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Edited version of your written advice
Authorisation Number: 1013125134335
Date of advice: 14 December 2016
Ruling
Subject: Public trading trust and consolidation
Question
By virtue of the operation of section 713-130 of the Income Tax Assessment Act 1997 (ITAA 1997), can Trustee make a choice to form a consolidated group under section 703-50 of the ITAA 1997 specifying the first day of the relevant income year as the date from which that consolidated group will be taken to exist?
Answer
Yes
This ruling applies for the following periods:
1 July 20XX - 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
The Trust is a public trading trust and has all its taxable income taxed at the corporate tax rate.
The Trust has 30 June year end for tax and accounting purposes.
The Trust has one wholly owned subsidiary.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 703-50
Income Tax Assessment Act 1997 section 713-130
Reasons for decision
Section 713-130 of the ITAA 1997 allows corporate unit trusts (CUT) and public trading trusts (PTT) to form a consolidated group provided certain conditions are met.
Section 713-130 of the ITAA 1997 provides that:
A trust may make a choice under section 703-50 (Choice to consolidate a consolidatable group), as if the trust were a company (the assumed company), but only if:
(a) the assumed company could make the choice, if it beneficially owned the membership interests in other entities that are legally owned by the trustee; and
(b) the day specified in the choice is the first day of an income year for which the trust is a corporate unit trust or a public trading trust.
Paragraph 713-130(a) of the ITAA 1997 requires that the CUT or PTT be able to consolidate, that is, it must be a head company of a 'consolidatable group'. This requires the PTT to wholly-own the membership interests in at least one subsidiary entity that are legally owned by the trustee.
Paragraph 713-130(b) of the ITAA 1997 contains a requirement that only allows the choice to be made on the first day of the income year for which the trust is a CUT or PTT.
Paragraph (a) - the ability to make a choice under section 703-50
Subsection 703-50(1) of the ITAA 1997 provides that:
A company may make a choice in writing that a consolidatable group is taken to be consolidated on and after a day that is specified in the choice and is after 30 June 2002, if the company was the head company of the group on the day specified.
'Head company' is defined in paragraph 703-15(2)(a) of the ITAA 1997 as a company that has all or some of its taxable income taxed at the rate equals the corporate tax rate and is not an entity excluded by section 703-20 of the ITAA 1997.
In this case:
● The Trust has all its taxable income taxed at the corporate tax rate.
● The exclusions under section 703-20 do not apply.
● The trust has one wholly-owned subsidiary. Whilst all the shares in the subsidiary are legally held by Trustee and beneficially owned by unitholders of the Trust, pursuant to paragraph 713-130(a) the Trust is taken to beneficially own all the shares legally held by Trustee.
● Accordingly, the Trust is taken to be the head company of a consolidatable group for the purpose of section 703-50 of the ITAA 1997.
Paragraph (b) - specifying the first day of an income year for which the trust is a public trading trust
Paragraph 713-130(b) requires that the date specified in the Trust's choice to form a consolidated group must be the first day of an income year for which it is a public trading trust.
The Trust can make a choice to form a consolidated group under section 703-50 of the ITAA 1997 specifying the first day of the relevant income year as the date from which that consolidated group will be taken to exist.
The Trust must give the Commissioner notice of its choice to consolidate consolidated in accordance with section 703-58 of the ITAA 1997.