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), such that any taxable gain is crystallised under Division 16E (section 159GS) of the ITAA 1936?
Decision
No. The execution of the specified changes to the operation of the taxpayer superannuation fund, by the taxpayer, does not result in a taxable gain being crystallised under Division 16E (section 159GS) 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 , 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 The fund Act has been repealed and the investments and liabilities of the fund transferred to the new trustee.
Notwithstanding the changes made, the taxpayer eligible entity has continued intact, and no new eligible entity has been created. The assets of the fund have been held by the trustees on behalf of the same eligible entity and its members, at all relevant times.
Reasons for Decision
Division 16E of the ITAA 1936 provides a mechanism whereby the holders of qualifying securities will be taxed on an accruals basis with regard to those qualifying securities. Section 159GS of the ITAA 1936 provides for the inclusion of a balancing adjustment in the assessable income of taxpayers who transfer a qualifying security during a year of income.
'Transfer' is defined, for the purposes of Division 16E, by section 159GP of the ITAA 1936 in the following terms: "transfer" , in relation to a security, means transfer, sell, assign or dispose in any way of the security or of the right to receive payment of the amount or amounts payable under the security, but does not include a redemption or partial redemption of the security; [emphasis added]
That definition is, in all respects relevant to the present case, effectively identical to the definition of 'dispose' in section 26BB of the ITAAA 1936: "dispose" , in relation to a security, means sell, transfer, assign or dispose of in any way the security or the right to receive payment of the amount or amounts payable under the security ; [emphasis added]
The only differences between the two definitions are the transposition of the words 'transfer' and 'sell', and the explicit exclusion of redemptions for the purposes of section 159GP of the ITAA 1936. Given this correspondence in wording of definitions, the approach taken by TR96/14 to the meaning of 'dispose' for the purposes of section 26BB of the ITAA 1936 must be followed in considering the meaning of 'transfer' in the context of section 159GS of that Act.
Section 26BB of the ITAA 1936 relevantly provides: 26BB(1) [Definitions] In this section: "dispose" , in relation to a security, means sell, transfer, assign or dispose of in any way the security or the right to receive payment of the amount or amounts payable under the security; ... 26BB(2) [Disposal or redemption of traditional security] Where a taxpayer disposes of a traditional security or a traditional security of a taxpayer is redeemed, the amount of any gain on the disposal or redemption shall be included in the assessable income of the taxpayer of the year of income in which the disposal or redemption takes place.
Paragraphs 48 to 60 of Taxation Ruling TR96/14, in considering the status of debt forgiveness, provides guidance on how the concept of disposal applies in the context of section 26BB of the ITAA 1936. TR94/16 makes clear the Commissioner's view, that forgiveness of a debt does not necessarily constitute the disposal of an underlying security for the purposes of section 26BB of the ITAA 1936 because, inter alia, the terms 'dispose' and 'disposal' in that context, refer to acts which result in some alienation of the relevant security or right to payment from the holder (paragraphs 56 to 58).
In the present case, the fund has continued as a single eligible entity notwithstanding the changes that have been made. The changes in the present case do not result in a disposal for the purposes of section 26BB of the ITAA 1936, in the sense of an alienation of the security or right to payment, as the assessable income remains that of the one continuing eligible entity notwithstanding the change of trustee.
Accordingly, the changes in the present case do not result in a transfer for the purposes of section 159GS of the ITAA 1936 either. The fund has continued as a single eligible entity notwithstanding a change of trustee, amongst other changes. The assessable income thus remains that of the one continuing eligible entity. Any transfer that might have been argued to have taken place as a result of the change of trustee will, therefore, lack the necessary character of an alienation of the security or right to payment from the holder.