Issue
Does the trustee of the Superannuation Fund have a vested and indefeasible interest in the Unit Trust under subsection 160APHL(11) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No, the trustee of the Superannuation Fund does not have a vested and indefeasible interest under subsection 160APHL(11) of the ITAA 1936 in the Unit Trust.
Facts
The Superannuation Fund is a complying superannuation fund with only two members, husband and wife.
The Superannuation Fund owns (and has always owned) 100% of the issued units in the Unit Trust.
In the trust deed of the Unit Trust, upon termination of the trust, the trustee can use their discretion to pay or apply the whole or any part of the trust fund to all or any one of the discretionary beneficiaries with the approval of all the Ordinary Unit holders.
The trustee of the Unit Trust has the power with the unanimous approval of unit holders (except special unit holders) to issue special units at a price the trustee thinks fit. The trustee may redeem special units at any time for a value of one dollar.
Reasons for Decision
Under subsection 160APHL(11) of the ITAA 1936 the beneficiary's interest in the trust holding is a fixed interest to the extent that the interest is constituted by a vested and indefeasible interest in so much of the corpus of the trust as is comprised by the trust holding.
An interest may be defeasible if it is redeemable for less than its value, or if its value can be materially reduced by the creation of other interests in the trust. The interest is not defeasible where the units held by the taxpayer in a unit trust will be redeemed, or any further units will be issued, for a price determined on the basis of the unit trust's net asset value, according to Australian accounting principles, at the time of the redemption or issue.
In the trust deed of the Unit Trust, upon termination of the trust, the trustee can use their discretion to pay or apply the whole or any part of the trust fund to all or any one of the discretionary beneficiaries with the approval of all the Ordinary Unit holders.
The trustee also has the power with the unanimous approval of Unit holders (except Special unit holders) to issue special units at a price the trustee thinks fit. The trustee may redeem Special Units at any time for a value of one dollar.
The unit holders' interests in the corpus are not vested and indefeasible as the trustee has the discretion, with all the ordinary unit holders' consent, to issue special units at a price the trustee thinks fit and distribute capital to one or all discretionary beneficiaries.
The Superannuation Fund's interest in the corpus of the Unit Trust is not a fixed interest, as the Superannuation Fund does not have a vested and indefeasible interest in the corpus of the Unit Trust.