Edited version of your written advice

Authorisation Number: 1012779438050

Ruling

Subject: Lodgment obligations

Issue 1

Is an entity required to lodge income tax returns?

Question 1

Is the corporate trustee required to lodge income tax returns in its capacity as trustee of the fund for the period from 1 July 2009 to the acquisition date?

Answer

Yes

Question 2

Is the corporate trustee required to lodge income tax returns for each sub-fund of the fund for the period from 1 July 2009 to the acquisition date?

Answer

No

Question 3

Is the corporate trustee required to lodge income tax returns in its capacity as trustee of the fund for the period from the acquisition date onwards?

Answer

Yes

Question 4

Is the corporate trustee required to lodge income tax returns for each syndicate fund of the fund for the period from the acquisition date onwards?

Answer

No

Issue 2

Is an entity required to lodge Business Activity Statements?

Question 1

Is the corporate trustee required to lodge Business Activity Statements in its capacity as trustee of the fund for the period from 30 June 20XX to the acquisition date?

Answer

Yes, if your GST turnover is $75,000 or more

Question 2

Is the corporate trustee required to lodge Business Activity Statements for each sub-fund of the fund for the period from 30 June 20XX to the acquisition date?

Answer

No

Question 3

Is the corporate trustee required to lodge Business Activity Statements in its capacity as trustee of the fund for the period from the acquisition date onwards?

Answer

Yes, if your GST turnover is $75,000 or more

Question 4

Is the corporate trustee required to lodge Business Activity Statements for each syndicate fund of the fund for the period from the acquisition date onwards?

Answer

No

This ruling applies for the following periods

1 July 2009 to 30 June 2010

1 July 2010 to 30 June 2011

1 July 2011 to 30 June 2012

1 July 2012 to 30 June 2013

1 July 2013 to 30 June 2014

1 July 2014 to 30 June 2015

The scheme commences on 1 July 2009

Relevant facts and circumstances

• The head company is part of a tax consolidated group

• The head company acquired 100% of the membership in the corporate trustee.

• From the acquisition date the corporate trustee became a subsidiary member of the tax consolidated group

• The fund is a trust and has a corporate trustee. The corporate trustee was appointed as the responsible entity (the Trustee) by a resolution passed at a meeting of members held on 30 June 20XX

• The fund is a managed investment scheme and has been registered as a managed investment scheme since 2000

• The corporate trustee will continue to be the responsible entity of the fund for the foreseeable future

• The fund is not a subsidiary member of the tax consolidated group as not all the membership interests in the fund are held by members of the tax consolidated group

• On the acquisition date the fund amended their constitution (new constitution)

• A fund member authorises the fund to either select and automatically invest in a mortgage loan or the member approves the fund's selection in a mortgage loan before funds are paid from the trust account

• Specific to the old constitution - The fund creates a sub-fund when two or more members contribute to a particular mortgage loan. The member's contributions, and subsequent interest in a mortgage loan, constitute fund property. Each mortgage loan is a contributory mortgage. Each mortgage is held by the corporate trustee, as trustee for the members who have contributed to the corresponding mortgage loan

• Specific to the new constitution - a syndicate fund is a distinct mortgage investment and pool of funds. A mortgage investment is the making of a loan upon the security of real estate. An interest is the proportionate interest which a holder has in a syndicate fund. The beneficial interest in each syndicate fund is divided into interests. An interest confers on its holder an undivided beneficial interest in the syndicate fund, not in parts or single assets. The responsible entity must hold the trust property of each syndicate fund as a separate fund which is not available to meet liabilities of any other syndicate fund or trust. The responsible entity must account for and keep separate assets and liabilities for each separate fund.

• When the head company acquired the corporate trustee the vendor stated that neither income tax returns (ITR) nor business activity statements (BAS) had been lodged for the fund or the related sub-funds. Further, the vendor did not consider lodgement necessary

Relevant legislative provisions

Corporations Act 2001

Income Tax Assessment Act 1936

Income Tax Assessment Act 1997

A New Tax System (Goods and Services Tax Transition) Act 1999

A New Tax System (Goods and Services Tax) Regulations 1999

Legislative Instrument TPAL 2014/1 Lodgment of returns for the year of income ended 30 June 2014 in accordance with the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the Taxation Administration Act 1953, the Superannuation Industry (Supervision) Act 1993 and the Income Tax (Transitional Provisions) Act 1997 F2014L00688, as made 04/06/2014

Reasons for decision

General lodgment information

Income Tax

Subsection 161(1) of the Income Tax Assessment Act 1936 (ITAA 1936) states:

Every person being a full self-assessment taxpayer (excluding trustees of superannuation funds, approved deposit funds and pooled superannuation trusts) not covered by Table N or Table O that during the year of income:

(1) is an Australian resident, and derived income (including capital gains) from sources in Australia or sources outside Australia; or

(2) is a non-resident of Australia, and derived income (including capital gains) that is taxable in Australia other than:

- dividend, interest or royalty income subject to withholding payments covered by Subdivision 12-F in Schedule 1 to the Taxation Administration Act 1953, and

- fund payments from managed investment trusts subject to withholding because of the amendments to Subdivision 12-H in Schedule 1 to the Taxation Administration Act 1953 made by Tax Laws Amendment (Election Commitments No 1) Act 2008 (relating to fund payments from managed investment trusts to non-residents).

