Edited version of your private ruling

Authorisation Number: 1012452948284

Ruling

Subject: Period of review for amendment of tax return

Question 1

Are you required to lodge company tax returns for the 2003-04 to 2011-12 financial years?

Answer:

No

Question 2

Is the Commissioner out of time to amend the 2007-08 and 2008-09 financial year tax returns for the trust?

Answer:

Yes

Question 3

Are you out of time to amend the 2007-08 and 2008-09 financial year tax returns for the trust?

Answer:

Yes

This ruling applies for the following period

Year ended 30 June 2004

Year ended 30 June 2005

Year ended 30 June 2006

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2003

Relevant facts and circumstances

You are a unit trust which began in the early 2000's.

The current unit holders of the trust are as follows;

a) Self Managed Superannuation Fund - over 20%

b) A Trust - over 20%

c) A Individual - less than 20%

The unit holders of the trust for the 2007-08 and 2008-09 financial years are as follows;

a) Self Managed Superannuation Fund - over 20%

b) A Trust - over 20%

c) B Trust - over 20%

You state that each of the unit holders is at arm's length and unrelated. B Trust (a previous unit holder) is no longer a unit holder. A individual, a non-resident, became a unit holder after the 2009 tax year.

You carried on a business.

You state that you satisfy the small business entity test for the 2007-08 and 2008-09 financial years and these are the only years in which the trust has reported taxable income.

You state that since the inception of the trust, trust income tax returns have been lodged as you believed that the trust was a normal private trading trust.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 6C

Income Tax Assessment Act 1936 Section 102P

Income Tax Assessment Act 1936 Section 102M

Income Tax Assessment Act 1997 Section 995-1

Income Tax Assessment Act 1936 Section 166A

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Section 102T

Income Tax Assessment Act 1936 Section 170

Reasons for decision

Detailed reasoning

Is the trust a public trading trust?

Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936) treats a public unit trust which carries on an active trading business as if it were a company for most tax purposes.

Paragraph 102P(2)(a) of the ITAA 1936 explains that a unit trust is also a public unit trust in relation to a year of income if:

at any time during the year of income, an exempt entity or exempt entities held, or had the right to acquire or become the holder or holders of, a unit or units in the unit trust that entitled the holder or holders to not less than 20% of:

i. the beneficial interests in the income of the unit trust; or

ii. the beneficial interests in the property of the unit trust;

The definition of an exempt entity was originally contained in section 102M of the ITAA 1936 and included, among others, a complying superannuation fund. However, effective from 1 July 2010, this definition was repealed and replaced with the definition of an exempt entity in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as follows;

a) an entity all of whose ordinary income and statutory income is exempt from income tax because of this Act or because of another Commonwealth law, no matter what kind of ordinary income or statutory income the entity might have; or

b) an untaxable Commonwealth entity.

Importantly, the definition no longer includes a superannuation fund as an exempt entity.

In your case, a superannuation fund held not less than 20% of the units in the trust and therefore, the trust would be considered a public trading trust and assessed for tax purposes as a company, up to and including the 2009-10 financial year.

However, as the definition of an exempt entity has been amended effective from 1 July 2010, the trust will not be required to lodge as a company from the 2010-11 financial year onwards.

Date of assessments

Companies (including corporate unit trusts and public trading trusts), superannuation funds and several other entities, are subject to a "full" self-assessment system under which they self-assess the amount of tax they have to pay (or that no tax is payable).

Subsection 166A(1) of the ITAA 1936 provides that where a company, superannuation fund, approved deposit fund or pooled superannuation trust ("a relevant entity" as defined in former section 221AK of Division 1B of Part VI of the ITAA 1936) furnishes a return in respect of income of a year of income:

the Commissioner is deemed to have made an assessment of the relevant entity's taxable income or net income, as the case may be, and of the amount of tax payable on that taxable income or net income. Under paragraph 166A(1)(a) of the ITAA 1936, assessments are deemed to have been made on the day on which the taxpayer lodges the return.

Subsection 6(1) of the ITAA 1936 explains that the definition of a 'person' also includes a company. Subsection 102T(7) of the ITAA 1936 provides that a reference in the definition of person in subsection 6(1) to a company shall be read as including a reference to a public trading trust or, as the context requires, to the trustee of a public trading trust.

Accordingly, section 166A of the ITAA 1936 will apply to the trust and assessments will be deemed to have been made on the day on which the trust lodged its tax returns.

Standard period of review

Subsection 170(1) of the ITAA 1936, at item 3 of the table, provides that the Commissioner may amend an assessment of a person (in the capacity of a trustee of a trust estate) for a year of income, if the trust is a small business entity for a year, within 2 years after the day on which he or she gives a notice of the assessment to the person, subject to item 5 and 6 of the table.

Item 5 of the table provides that the Commissioner may amend an assessment at any time if he or she is of the opinion that there has been fraud or evasion. Item 6 of the table provides that the Commissioner may amend an assessment at any time:

a) to give effect to a decision on review or appeal; or

b) as a result of an objection made by the taxpayer or pending a review or appeal.

In your case, you have stated that the trust meets the definition of a small business entity for the 2007-08 and 2008-09 financial years under subdivision 328-C of the ITAA 1997. Therefore, failing any of the exceptions listed at item 5 and 6 of the table in subsection 170(1) of the ITAA 1936 applying, the standard period of review for the trust would be two years from the date of lodgement of a return.

Based on the information provided, the 2008 and 2009 trust returns were lodged outside of the relevant two year period.

Accordingly, both the Commissioner and the trust are out of time to amend the deemed assessments for the 2007-08 and 2008-09 financial years.