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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051191880371

Date of advice: 17 February 2017

Ruling

Subject: Trusts: Fixed Entitlements

Issue 1

Do the beneficiaries of the Trust have vested and indefeasible interests in the income and capital of the Trust?

Question 1

Do the unit holders of the Trust have fixed entitlements to all of the income and capital of the Trust under subsection 272-5(1) of Schedule 2F to the ITAA 1936? Answer

Answer

No

Question 2

Will the Commissioner exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to deem the beneficiaries of the Trust as having fixed entitlements to all of the income and capital of the Trust?

Answer

Yes

This ruling applies for the following periods:

1 July 200X to 30 June 201X

The scheme commences on:

1 July 200X

Relevant facts and circumstances

The Trustee is a unit trust which operates a commercial ongoing concern in the health sector.

During the period to which this ruling applies, the trust deed (the relevant trust instrument) contained certain clauses by which a beneficiary's interest in a share of the income or capital of the Trust may have been defeated or otherwise prevented from vesting.

On review of your application, in respect of entitlements under the trust:

    ● the circumstances in which the entitlements were capable of not vesting or a defeasance happening were remote;

    ● the likelihood of the entitlements not vesting or a defeasance happening appear on balance to be remote;

    ● the underlying beneficial ownership and control of the Unitholders has remained constant throughout the Ruling Period;

    ● the only amendment to the Trust Deed was to reduce the ability of the interests in Units in the Trust to be defeased;

    ● the “nature of the trust” is of one involved in investing in a commercial going concern in the health care sector; and

    ● the risk of trust loss trafficking is considered low.

Relevant legislative provisions

Income Tax Assessment Act 1936

    ● Section 272-5 of Schedule 2F

    ● Subsection 272-5(1) of Schedule 2F

    ● Subsection 272-5(2) of Schedule 2F

    ● Subsection 272-5(3) of Schedule 2F

    ● Section 272-65 of Schedule 2F

Reasons for decision

Question 1

Do the unit holders of the Trust have fixed entitlements to all of the income and capital of the Trust under subsection 272-5(1) of Schedule 2F to the ITAA 1936? Answer

Answer

Subsection 995-1(1) of the ITAA 1997 states that a trust is a 'fixed trust' if entities have fixed entitlements to all of the income and capital of the trust. Fixed entitlements are determined with reference to Division 272 of Schedule 2F to the ITAA 1936. Under subsection 272-5(1), a 'fixed entitlement' exists if a person has a vested and indefeasible interest in the income and capital of the trust.

The trust deed of the trust contains certain clauses under which a unit holder's interest in a share of income, or of the capital, of the trust may be rendered defeasible. Therefore, we consider it reasonable to conclude, pursuant to the definition of 'fixed entitlement' under subsection 272-5(1) of Schedule 2F to the ITAA 1936, that the unit holders (or beneficiaries) do not have fixed entitlements to all of the income and capital of the trust.

Question 2

Will the Commissioner exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to deem the beneficiaries of the Trust as having fixed entitlements to all of the income and capital of the Trust?

Answer

We have given consideration to the requirements of subsection 272-5(3) of Schedule 2F to the ITAA 1936, and submissions from your adviser. There is a reasonable case for the Commissioner to exercise the discretion under subsection 272-5(3) of Schedule 2F to the ITAA 1936, such that the unit holders (or beneficiaries) of the trust should be treated as having fixed entitlements to all of the income and capital of the trust.

Therefore, the trust will be a fixed trust from 1 July 200X to 30 June 201X, pursuant to the exercise of the Commissioner's discretion under subsection 272-5(3) of Schedule 2F to the ITAA 1936.


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