decision
Summary
The question is whether the trust is a unit trust for the purposes of Division 6C of the Income Tax Assessment Act 1936?
Answer: No
Detailed reasoning
Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936) only applies to public trading trusts which, by definition, must be unit trusts (section 102R of the ITAA 1936).
There is no definition of a unit trust for the purposes of Division 6C of the ITAA 1936 generally. However, a unit trust is of the same essential nature as any other trust, except that in the unit trust the beneficial ownership is divided into a number of units which are held by the beneficiaries, instead of named beneficiaries or a class of beneficiaries who are entitled to specified or discretionary interests in an ordinary family trust. Section 102M of Division 6C of the ITAA 1936 contains a definition of 'unit' and 'unit holders'. Both of these terms however are defined exclusively 'in relation to a prescribed trust estate' which in turn leaves the term 'unit trust' undefined.
Jacobs' Law of Trusts in Australia, 5th ed, Butterworths, Sydney 1986 notes, at paragraph 314, page 59, that a unit trust 'may take as many forms as human ingenuity can devise'. There are however two broad categories of unit trusts - private unit trusts and non-private unit trusts. In relation to non-private unit trusts, Jacob's Law of Trusts in Australia, p 59 states:
…basically what happens is that a manager (usually a private company) will purchase property and vest it in a trustee (usually a professional trustee company) initially on trust for the manager on the terms of a trust deed, which divides the trust property into a large number of shares (or units). The manager then sells the units to the public at a price based on their market value plus a service charge to cover the expenses involved, the trustee's remuneration and a profit to the manager. The manager then creates a market in the units by undertaking to repurchase and resell the units on demand; additionally, the units may be sold to the public on the open market, where they may or may not be listed on a stock exchange. Additional units may be created in the future, if further property is acquired by the trust.
The main difference between a non-private and a private unit trust is that a right to participate in a private unit trust is not made to the public. Arguably therefore, any trust under which the beneficiaries enjoy fractional rights or interests to participate in either the income or capital, or more commonly, both income and capital of the trust, appear to fall within the concept of a private unit trust.
A fixed trust is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997):
a trust is a fixed trust if persons have fixed entitlements to all of the income and corpus of the trust.
As the Trust has one beneficiary and that beneficiary has a fixed entitlement to all the income and capital of the trust, the Trust is clearly a fixed trust.
However, there are no units or unit holders, which is one of the main criteria for the existence of a unit trust. Therefore the Commissioner does not consider the trust to be a unit trust to which Division 6C of the ITAA 1936 will apply.
The establishment of the business does not materially change the nature of the trust, and the establishment of that business is within the trustee's powers as set out in the trust deed.
By agreement with the applicant, this ruling has been made for a period of five income years, following on from the previous ruling.
The applicant has relied on the Commissioner's view as set out in the relevant ATO. That ATO ID is still current and supports the applicant's position.