Issue
Do the changes to the operation of the taxpayer superannuation fund result in the creation of a new eligible entity, for the purposes of Part IX of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. The execution of the specified changes to the operation of the taxpayer superannuation fund, by the taxpayer, do not result in the creation of a new eligible entity for the purposes of Part IX of the ITAA 1936.
Facts
The taxpayer superannuation fund ('the fund') is a superannuation scheme established by Act of Parliament ('the fund Act'), with a board as trustee. The rules of the scheme are also contained in the fund Act. The fund is a complying fund for the purposes of the ITAA 1936.
Legislation was enacted to enable the fund to be regulated under the Superannuation Industry (Supervision) Act 1993 ('the SIS Act'), and a proprietary company was established to act as trustee (the new trustee). The new trustee has adopted a trust deed replicating, as far as possible, the benefit provisions contained in the fund Act, as well as other provisions. The fund Act has been repealed and the investments and liabilities of the fund transferred to the new trustee.
As a result of these changes to the operation of the fund, the investments of the fund are now held by the new trustee, rather than the former board, on terms contained in a deed rather than the fund Act. As a result, the fund has been able to elect to be a complying superannuation fund. In particular it is noted that: • there is no merging of assets with other superannuation funds • the assets of the fund continue to be held, and the investments of the fund managed, for the benefit of the members of the fund • there is no change for the members of the fund in terms of accrued benefits and entitlements, although the changes introduce new benefit and investment options for members.
The board has explicitly assured members that, notwithstanding the changes to the operation of the fund, their existing membership conditions are maintained.
A number of incidental and administrative changes have also been made to accommodate the change to a proprietary company trustee, the replacement of the fund Act with the trust deed, and to formally reflect the requirements of the SIS Act, which were previously only reflected in the practice of the board. In addition, the definition of 'Employer' has been widened to allow any employer to be admitted to the fund.
Reasons for Decision
As an 'eligible entity' for the purposes of section 267 of the ITAA 1936, the income tax liability of the fund is determined according to Part IX of the ITAA 1936.
The Tax Office publication 'Creation of a new trust - Statement of Principles August 2001' sets out the ATO view on the decision of the High Court of Australia in Commissioner of Taxation v. Commercial Nominees of Australia Ltd [2001] HCA 33; 2001 ATC 4336; 47 ATR 220 (' Commercial Nominees '), and the question of whether changes to a Part IX superannuation fund will or will not result in the creation of a new eligible entity.
In Commercial Nominees , the trustee of a superannuation fund sought to claim tax losses from previous years as allowable deductions. The Commissioner argued that, because of amendments made to the trust deed, there was a fundamental alteration in the trust relationship established by the original deed, such that it destroyed the necessary continuity of the taxpayer for the purposes of the carry forward loss provisions in the income tax law. The original trust deed contained wide powers of amendment. The amendments made to the trust deed allowed the fund to accept new members from outside the companies for which the fund was originally established. A new trustee was appointed and a professional management company was appointed administrator. There was also a change in the nature of the benefits, from defined benefits to accumulations.
In Commercial Nominees , the court recognised that a superannuation fund must maintain its continuity in order to be able to claim its tax losses, and referred to three main indicia of continuity for the purposes of Part IX of the ITAA 1936. These indicia are: • the constitution of the trust under which the fund operates • the trust property and • membership.
The court held that no new Part IX eligible entity was created, because: • the trusts under which the fund operated (after the amendments in question) were constituted by the original trust deed as varied by the exercise of a power of amendment available under that deed • the members before the amendments remained members after the amendments and • the property that was the subject of the trust did not alter when the amendments took effect.
The changes made to the operation of the fund, in the present case, may be summarised as a moderately complex series of changes to replace a statutory board trustee, with a proprietary company trustee, and to base the entitlements of beneficiaries of the fund on terms contained in a trust deed rather than in an Act of Parliament. Other, incidental changes, introduce options to members, outline administrative approaches to certain events, and formally bring the fund operation in line with the SIS Act (with which it has already been complying in practice).
In Commercial Nominees the amendments to the deed were made in accordance with a power in the original trust deed. In the present case the fund, and the rights arising to the beneficiaries in respect of that fund, were established by an Act of Parliament. The Parliament can of course amend legislation at any time, that is, it has a power of amendment to affect the rights of beneficiaries that is analogous to the power of amendment that the trustee had in Commercial Nominees . The present changes are effected by amending legislation, and are thus made within the power of amendment applicable to the Act that established the fund.
In addition, the trusts under which the fund operated, as established by the fund Act, continue to be the trusts under which the fund operates following the changes in question. The new deed maintains the various pre-existing fund membership categories and benefit structures in all key respects. The members of the scheme under the board continue as members under the administration of the new trustee. Member entitlements and conditions continue, with the various membership categories and benefit structures provided for in the fund Act being maintained in the new deed in the structure and terms of that deed. Allowing for various changes to reflect the new trustee and format, and the introduction of new options for members, the new deed replicates the corresponding benefit provisions from the fund Act.
The one major change with respect to a criterion examined in Commercial Nominees , namely membership, is that in the present case the definition of employer has been broadened to potentially admit any employer. However, given that a similar broadening of the potential membership base presented no obstacle in Commercial Nominees , it should also present no obstacle to the continuity of membership criterion here. In both Commercial Nominees and the present case, notwithstanding the amendments, the persons who were members of the funds before the amendments remain the members of the respective funds after the amendments.
Finally, as a result of these amendments, the fund property is transferred from the board to the new trustee. The property continues to be held on substantially the same trusts in respect of the same members, and is not merged with the assets of any other fund. The property that is the subject of the relevant trusts therefore, does not alter either as a result of the changes, or at the time the changes took effect.
Since: • the trusts under which the fund was originally constituted continue, as amended pursuant to a power available under the original constituting document • the fund membership is not changed by the amendments in question and • the property of the fund is not changed by the amendments in question
it is concluded that the relevant eligible entity does not come to an end as a result of the amendments. The fund continues intact, with no new fund or eligible entity having been created, for the purposes of Part IX of the ITAA 1936.