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Edited version of private advice
Authorisation Number: 1051648191183
Date of advice: 20 March 2020
Ruling
Subject: Commissioner's discretion
Question
Will the Commissioner exercise the discretion in subparagraph 275-115(3)(a)(ii) of the Income Tax Assessment Act 1997 to allow a later day for the Trustee for X Trust to make a choice for capital gains tax to be the primary basis for calculating gains or losses of the trust from the disposal of trust assets?
Answer
Yes.
This ruling applies for the following period:
Income year ending 30 June 20XX
The scheme commenced on:
The scheme has commenced.
Relevant facts and circumstances
Background
The Trustee for the X Trust (Trust) seeks the exercise of the Commissioner's discretion in terms of subparagraph 275-115(3)(a)(ii) of the Income Tax Assessment Act 1997 (ITAA 1997) to allow a later day for the Trustee of the Trust to make a choice for capital gains tax (CGT) to be the method for calculating gains or losses of the Trust. The assets to which the choice applies are termed "covered assets" as defined in section 275-105. Land, including an interest in land, is listed in that provision as a covered asset.
The relevant facts and circumstances in which the request arose are set out below.
The trust deed for the Trust was executed. The Trustee of the Trust is Y Pty Ltd. The Trustee has been an Australian resident since incorporation.
The Trust is a unit trust.
The X Trust Information Memorandum was issued to potential investors.
The income tax return (ITR) of the Trust for the year ended 30 June 20XX was received in the ATO.
That ITR was the first ITR of the Trust to be lodged with the ATO.
Subdivision 275-B of the ITAA 1997 provides that a managed investment trust may make a choice for capital treatment of managed investment trust gains or losses.
The Trustee did not make the choice when the ITR of the Trust for the year ended 30 June 20XX was lodged with the ATO.
The ITR contains a question which asks "Has the trustee made an election into capital account treatment"?" That question was not answered.
The Trustee and the tax agent advise that the failure to answer the question regarding the capital account treatment choice relating to gains and losses on the disposal of trust assets was an "administrative oversight". Further, there were staff replacements for the fund management team and for the tax agent's tax team, which contributed to the oversight.
The present application for a private ruling seeks the exercise of the Commissioner's discretion to grant a later date to make the capital treatment choice.
Trust Deed for the X Trust
A copy of the trust deed for the X Trust was provided.
X Trust Information Memorandum
A copy of the X Trust Information Memorandum has been provided.
No fund payments
No fund payments were made by the Trustee of the Trust.
List of Unitholders
A list of unitholders was provided.
All the unitholders are wholesale investors.
Relevant legislative provisions
Income Tax Assessment Act 1936
Section 102M
Income Tax Assessment Act 1997
Subdivision 275-A - Meaning of managed investment trust
Section 275-10
Subsection 275-10(1)
Subsection 275-10(2)
Subsection 275-10(3)
Paragraphs 275-10(3)(a) to (g)
Subsection 275-10(6)
Section 275-15
Section 275-20
Section 275-30
Section 275-35
Section 275-40
Section 275-45
Section 275-50
Subdivision 275-B - Choice for capital treatment of managed investment trust gains and losses
Section 275-55
Section 275-60
Section 275-105
Subparagraph 275-115(3)(a)(ii)
Subsection 995-1(1)
Corporations Act 2001
Section 9
Section 601EB
Section 601ED
Section 761A
Section 761G
Section 766A
Reasons for decision
All legislative references are to provisions of the ITAA 1997 unless otherwise stated.
Issue 1
Question 1
Summary
The Trust satisfies the definition of a managed investment trust (MIT) in section 275-10 of the ITAA 1997 for the year ended 30 June 20XX and for the year ending 30 June 20XX.
Documentary evidence of the Trustee's intention to make the capital treatment choice can be found in the Information Memorandum where there is a discussion of capital gains tax.
The Commissioner will exercise the discretion in subparagraph 275-115(3)(a)(ii) of the ITAA 1997 to allow a later day for the Trustee for X Trust to make a choice for capital gains tax (CGT) to be the primary basis for calculating gains or losses of the trust from the disposal of trust assets.
Detailed reasoning
In order to answer the question posed regarding the exercise of the Commissioner's discretion it is proposed begin with verification of status of the Trust as a managed investment trust.
The Trust will need to have met the legislative definition of a managed investment trust in the year ended 30 June 20XX when it failed to make the relevant capital treatment choice and to be a managed investment trust in the income year ending 30 June 20XX for which the exercise of the Commissioner's discretion is sought.
Was the Trust a managed investment trust in the year ended 30 June 20XX?
Subsection 995-1(1) contains a definition of the term "managed investment trust" which reads:
managed investment trust has the meaning given by section 275-10
The conditions set out in each of the relevant subsections of section 275-10 will be examined in detail in order to determine whether the Trust satisfies those conditions and thereby whether it comes within the meaning of a managed investment trust.
Conclusion
The analysis of the legislation shows that the Trust is a managed investment trust in terms of section 275-10 for the income year ended 30 June 20XX.
Is the Trust a managed investment trust (MIT) in the year ending 30 June 20XX?
The law to be considered for the income year ending 30 June 20XX is unchanged from the law which applied in the income year ended 30 June 2017, namely the definition of a MIT contained in section 275-10.
Conclusion
The examination of the legislation shows that the Trust is a managed investment trust in terms of section 275-10 for the income year ending 30 June 20XX.
Documentary evidence of the intention to make a capital treatment choice
Conclusion regarding the documentary evidence
With one notable exception, which is discussed immediately below, the Trustee's intention to make the capital treatment choice is largely to be inferred from the evidence provided.
The notable and highly persuasive exception in the documentary evidence is in the Information Memorandum where there is a discussion of capital gains tax.
Conclusion as to the exercise of the Commissioner's discretion
The Commissioner will exercise the discretion in subparagraph 275-115(3)(a)(ii) of the ITAA 1997 to allow a later day for the Trustee for X Trust to make a choice for capital gains tax (CGT) to be the primary basis for calculating gains or losses of the trust from the disposal of trust assets.
The later day will be Z.