Issue
Does a unit trust have a 'controlling individual' under subsection 152-55(2) of the Income Tax Assessment Act 1997 (ITAA 1997) if the only unit holder is a discretionary trust and the trustees of the discretionary trust have exercised their discretion to distribute at least 50% of the income and the capital of the discretionary trust to a particular individual?
Decision
No. A unit trust does not have a 'controlling individual' under subsection 152-55(2) of the ITAA 1997 if the only unit holder is a discretionary trust and the trustees of the discretionary trust have exercised their discretion to distribute at least 50% of the income and the capital of the discretionary trust to a particular individual.
Facts
A unit trust carries on a business and its only unit holder is a discretionary trust.
The trustees of the discretionary trust have exercised their discretion to distribute at least 50% of the income and the capital of the discretionary trust for a particular year to a particular individual.
Reasons for Decision
Under subsection 152-55(2) of the ITAA 1997 an individual is a 'controlling individual' of a trust (where entities have entitlements to all the income and capital of the trust) if the individual is beneficially entitled to at least 50% of the income and capital of the trust. This requires a fixed and continuous entitlement to the income and capital of the trust, rather than just an entitlement in respect of a given distribution of income or capital.
In this case, the unit trust does not have any individual unit holders. As well, the discretion exercised by the trustees of the discretionary trust in favour of a particular individual in relation to a particular period or distribution, does not alter the fact that that individual does not have a fixed and continuous entitlement to the income and capital of the unit trust.
As such, notwithstanding the exercise of the discretion, there is no individual beneficially entitled to at least 50% of the income and capital of the unit trust. In these circumstances, the unit trust does not have a 'controlling individual' under subsection 152-55(2) of the ITAA 1997.