Edited version of private advice

Authorisation Number: 1012650967369

Ruling

Subject: 50% stake test

Question 1

Will the Commissioner exercise the discretion in subsection 272-30(3) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) to deem Listed Public Company as holding the whole of their fixed entitlements to a share of the income and capital of the trust as individuals and for the individual's own benefit?

Answer

Yes

Question 2

Does the Trust pass the 50% stake test in Subdivision 269-C of Schedule 2F to the ITAA 1936 at the relevant times during the test period?

Answer

Yes

This ruling applies for the following periods:

1 July 2012 to 30 June 2014

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The Trust is a unit trust.

Since the establishment of the Trust:

• A trustee company (Trustee) has been the trustee of the Trust;

• There has been one unit holder (Unit Holder) of the units (Units) of the Trust;

• There has been one class of Units on issue;

• The Units have never been transferred, redeemed or sold;

• No further Units in the Trust have been issued;

• No partly paid Units have been issued;

• No amendment to the Trust Deed has ever been made.

The Trust is an unlisted widely held trust as defined in section 272-110 of Schedule 2F to the ITAA 1936.

Ultimate beneficial ownership of the Trust

The Trust and the Unit Holder are indirectly wholly owned by Listed Public Company.

Listed Public Company has a market capitalisation of approximately $20 Billion.

Tax losses

A tax loss was incurred by the Trustee in the income year ended 30 June 2013.

Relevant legislative provisions

Income Tax Assessment Act 1936 schedule 2F

Income Tax Assessment Act 1936 section 266-75

Income Tax Assessment Act 1936 section 266-90

Income Tax Assessment Act 1936 section 269-50

Income Tax Assessment Act 1936 section 269-55

Income Tax Assessment Act 1936 section 272-30

Reasons for decision

Question 1

The consideration of the exercise of the discretion in subsection 272-30(3) of Schedule 2F to the ITAA 1936

Subsection 272-30(3) of Schedule 2F to the ITAA 1936 is a concessional provision which relevantly exists to assist in tracing ownership interests through listed public companies. Such ownership interests can often prove difficult to trace due to the large number of shareholders and the likelihood that individuals will not hold shares in a listed public company directly.

The application of subsection 272-30(3) of Schedule 2F to the ITAA 1936

Subsection 272-30(3) of Schedule 2F to the ITAA 1936 relevantly provides the Commissioner with a discretion to treat all or part of the fixed entitlements in a trust as being held directly or indirectly, by a listed public company (per subsection 272-30) as being held by that trust as an individual for its own benefit. The Commissioner may exercise this discretion favourably where he considers it fair and reasonable to do so having regard to the matters set out in subsection 272-30(4) (per subsection 272-30(3)(b)).

In relation to the exercise of the Commissioner's discretion in subsection 272-30(3), the following comments are made:

• Paragraph 272-30(3)(a) - Listed public company - Listed Public Company is listed on the official list of an approved stock exchange (such that its satisfies the definition of being a 'listed public company' as provided for in section 272-135 of Schedule 2F to the ITAA 1936);

• Paragraph 272-30(3)(a) - Fixed entitlements to the Trust - Listed Public Company has fixed entitlements to a share of the income and capital of the Trust;

• Paragraph 272-30(3)(b) - The matters set out in subsection 272-30(4):

• Paragraph 272-30(4)(a) - Practicality - Listed Public Company has a market capitalisation of approximately $20 billion. The shareholders variously consist of nominee companies, holding companies, funds and other large institutional investors. As at 30 July 2014 300 institutions owned 65% and 800 mutual funds owned 12% of the shares in Listed Public Company;

• Paragraph 272-30(4)(b) - Stake changes - The top seven shareholders in Listed Public Company have maintained a collective ownership of approximately 70% of the shares throughout the ruling period. The largest of these shareholders is ultimately owned by a government body;

• Paragraph 272-30(4)(c) - Other matters - The collective shareholdings of the top seven shareholders in Listed Public Company have been maintained above 50% throughout the ruling period.

Having regard to the matters set out in subsection 272-30(4) of Schedule 2F to the ITAA 1936 the Commissioner considers it fair and reasonable to treat Listed Public Company as holding the whole of its fixed entitlement as an individual and for the individual's own benefit for the purposes of subsection 272-30(3) for each test time which occurs within the ruling period.

Question 2

Does the Trust pass the 50% stake test?

The relevant times at which the 50% stake test is required to be passed by a trust is determined by the conditions which apply to that particular type of trust.

In the case of the Trust, it is an 'unlisted widely held trust'. As such the conditions which the Trust must satisfy are contained within section 266-75 of Schedule 2F to the ITAA 1936 and are as follows:

266-75(1)

This section applies to a trust that:

(a) can in the income year deduct a tax loss from a loss year; and

(b) was an unlisted widely held trust at all times in the period (the test period) from the beginning of the loss year until the end of the income year; and

(c) was not a wholesale widely held trust at all times in the test period; and

(d) was not an unlisted very widely held trust at all times in the test period; and

(e) was not an excepted trust at all times in the test period.

…

266-75(3)

The trust cannot deduct the tax loss unless it meets the condition in section 266-90.

Subsection 266-90(1) of Schedule 2F to the ITAA 1936 relevantly provides:

If this section is being applied for the purposes of section 266-75 or 266-85, on each occasion when either of the following events occurs:

(a) an abnormal trading in the trust's units occurs during the test period;

(b) an income year of the trust ends during the test period (including at the end of the test period);

the trust must pass the 50% stake test in respect of the following times:

(c) the beginning of the test period;

(d) immediately after the event occurs.

Section 269-50 of Schedule 2F to the ITAA 1936 defines the term 'more than a 50% stake' in relation to the income and capital of a trust:

More than a 50% stake in income

269-50(1)

If there are individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the income of a trust, those individuals have more than a 50% stake in the income of the trust.

More than a 50% stake in capital

269-50(2)

If there are individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the capital of the trust, those individuals have more than a 50% stake in the capital of the trust.

Section 269-55(1) of Schedule 2F to the ITAA 1936 defines the term 'passes the 50% stake test:

If, at all times during a period, or at 2 times:

(a) the same individuals have more than a 50% stake in the income of a trust; and

(b) the same individuals (who may be different from those in paragraph (a)) have more than a 50% stake in the capital of the trust;

the trust passes the 50% stake test for the period or in respect of the 2 times.

In respect of answering the question of whether the Trust passes the 50% stake test in Subdivision 269-C of Schedule 2F to the ITAA 1936 at the relevant times during the test period the following comments are made:

• Multiple 'test periods' will necessarily exist under the scheme being ruled upon for the purposes of paragraph 266-75(1)(b) of Schedule 2F to the ITAA 1936. The reference to the term 'relevant times' is a reference to each of the test times that are specified in subsection 266-90(1) of Schedule 2F to the ITAA 1936 in respect of the respective test periods. The ruling period, from 1 July 2012 to 30 June 2014 is intended to encompass each of these test times;

• No 'abnormal trading' occurred during the ruling period for the purposes of paragraph 266-90(1)(a) of Schedule 2F to the ITAA 1936;

• As per the answer to Question 1, above, Listed Public Company is deemed as holding the whole of its fixed entitlement in the Trust as an individual and for the individual's own benefit for the purposes of subsection 272-30(3) of Schedule 2F to the ITAA 1936 for each test time which occurs within the ruling period.

As such, the Trust will pass the 50% stake test in section 269-55 of Schedule 2F to the ITAA 1936 for the relevant years of income as, at all relevant times, the same individual (Listed Public Company) has more than a 50% stake in the income and capital of the Trust.