Is the Trust a unit trust for the purposes of Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936)?
No. This ruling applies for the following periods : Year ending 30 June 20YY Year ending 30 June 20YY Year ending 30 June 20YY Year ending 30 June 20YY The scheme commenced on: 1 July 20YY
The Trust does not have any unit holders and has not issued nor intends to issue any units to any entity. The Trust has a single beneficiary who has a vested indefeasible interest in both the income and capital of the Trust.
Income Tax Assessment Act 1936 Division 6C Income Tax Assessment Act 1936 section 102M Income Tax Assessment Act 1936 section 102R
Division 6C of the ITAA 1936 relates to the taxation of income of certain public trading trusts. Section 102R of the ITAA 1936 outlines a number of preconditions that need to be met in order for a trust to meet the definition of a public trading trust. The term 'unit trust' is not defined within the income tax legislation. Division 6C of the ITAA 1936 does define the terms 'unit' and 'unit holder' at section 102M but both terms are defined exclusively in relation to a 'prescribed trust estate' leaving the term 'unit trust' undefined. The meaning of 'unit trust' has been considered by the Commissioner in ATO interpretative Decision ATO ID 2010/57 Entity specific matters: trusts - whether a Managed Investment Scheme is a Unit Trust for the purposes of Division 6C of Part III of the Income Tax Assessment Act 1936 (ATO ID 2010/57). The reasons for decision in ATO ID 2010/57 provide a consistent approach to what constitutes a unit trust. This approach reiterates that the beneficial interest is held in 'units'. The reasons provide the following extracts from the commentators on the subject:
JD Heydon MJ Leeming, Jacob's Law of Trusts in Australia, LexisNexis Butterworths 7th Edition 2006 at [310]: Unit trusts are an extension into the field of commerce of the typical family trust (where settlors transfer property to a trustee on trust for their children in equal shares).... In the case of unit trust, the scheme property is divided into a large number of units, which may, subject to their terms, be Issued redeemed and traded publicly and privately. (Emphasis added). Robert l. Pritchard, Chapter 18 'Unincorporated Joint Ventures', The Law of Public Company Finance , ed Austin and Vann, The Law Book Company Ltd 1986, p 397: (ii) A unit trust is a variation of the ordinary trust. Its distinguishing feature is that the beneficial interest in the trust property is divided into units which may be independently dealt with by the holders. H.A.J. Ford, Chapter 15 'Public Unit Trusts', The Law of Public Company Finance , ed Austin and Vann, The Law Book Company Ltd 1986, p 400: The Unit Holder as a Beneficial Owner
... But in a unit trust the trustee's ownership of the property of the enterprise is not beneficial ownership. The beneficial interest is in the unit holders in fractions proportional to the number of units held by each of them. Under the terms of the deed, as usually drawn, a unit does not confer any interest in any particular part of the trust fund or any particular investment but only such interest in the trust fund as a whole as is conferred on a unit under the deed. ATO Interpretative Decision ATO ID 2002/242 Income Tax - Fixed trust operated by a government entity states in its reason for decision: A unit trust is a trust in which the ownership is divided into a number of units which are held by the beneficiaries. However, the only beneficiary of the proposed trust is the local government entity. The main criteria for the existence of a unit trust (i.e. unitholders with fractional interests) will not be present. Therefore, the proposed trust will not be a unit trust but, rather, would be a fixed trust. Conclusion
The Trust has one beneficiary who has a vested and indefeasible interest in the income and capital of the Trust. The ownership is not divided into a number of units held by beneficiaries and there are no unitholders with fractional interests. Based on the above, the Trust will not be a unit trust, but is a fixed trust. As such, the Trust is not a unit trust for the purposes of Division 6C of the ITAA 1936.