Edited version of your written advice

Authorisation Number: 1012976768200

Date of advice: 25 February 2016

Ruling

Subject: Matters relating to 'corporate unit trust'

Question 1

Will the acquisition of Property A and Property B (together, the Properties) by the sub trusts or the acquisition of interests in the sub trusts by the taxpayer cause the taxpayer to be a 'corporate unit trust' as defined in section 102J of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

Will the acquisition of Property A cause Sub Trust 1 to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936?

Answer

No.

Question 3

Will the acquisition of Property B cause Sub Trust 2 to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936?

Answer

No.

This ruling applies for the following periods:

A number of income years

The scheme commences in:

The 2016 income year

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The description of the scheme is based on information provided by trustees of the taxpayer and its sub trusts (Sub Trust 1 and Sub Trust 2) in the following documents, which are to be read in conjunction with the facts as set out below:

• The trustees' application for a private binding ruling; and

• The trustees' response to the ATO's request for further information.

Background

1. C is an Australian property group.

2. The following entities form the C stapled group:

• The taxpayer; and

• D trust (D).

3. C stapled securities trade on the Australian Securities Exchange and comprises one unit in each of the taxpayer and D.

4. The trustee of the taxpayer has confirmed that the taxpayer is a 'resident unit trust' as defined in section 102H of the ITAA 1936.

5. D is a public trading trust (pursuant to Division 6C of the ITAA 1936) that has elected to form a tax consolidated group under Subdivision 713-C of the Income Tax Assessment Act 1997 (ITAA 1997). D is therefore effectively treated as a company for income tax purposes.

Proposed transfer of the Properties to the taxpayer's group

6. D group currently owns the Properties.

7. The trustees have confirmed that given the commercial profiles of the Properties, it is proposed all or some of the Properties will be sold for their market value by the D group to the taxpayer's group. Specifically, it is proposed that Property A will be sold to Sub Trust 1 and Property B will be sold to Sub Trust 2.

Assumptions

8. For the purposes of this ruling, the trustees have requested the Commissioner to assume that:

• The taxpayer and its sub trusts will be 'public unit trusts' as defined in section 102G of the ITAA 1936; and

• The taxpayer and its sub trusts will be 'resident unit trusts' as defined in section 102H of the ITAA 1936.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 102D

Income Tax Assessment Act 1936 Section 102E

Income Tax Assessment Act 1936 Section 102F

Income Tax Assessment Act 1936 Section 102G

Income Tax Assessment Act 1936 Section 102H

Income Tax Assessment Act 1936 Section 102J

Reasons for decision

All legislative references below are to the ITAA 1936 unless otherwise stated.

Question 1

Will the acquisition of the Properties by the sub trusts or the acquisition of interests in the sub trusts by the taxpayer cause the taxpayer to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936?

Summary

The acquisition of the Properties by the sub trusts or the acquisition of interests in the sub trusts by the taxpayer will not cause the taxpayer to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936.

Detailed reasoning

Corporate unit trust

9. Pursuant to paragraph 102J(1)(b), a unit trust is a 'corporate unit trust' in relation to a relevant year of income if:

(b) where the relevant year of income is the year of income commencing on 1 July 1983 or a subsequent year of income:

(i) the unit trust is an eligible unit trust in relation to the relevant year of income;

(ii) the unit trust is a public unit trust in relation to the relevant year of income; and

(iii) either of the following conditions is satisfied:

(A) the unit trust is a resident unit trust in relation to the relevant year of income;

(B) the unit trust was a corporate unit trust in relation to a year of income preceding the relevant year of income.

10. Pursuant to subsection 102G(1), a unit trust is a 'public unit trust' in relation to a year of income if, at any time during the year of income:

(a) any of the units in the unit trust were listed for quotation in the official list of a stock exchange in Australia or elsewhere;

(b) any of the units in the unit trust were offered to the public; or

(c) the units in the unit trust were held by not fewer than 50 persons.

11. Pursuant to section 102H, a unit trust is a 'resident unit trust' in relation to a year of income if, at any time during the year of income:

(a) either of the following conditions was satisfied:

(i) any property of the unit trust was situated in Australia;

(ii) the trustee of the unit trust carried on business in Australia; and

(b) either of the following conditions was satisfied:

(i) the central management and control of the unit trust was in Australia;

(ii) a person who was a resident or persons who were residents held more than 50% of:

(A) the beneficial interests in the income of the unit trust; or

(B) the beneficial interests in the property of the unit trust.

12. Units of the taxpayer, as part of the C stapled securities, are listed for quotation on the Australian Securities Exchange. Hence, the taxpayer is a 'public unit trust' as defined in section 102G.

13. Trustee of the taxpayer has confirmed that the taxpayer is a 'resident unit trust' as defined in section 102H.

14. Trustee of the taxpayer has confirmed that the taxpayer will remain a 'public unit trust' and a 'resident unit trust'.

15. Accordingly, the key question is whether the acquisition of the Properties by the sub trusts or the acquisition of interests in the sub trusts by the taxpayer will cause the taxpayer to become an 'eligible unit trust' pursuant to section 102F.

