Unit trust: Whether Unit Trust is a Public Trading Trust

Whether a unit trust, owned by an 'excluded superannuation fund' is a 'public trading trust' for the purposes of Division 6C of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. The unit trust is a 'public trading trust' for the purposes of Division 6C (ITAA 1936) and is therefore taxed at the rate applicable to companies (section 102S and section 102T (ITAA 1936)).

A unit trust is formed to conduct land development. The trustee of a 'complying superannuation fund' holds units in the unit trust. No units in the unit trust have been listed for quotation on the stock exchange or offered to the public. The superannuation fund that owns the unit trust is an 'excluded superannuation fund' for superannuation purposes (this means that the fund has fewer than five members and is, therefore, subject to less regulation than larger funds).

The superannuation fund is a discretionary trust. The fund's deed provides that other than in a situation where the trustee has applied a discretion to transfer an asset to a member, no member shall have or acquire any beneficial or other interest in a specific asset of the fund.

Under Division 6C (ITAA 1936) certain unit trusts, called 'public trading trusts' are treated as if they are companies for tax purposes. Generally speaking, a 'public trading trust' is a 'public unit trust' (see section 102P)which is also a 'trading trust' (see section 102N)

In this case, the unit trust's activities satisfy the section 102N) requirements of a 'trading trust'.

Furthermore, the unit trust satisfies the subsection 102P(2) (ITAA 1936) requirements of a 'public unit trust'. Subsection 102P(2) deems a unit trust to be a 'public unit trust' where an 'exempt entity' holds a beneficial interest in 20% or more of the property or income of the unit trust. Section 102M) specifically defines 'exempt entity' to mean, among other things, a 'complying superannuation fund'. The fact that the superannuation fund is an 'excluded superannuation fund' for superannuation purposes does not mean it ceases to be a 'complying superannuation fund'.

It should be noted that subsection 102P(2) is subject to subsection 102P(10). In broad terms, subsection 102P(10) requires that the beneficial ownership of the units of the unit trust be traced through any interposed trusts. Given the trust terms of the super fund, its members cannot be said to be the holders of the units in the unit trust. As a result, the unit trust cannot rely on subsection 102P(10) to avoid being taxed as a company.

The unit trust satisfies the above primary (and other secondary) requirements of Division 6C (ITAA 1936) and is therefore to be taxed as a company.