Although the Legislative Instrument TPAL 2014/1 Lodgment of returns for the year of income ended 30 June 2014 in accordance with the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the Taxation Administration Act 1953, the Superannuation Industry (Supervision) Act 1993 and the Income Tax (Transitional Provisions) Act 1997 states who is required to lodge a return and does allow for exemptions, it also specifically states, as follows, that the instrument does not remove the Commissioner's power to require lodgment of a return:

Notice of requirement to lodge a return or information

Nothing in this Instrument prevents me or an authorised officer of the Australian Taxation Office from issuing a notice, pursuant to section 162 or 163 of the Income Tax Assessment Act 1936, requiring a person to give me, in the approved form, a return, or further returns, or any information, statement or document about the person's financial affairs for any year of income.

Therefore even where no assessable income is derived, you may still be required to lodge an income tax return where the Commissioner directs you to do so.

Goods and Services Tax

Under section 23-5 of A New Tax System (Goods and Services Tax Transition) Act 1999 (GST Act) an entity is required to be registered for Goods and Services Tax (GST) if it is carrying on an enterprise, and its GST turnover is $75,000 or more. This is called the registration turnover threshold (s 23-15).

Only an 'entity' can be registered for GST (s 23-5; 23-10). The meaning of entity is found in the GST Act, section 184-1(1)(g) and ITAA 1997, section 960-100. The meaning of entity includes a trust or the trustee of the trust at any given time.

The relevant entity is the trust with the trustee standing as that entity if legal personality is required. Therefore, there will only ever be one Australian Business Number (ABN) for the trust and only one ABN issued irrespective of the number of trustees for the trust. The Tax Office has stated that a public company acting as the responsible entity of a managed investment scheme is entitled to register as a trust entity.

An entity has to apply for registration within 21 days of becoming required to do so (s 25-1).

Generally, the registration takes effect from the day specified in the application. This cannot be earlier than the date on which the entity commenced to carry on an enterprise. Registration may be backdated beyond the date specified in the application if the ATO is satisfied that it was required to be registered earlier. If so, the entity will be treated as being subject to the GST system from that date (s 25-10, 25-15).

Issue 1

Question 1

Is the corporate trustee required to lodge income tax returns in its capacity as trustee of the fund for the period from 1 July 2009 to the acquisition date?

Summary

Trusts are entities required to lodge ITRs. The trustee of the trust is the responsible entity.

Detailed reasoning

In accordance with section 161 and related provisions of the ITAA 1936 the Commissioner requires every person described in Tables A, B, C, D, E, F, G, H, I, J, K or L to give the Tax Office a return of income. To this end, the Commissioner issues a lodgement legislative instrument annually. The instrument lists the lodgment obligations of different entities. Table L states:

Where the trustee of a trust estate has derived income (including capital

gains) and the trustee is not covered by Tables M, N or O, a trust return is

required to be lodged by the trustee resident in Australia. If there is no trustee

resident in Australia, the return is to be lodged by the trust's public officer or,

where no public officer is appointed, by the trust's agent in Australia.

The corporate trustee was appointed trustee of the fund by a resolution passed at a meeting of members. Therefore the corporate trustee, as trustee, is responsible for lodgment of ITRs in respect of the fund.

Question 2

Is the corporate trustee required to lodge income tax returns for each sub-fund of the fund for the period from 1 July 2009 to the acquisition date?

Summary

Each sub-fund is not a trust for income tax purposes, as a result, ITRs are not required.

Detailed reasoning

Corporations Act 2001, section 9 defines a managed investment scheme as:

 (a)  a scheme that has the following features:

(i)  people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii)  any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

(iii)  the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or

(b)  a time-sharing scheme

Section 601FA of the Corporation Act 2001 (CA) states that the responsible entity of a registered scheme must be a public company. Further, section 601FB of the CA states the responsible entity of a registered scheme is to operate the scheme and perform the functions conferred on it by the scheme's constitution and the Act.

You stated that each mortgage is held by the corporate trustee, as trustee for the members who have contributed to the corresponding mortgage loan. A trust for income tax purposes is property, or an interest in property, that is vested in and under the control of a person who is a trustee, and that produces income. As each sub-fund does not hold property, or an interest in property, and control rests with the corporate trustee each sub-fund is not considered to be a trust for income tax purposes.