Eligible unit trust

16. Pursuant to subsection 102F(1), a unit trust is an 'eligible unit trust' in relation to a year of income if:

(a)  property that, at any time during the year of income or a preceding year of income, was property of the unit trust became property of the unit trust in pursuance of an arrangement that is a prescribed arrangement in relation to a company and, at any time before the property became property of the unit trust, the property was the property of the company or an associate of the company; or

(b)  in pursuance of an arrangement that is a prescribed arrangement in relation to a company, the trustee of the unit trust has, at any time during the year of income or a preceding year of income, carried on a business that, at any time before that time, had been carried on by the company or an associate of the company (emphasis added).

Prescribed arrangement

17. Pursuant to subsection 102E(1), in relation to a unit trust, a reference to an arrangement that is a 'prescribed arrangement' in relation to a company is a reference to an arrangement under which:

(a) a shareholder in the company was, by reason of being a shareholder in the company, to be granted a right or an option to acquire, either directly or indirectly through any interposed companies or trusts, a unit or units in the unit trust; and

(b) the units in the unit trust were to be held or dealt with, or the income or property of the unit trust was to be applied, during any year of income, in such a way that, in the opinion of the Commissioner, if section 102G were applied in relation to the unit trust in relation to the year of income, the unit trust would be a public unit trust in relation to the year of income.

18. The Explanatory Memorandum to the Income Tax Laws Amendment Act (No.3) 1981 explained the operation of paragraph102E(1)(a) as:

'Section 102E: Prescribed arrangements

This section will identify certain arrangements which have been carried out as part of a reorganisation of a company or company group and which have resulted in the formation of a public unit trust of the kind to which the new provisions are to apply.

Sub-section 102E(1) specifies two tests for the purpose of identifying a prescribed arrangement in relation to a company. Both of these tests must be satisfied before an arrangement will be regarded as a prescribed arrangement.

By paragraph (a), the first test is whether the arrangement provided for shareholders of the company to have rights or options to take up units in a unit trust.'

19. Pursuant to subsection 102D, the term 'arrangement' for Division 6B purposes means:

'an agreement, arrangement or understanding, whether formal or informal, whether express or implied and whether or not enforceable, or intended to be enforceable, by legal proceedings.'

20. The Properties will be transferred to the sub trusts as part of an 'arrangement' between D, the taxpayer and the relevant subsidiary entities. However, the transfer of the Properties does not involve equity being issued to the shareholders of D for the purposes of paragraph 102E(1)(a).

21. Therefore, the present arrangement (being the acquisition of the Properties by the sub trusts or the acquisition of interests in the sub trusts by the taxpayer) does not give rise to a 'prescribed arrangement' pursuant to subsection 102E(1). As a result, the taxpayer will not be an 'eligible unit trust' pursuant to subsection 102F(1).

22. For completeness, a C stapled security equity raising activity does not and will not form a 'prescribed arrangement' in relation to D, in the context of the present case, for the following reasons:

• Where an investor is not a pre-existing C stapled security holder, there cannot be a 'prescribed arrangement' because the investor cannot be granted a right or option to acquire units in the taxpayer or the sub trusts by reason of being a shareholder in D; and

• Where an investor is a pre-existing C stapled security holder and is granted a right or option to indirectly acquire units in the sub trusts by acquiring the units in the taxpayer, the investor will be granted that right or option by reason of being a C stapled security holder, not by reason of being a shareholder in D.

Conclusion

23. For the reasons stated above, the acquisition of the Properties by the sub trusts or the acquisition of interests in the sub trusts by the taxpayer will not cause the taxpayer to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936.

Question 2

Will the acquisition of Property A cause Sub Trust 1 to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936?

Summary

The acquisition of Property A will not cause Sub Trust 1 to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936.

Detailed reasoning

24. Trustee of Sub Trust 1 has confirmed that Sub Trust 1 will be a 'public unit trust' (as defined in section 102G) and a 'resident unit trust' (as defined in section 102H).

25. In the present case, Property A will be transferred to Sub Trust 1 as part of an 'arrangement' between D, the taxpayer and the relevant subsidiary entities. The present arrangement does not involve equity being issued to the shareholders of D.

26. The analysis as provided in the reasoning to Question 1 above is equally applicable to this Question.

27. As the present arrangement (being the acquisition of Property A by Sub Trust 1) does not give rise to a 'prescribed arrangement' pursuant to subsection 102E(1), Sub Trust 1 will not be an 'eligible unit trust' pursuant to subsection 102F(1).

28. Therefore, the acquisition of Property A will not cause Sub Trust 1 to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936.

Question 3

Will the acquisition of Property B cause Sub Trust 2 to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936?

Summary

The acquisition of Property B will not cause Sub Trust 2 to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936.

Detailed reasoning

29. Trustee of Sub Trust 2 has confirmed that Sub Trust 2 will be a 'public unit trust' (as defined in section 102G) and a 'resident unit trust' (as defined in section 102H).

30. In the present case, Property B will be transferred to Sub Trust 2 as part of an 'arrangement' between D, the taxpayer and the relevant subsidiary entities. The present arrangement does not involve equity being issued to the shareholders of D.

31. The analysis as provided in the reasoning to Question 1 above is equally applicable to this Question.

32. As the present arrangement (being the acquisition of Property B by Sub Trust 2) does not give rise to a 'prescribed arrangement' pursuant to subsection 102E(1), Sub Trust 2 will not be an 'eligible unit trust' pursuant to subsection 102F(1).

33. Therefore, the acquisition of Property B will not cause Sub Trust 2 to be a 'corporate unit trust' as defined in section 102J of the ITAA 1936.