United Kingdom limited partnership and managed investment trusts

Is a United Kingdom Limited Partnership (UKLP) collective investment scheme recognised, under a foreign law relating to corporate regulation, as an entity with a similar status to a managed investment scheme for the purposes of paragraph 12-400(2)(d) of Schedule 1 to the Taxation Administration Act 1953 ( TAA)?

Yes. A UKLP collective investment scheme is recognised, under a foreign law relating to corporate regulation, as an entity with a similar status to a managed investment scheme for the purposes of paragraph 12-400(2)(d) of Schedule 1 to the TAA.

The UKLP is a 'member' of an Australian Trust for the purposes of section 12-400 of Schedule 1 to the TAA.

The Australian Trust does not have at least 50 members for the purposes of sub-item 3(c) of the table in paragraph 12-400(1)(b) of Schedule 1 to the TAA.

The UKLP has at least 50 members for the purposes of paragraph 12-400(2)(d) of Schedule 1 to the TAA.

The UKLP is treated as a limited partnership for United Kingdom (UK) tax law purposes.

The partnership agreement of the UKLP is formed under the UK's Limited Partnerships Act 1907.

For the purposes of the UK's Financial Services and Markets Act 2000 ( FSMA), the UKLP is a 'collective investment scheme'.

The UK's FSMA is a foreign law relating to corporate regulation.

Subdivision 12-H of Schedule 1 to the TAA deals with Pay As You Go withholding obligations for distributions of managed investment trust income. Under subsection 12-400(1) of Schedule 1 to the TAA, there are various conditions that need to be considered in order to determine whether a particular trust is a managed investment trust in relation to an income year.

Sub-item 3(c) of the table in paragraph 12-400(1)(b) of Schedule 1 to the TAA sets out one of the conditions that must be satisfied in the context of the facts of this case. Sub-item 3(c) requires that, at the time the trustee makes the first fund payment, one of the entities covered by a paragraph of subsection 12-400(2) of Schedule 1 to the TAA is a member of the trust.

In the context of the facts of this case, the relevant type of entity that must be a member of the trust is described in paragraph 12-400(2)(d) of Schedule 1 to the TAA 1953 as: an entity that is recognised, under a foreign law relating to corporate regulation, as an entity with a similar status to a managed investment scheme and that has at least 50 members.

The term 'similar' is not defined in the tax legislation. Therefore, the term takes its ordinary meaning. The Macquarie Dictionary defines similar as 'having likeness or resemblance, especially in a general way'. Therefore, a 'similar' status does not mean exactly the same status.

The FSMA governs collective investment schemes in the UK and accordingly is the relevant foreign law relating to corporate regulation for the purposes of paragraph 12-400(2)(d) of Schedule 1 to the TAA.

A managed investment scheme derives its status as such for the purposes of paragraph 12-400(2)(d) of Schedule 1 to the TAA by satisfying the definition of that term under Australian law.

Accordingly, determining whether the UKLP collective investment scheme has a similar status to that of a managed investment scheme involves a comparison of the legal requirements that must be satisfied in order to be considered a collective investment scheme under the FSMA and the legal requirements that must be satisfied to be considered a managed investment scheme under Australian law.

Australian law

Item 2 of paragraph 12-400(1)(b) of Schedule 1 to the TAA provides that the term 'managed investment scheme' is 'defined by section 9 of the Corporations Act 2001'. Accordingly, the definition of that term in section 995-1 of the Income Tax Assessment Act 1997 ( ITAA 1997) is not applicable for the purposes of subsection 12-400(1) of Schedule 1 to the TAA.

The term 'managed investment scheme' is again referred to in paragraph 12-400(2)(d) of Schedule 1 to the TAA. There is no reference in paragraph 12-400(2)(d) to the term having the meaning in section 995-1 of the ITAA 1997. Therefore, the term 'managed investment scheme' in paragraph 12-400(2)(d) is 'defined by section 9 of the Corporations Act 2001' in accordance with the reference to that definition in item 2 of paragraph 12-400(1)(b) of Schedule 1 to the TAA.

Section 9 of the Corporations Act 2001 relevantly defines a managed investment scheme as: (a) a scheme that has the following features: (i) people contribute money or money's worth as consideration to acquire rights ( interests ) to benefits produced by the scheme (whether the rights are actual, prospective or contingent and whether they are enforceable or not); (ii) any of the contributions are to be pooled, or used in a common enterprise, to produce financial benefits, or benefits consisting of rights or interests in property, for the people (the members ) who hold interests in the scheme (whether as contributors to the scheme or as people who have acquired interests from holders); (iii) the members do not have day-to-day control over the operation of the scheme (whether or not they have the right to be consulted or to give directions); ...

The requirement under section 9 of the Corporations Act 2001 that there be a 'scheme' has been considered by the Courts in Australia and has been given a meaning that broadly includes some plan of action, with a coherent and defined purpose (Australian Softwood Forests Pty Ltd v. Attorney-General for New South Wales ( 1981) 148 CLR 121), which almost invariably includes a profit making feature or objective (Australian Securities and Investments Commission v. Takaran ( 2002) 43 ACSR 46).

Similarly, subsection 235(1) of the FSMA requires that a collective investment scheme whose purpose or effect is to enable persons taking part in these arrangements to participate in or receive profit or income. These two requirements of a 'scheme' and an arrangement are similar as they both require some sort of business or profit making purpose or plan.

The first feature of a managed investment scheme under paragraph (a) of the definition of that term in section 9 of the Corporations Act 2001 is that people make a contribution to the scheme as consideration to acquire rights to the benefits produced by the scheme. Paragraph 235(3)(a) and subsection 235(4) of the FSMA similarly requires that such an arrangement have the characteristics that the contributions of participants are exchanged for rights to participate in profits or income.

The second feature of a managed investment scheme under paragraph (a) of the definition of that term in section 9 of the Corporation Act 2001 is that the funds are either 'pooled' or 'used in common enterprise to produce financial benefits ...'. Subsection 235(3) of the FSMA similarly requires that the contributions of participants and the profits or income out of which payments are to be made to them are to be pooled. This is broadly consistent with the requirement that the contributions are used in common enterprise to produce the financial benefits.

The third feature of a managed investment scheme under paragraph (a) of the definition of that term in section 9 of the Corporations Act 2001 is that the members of the scheme do not have day-to-day control over the operation of the scheme. Similarly, subsection 235(2) of the FSMA provides that the arrangements must be such that the persons who are to participate do not have day to day control over the management of the collective investment scheme.

Accordingly, a UKLP collective investment scheme, to derive its status as such, is subject to similar requirements under the FSMA as that required of a managed investment scheme under Australian law.

Therefore, the UKLP collective investment scheme is recognised under a foreign law relating to corporate regulation as an entity with a similar status to a managed investment scheme for the purposes of paragraph 12-400(2)(d) of Schedule 1 to the TAA. Note 1: as the UKLP collective investment scheme in this case has at least 50 members, the UKLP satisfies all of the requirements in paragraph 12-400(2)(d) of Schedule 1 to the TAA. Accordingly, the Australian Trust satisfies item 3 of the table in subsection 12-400(1) of the TAA and will be a 'managed investment trust' for the purposes of that subsection as long as the other requirements in that subsection are also satisfied. Note 2: not all UK limited partnerships will be a 'collective investment scheme' under the UK law. This ATO ID applies only to UK limited partnerships that are also 'collective investments schemes' under the UK's FSMA.