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Edited version of private advice
Authorisation Number: 1051652846211
Date of advice: 27 March 2020
Ruling
Subject: International issues - widely-held entities
Question
Are you a 'specified widely-held entity' covered by paragraph 275-20(4)(k) of the ITAA 1997?
Answer
Yes.
This ruling applies for the following period:
1 July 20XX - 30 June 20XX
1 July 20XX - 30 June 20XX
1 July 20XX - 30 June 20XX
1 July 20XX - 30 June 20XX
1 July 20XX - 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are a related party of a fund established under foreign law.
The foreign fund consists of over XX members.
The foreign fund has invested into Australian real property investments via part of an arrangement proposed to be withholding managed investment trusts (MIT).
The foreign fund holds its units in the proposed MIT arrangement through you.
You are represented and managed by a management company which holds legal title to that the assets that make up your assets.
The foreign fund is the only investor and unitholder in you.
The foreign fund is the only beneficiary of you on the basis that all your investments will flow to the foreign fund.
Under foreign law, your assets are held in trust for investors.
There is a legal obligation on your management company to manage the assets that make up your trust estate in the sole interest of the foreign fund.
Relevant legislative provisions
Paragraph 275-20(4) ITAA 1997
Reasons for decision
Paragraph 275-20(4)(k) applies to:
an entity, all the membership interests in which are owned by any of the following:
(i) entities mentioned in subsection 275-20(4);
(ii) entities that are wholly-owned by entities mentioned in subsection 275-20(4);
(iii) entities that are covered under this subsection because of a previous operation of this paragraph.
The foreign fund is an entity that is covered by 275-20(4)(c) as it is a foreign superannuation fund that has at least 50 members. Therefore, the issue is whether the foreign fund is an entity which owns all the membership interests in you.
Membership Interest
Under section 960-135, each interest or set of interests in an entity by virtue of which you are a member of the entity is a membership interest in the entity.
Section 960-130 states that a member of a trust (except a public trading trust) is a beneficiary, unitholder or object of the trust.
If the relationship between the foreign fund and yourself is a trust relationship, then you would be an entity specified in paragraph 275-20(4)(k).
Trust
The word 'trust' is not defined in the ITAA 1936 or the ITAA 1997 and therefore, must be interpreted by application of common law.
In the ATO Interpretative Decision 2008/2 and 2008/61 in respect of the decision of Justice French in Harmer & Ors v FC of T 89 ATC 5180; (1989) 20 ATR 1461 (Harmer & Ors v FC of T) Justice French stated that the four essential elements of a trust are:
- the trustee who holds a legal or equitable interest in the trust property
- the trust property which must be property capable of being held on trust and which includes a chose in action
- one or more beneficiaries other than the trustee; and
- a personal obligation on the trustee to deal with the trust property for the benefit of the beneficiaries, which obligation is also annexed to the property.
Having regard to the relationship between the foreign fund and the management company as the manager for the fund that is yourself, all four elements are present so as to give rise to a trust relationship. Hence, the foreign fund holds all membership interests in you.
Therefore, you are an entity as specified in paragraph 275-20(4)(k) of the ITAA 1997.