Therefore the corporate trustee, as trustee, is not required to lodge an ITR for each sub-fund.

Question 3

Is the corporate trustee required to lodge income tax returns in its capacity as trustee of the fund for the period from the acquisition date onwards?

Summary

Trusts are entities required to lodge ITRs. The trustee of the trust is the responsible entity.

Detailed reasoning

In accordance with section 161 and related provisions of the ITAA 1936 the Commissioner requires every person described in Tables A, B, C, D, E, F, G, H, I, J, K or L to give the Tax Office a return of income. To this end, the Commissioner issues a lodgement legislative instrument annually. The instrument lists the lodgment obligations of different entities. Table L states:

Where the trustee of a trust estate has derived income (including capital gains) and the trustee is not covered by Tables M, N or O, a trust return is required to be lodged by the trustee resident in Australia. If there is no trustee resident in Australia, the return is to be lodged by the trust's public officer or,where no public officer is appointed, by the trust's agent in Australia.

The corporate trustee was appointed trustee of the fund by a resolution passed at a meeting of members. Therefore the corporate trustee, as trustee, is responsible for lodgment of ITRs in respect of the fund.

Question 4

Is the corporate trustee required to lodge income tax returns for each syndicate fund of the fund for the period from the acquisition date onwards?

Summary

Each syndicate fund is not a trust for income tax purposes, as a result, ITRs are not required.

Detailed reasoning

The Corporations Act 2001, section 9 defines a managed investment scheme as:

 (a)  a scheme that has the following features:

(i)  people contribute money or money's worth as consideration to acquire rights (interests) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not);

(ii)  any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders);

(iii)  the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); or

(b)  a time-sharing scheme

Section 601FA of the CA states that the responsible entity of a registered scheme must be a public company. Further, section 601FB of the CA states the responsible entity of a registered scheme is to operate the scheme and perform the functions conferred on it by the scheme's constitution and the Act.

You stated that the corporate trustee, the responsible entity, must hold the trust property of each syndicate fund as a separate fund which is not available to meet liabilities of any other syndicate fund or trust. Additionally, the corporate trustee must account for and keep separate assets and liabilities for each separate fund.

A trust for income tax purposes is property, or an interest in property, that is vested in and under the control of a person who is a trustee, and that produces income. As each syndicate fund does not hold property, or an interest in property, and control rests with the corporate trustee each syndicate fund is not considered to be a trust for income tax purposes.

Therefore, the corporate trustee, as trustee, is not required to lodge an ITR for each syndicate fund.

Issue 2

Question 1

Is the corporate trustee required to lodge Business Activity Statements in its capacity as trustee of the fund for the period from 30 June 20XX to the acquisition date?

Summary

If the corporate trustee's GST turnover is $75,000 or more, the Fund is required to be registered for GST and to lodge Business Activity Statements (BAS). The trustee, as the responsible entity, is entitled to register as a trust entity.

Detailed reasoning

Under the GST Act division 188 an entity's GST turnover is determined by both the current year and the projected year. At any particular time, the current GST turnover is measured over the 12 month period ending at the end of the current month. The projected GST turnover is measured over the 12 month period starting at the beginning of the current month.

Section 40-5 of the GST Act states that a financial supply is input taxed. However, under section 9-5 of the GST Act taxable supplies does not include supplies that are input taxed. If a supply is input taxed, no GST is payable on the supply, but the supplier generally cannot claim input tax credits on its related business inputs (s 11-15).

A financial supply is specified in the A New Tax System (Goods and Services Tax) Regulations 1999 (GST Regulations) Division 40. Comprehensive guidelines are also contained in Goods and Services Tax Ruling 2002/2 Goods and services tax: GST treatment of financial supplies and related supplies and acquisitions (GSTR 2002/2). For there to be a financial supply, the following must apply:

(1) there must be a provision, acquisition or disposal of an interest in specified items in return for consideration. Those items include:

• bank, building society and credit union accounts

• lending and borrowing, or providing credit

• mortgages or charges over real or personal property

(2) the transaction must be in the course of an enterprise and must be connected with Australia

(3) the entity that provides, acquires or disposes of the interests must be a "financial supply provider". This covers the owner of the interest immediately before its supply, the creator of the interest or the acquirer of the interest, and

(4) the financial supply provider must be registered or required to be registered.

It is necessary to calculate your GST turnover to determine if you should be registered for GST. To calculate this you may need to determine if your turnover includes financial supplies. If your GST turnover is $75,000 or more, the corporate trustee, the responsible entity, will need to register for GST and lodge BAS.

Question 2

Is the corporate trustee required to lodge Business Activity Statements for each sub-fund of the fund for the period from 30 June 20XX to the acquisition date?

