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Edited version of your private ruling
Authorisation Number: 1012472763303
Ruling
Subject: Whether the trust is a unit trust for the purposes of Division 6C of the ITAA 1936
Question 1
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 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on:
1 March 2013
Relevant facts and circumstances
You are a trust with one sole beneficiary. The sole beneficiary has a vested and indefeasible interest in the income and capital of the trust.
Clause 9 of your trust deed provides that the beneficiary is unable to transfer, assign, or otherwise dispose of their interest in the trust fund to another person.
Paragraph 20.1.2 of your trust deed provides that the trustee is prohibited from amending the trust deed to allow a beneficiary to transfer, assign, or otherwise dispose of their interest in the trust fund to another person.
Paragraph 20.1.3 of the trust deed provides that the trustee is prohibited from amending the trust deed to allow another person to acquire an interest in the trust fund.
Relevant legislative provisions
Income Tax Assessment Act 1936 Division 6C
Reasons for decision
Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936) relates to the taxation of income of certain public trading trusts.
Section 102R of the ITAA 1936 provides that a trust will be considered to be a public trading trust if it is a unit trust that meets other specified criteria.
The term 'unit trust' is not defined within the legislation. Division 6C does define the terms 'unit' and 'unit holder' at section 102M but both terms are defined exclusively in relation to a 'prescribed trust estate' leaving the term 'unit trust' undefined.
The meaning of 'unit trust' however has been considered by the ATO in ATO Interpretative Decision ATO ID 2010/57 Entity specific matters: trusts- whether a Managed Investment Scheme is a Unit Trust for the purposes of Division 6C of Part III of the Income Tax Assessment Act 1936.
The reasons for decision provided that there is a consistent approach to what constitutes a unit trust. This approach reiterates that the beneficial interest is held in 'units'. The reasons provided the following extracts from commentators on the subject:
JD Heydon MJ Lemming, Jacob's Law of Trusts in Australia , LexisNexis Butterworths 7th Edition 2006 at [310]
Units trusts are an extension into the field of commerce of the typical family trust (where settlors transfer property to a trustee on trust for their children in equal shares). ... In the case of unit trust, the scheme property is divided into a large number of units, which may, subject to their terms, be issued redeemed and traded publicly and privately . (Emphasis added)
Robert l. Pritchard, Chapter 18 'Unincorporated Joint Ventures', The Law of Public Company Finance , ed Austin and Vann, The Law Book Company Ltd 1986, p 397
(ii) A unit trust is a variation of the ordinary trust. Its distinguishing feature is that the beneficial interest in the trust property is divided into units which may be independently dealt with by the holders.
H.A.J. Ford, Chapter 15 'Public Unit Trusts', The Law of Public Company Finance , ed Austin and Vann, The Law Book Company Ltd 1986, p 400
The Unit Holder as a Beneficial Owner
... But in a unit trust the trustee's ownership of the property of the enterprise is not beneficial ownership. The beneficial interest is in the unit holders in fractions proportional to the number of units held by each of them. Under the terms of the deed, as usually drawn, a unit does not confer any interest in any particular part of the trust fund or any particular investment but only such interest in the trust fund as a whole as is conferred on a unit under the deed.
ATO Interpretative Decision ATO ID 2002/242 Income Tax - Fixed trust operated by a government entity discussed the above points by stating in its reasons for decision:
A unit trust is a trust in which the ownership is divided into a number of units which are held by the beneficiaries. However, the only beneficiary of the proposed trust is the local government entity. The main criteria for the existence of a unit trust (i.e., unit holders with fractional interests) will not be present. Therefore, the proposed trust will not be a unit trust but, rather, would be a fixed trust.
You have one beneficiary who has a vested and indefeasible interest in the income and capital of the trust. The ownership is not divided into a number of units held by beneficiaries and there are no unit holders with fractional interests. Based on the above, you will not be a unit trust, but are a fixed trust.
You are not a unit trust for the purposes of Division 6C of the ITAA 36.