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In the absence of subsection 974-70(2) of the Income Tax Assessment Act 1997 (ITAA 1997) applying, can units in a trust, which is not taxed as a company under either Division 6B or Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936), be characterised as an equity interest?

No. In the absence of subsection 974-70(2) of the ITAA 1997 applying, units in a trust, which is not taxed as a company under either Division 6B or Division 6C of the ITAA 1936 cannot be characterised as an equity interest.

Trust 1 raises funds by issuing units to investors. Trust 1 uses these funds to acquire units in Trust 2. The units entitle Trust 1 to all of the income and capital of Trust 2 except in certain exceptional circumstances.

Trust 2 uses these funds to subscribe for a non-share equity interest issued by Y.

Trust 1 and Trust 2 are not taxed as companies under either Division 6B or Division 6C of the ITAA 1936. The interests are not treated as giving rise to an equity interest in a company under subsection 974-70(2) of the ITAA 1997.

The use of the term 'equity interest' in Subdivision 974-C of the ITAA 1997 is qualified in that it must be an equity interest in a company.

As the units in Trust 1 and Trust 2 are not interests in a company these units will not give rise to an equity interest as defined by sections 974-75 or 974-80 of the ITAA 1997.