Summary

Only an 'entity' can be registered for GST. The meaning of entity includes a trust or the trustee of the trust at any given time.

Each sub-fund cannot be registered for GST so is not required to lodge BAS.

Detailed reasoning

Registration is fundamental to the operation of the GST system. An entity must normally be registered, or required to be registered, to be liable for GST or to claim input tax credits (Div 23 of the GST Act). As far as registration is concerned there are:

(1) entities that cannot be registered

(2) entities that can be registered, but are not required to be, and

(3) entities that are required to be registered.

An entity cannot be registered unless it is carrying on an enterprise (see below), or is intending to do so from a particular date (s 23-10).

An entity can be registered if it is carrying on an enterprise, or is intending to do so from a particular date (s 23-10). Non-residents as well as residents are eligible.

An entity is required to be registered if it is carrying on an enterprise, and its GST turnover is $75,000 or more (s 23-5). This is called the registration turnover threshold (s 23-15). Only an 'entity' can be registered for GST (s 23-5; 23-10).

You stated that each mortgage is held by the corporate trustee, as trustee for the members who have contributed to the corresponding mortgage loan. A trust is property, or an interest in property, that is vested in and under the control of a person who is a trustee, and that produces income. As each sub-fund does not hold property, or an interest in property, and control rests with the corporate trustee each sub-fund is not considered to be a trust.

Each sub-fund cannot be registered for GST so therefore cannot lodge BAS.

Question 3

Is the corporate trustee required to lodge Business Activity Statements in its capacity as trustee of the fund for the period from the acquisition date onwards?

Summary

If the corporate trustee's GST turnover is $75,000 or more the fund is required to be registered for GST and to lodge Business Activity Statements. The corporate trustee, as the responsible entity, is entitled to register as a trust entity.

Detailed reasoning

Under the GST Act, Division 188, an entity's GST turnover is determined by both the current year and the projected year. At any particular time, the current GST turnover is measured over the 12 month period ending at the end of the current month. The projected GST turnover is measured over the 12 month period starting at the beginning of the current month.

Section 40-5 of the GST Act states that a financial supply is input taxed. However, under section 9-5 of the GST Act taxable supplies does not include supplies that are input taxed. If a supply is input taxed, no GST is payable on the supply, but the supplier generally cannot claim input tax credits on its related business inputs (s 11-15 of the GST Act).

A financial supply is specified in the Division 40 of the GST Regulations. Comprehensive guidelines are also contained in GSTR 2002/2. For there to be a financial supply, the following must apply:

(1) there must be a provision, acquisition or disposal of an interest in specified items in return for consideration. Those items include:

• bank, building society and credit union accounts

• lending and borrowing, or providing credit

• mortgages or charges over real or personal property

(2) the transaction must be in the course of an enterprise and must be connected with Australia

(3) the entity that provides, acquires or disposes of the interests must be a "financial supply provider". This covers the owner of the interest immediately before its supply, the creator of the interest or the acquirer of the interest, and

(4) the financial supply provider must be registered or required to be registered.

It is necessary to calculate your GST turnover to determine if you should be registered for GST. To calculate this you may need to determine if your turnover includes financial supplies. If your GST turnover is $75,000 or more the corporate trustee, the responsible entity, will need to register for GST and lodge BAS.

Question 4

Is the corporate trustee required to lodge Business Activity Statements for each syndicate fund of the fund for the period from the acquisition date onwards?

Summary

Only an 'entity' can be registered for GST. The meaning of entity includes a trust or the trustee of the trust at any given time.

Each syndicate fund cannot be registered for GST so is not required to lodge BAS.

Detailed reasoning

Registration is fundamental to the operation of the GST system. An entity must normally be registered, or required to be registered, to be liable for GST or to claim input tax credits (Div 23 of the GST Act). As far as registration is concerned there are:

(1) entities that cannot be registered

(2) entities that can be registered, but are not required to be, and

(3) entities that are required to be registered.

An entity cannot be registered unless it is carrying on an enterprise (see below), or is intending to do so from a particular date (s 23-10).

An entity can be registered if it is carrying on an enterprise, or is intending to do so from a particular date (s 23-10). Non-residents as well as residents are eligible.

An entity is required to be registered if it is carrying on an enterprise, and its GST turnover is $75,000 or more (s 23-5). This is called the registration turnover threshold (s 23-15). Only an 'entity' can be registered for GST (s 23-5; 23-10).

You stated that each mortgage is held by the corporate trustee, as trustee for the members who have contributed to the corresponding mortgage loan. A trust is property, or an interest in property, that is vested in and under the control of a person who is a trustee, and that produces income. As each syndicate fund does not hold property, or an interest in property, and control rests with the corporate trustee each syndicate fund is not considered to be a trust.

Each syndicate fund cannot be registered for GST so therefore cannot lodge BAS.