Income tax: tax consequences of changing the portfolio structure, contributing to and partially redeeming an investment in a unit in the Perpetual WealthFocus Investment Advantage Fund

This Product Ruling sets out the Commissioner's opinion on the way in which the relevant provisions identified in the Ruling section apply to the defined class of entities who take part in the scheme to which this Ruling relates. All legislative references in this Ruling are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated.

In this Product Ruling the scheme is referred to as the Perpetual WealthFocus Investment Advantage Fund (the Fund).

This Product Ruling only addresses the tax consequences of certain transactions and decisions that an Investor in the scheme may make. The transaction and decisions are where an Investor in the scheme: • changes the portfolio structure of their investment; • contributes an amount which is in addition to their initial investment in a Unit in the Fund, and • partially withdraws their investment in a Unit in the Fund. This Ruling does not provide guidance as to any other tax consequences of investing in the Fund.

This part of the Product Ruling specifies which entities can rely on the Ruling section of this Product Ruling and which entities cannot rely on the Ruling section. In this Product Ruling, those entities that can rely on the Ruling section are referred to as Investor(s).

The class of entities who can rely on the Ruling section of this Product Ruling consists of those entities that are accepted to participate in the scheme described in the Scheme section of this Product Ruling and execute relevant agreements referred to in paragraph 16 of this Product Ruling on or after 1 July 2015 and on or before 30 June 2018.

The class of entities who can rely on the Ruling section of this Product Ruling does not include entities that: • are accepted into the scheme described in the Scheme section of this Product Ruling and execute relevant agreements referred to in paragraph 16 of this Product Ruling before 1 July 2015 or after 30 June 2018, or • are subject to Division 230 in respect of this scheme. Division 230 will generally not apply to individuals, unless they have made an election for it to apply to them.

This Product Ruling does not address the provisions of the Superannuation Industry (Supervision) Act 1993 (SISA). The Commissioner gives no assurance that the scheme is an appropriate investment for a superannuation fund. The trustees of superannuation funds are advised that no consideration has been given in this Product Ruling as to whether investment in this scheme may contravene the provisions of SISA.

The class of entities defined in this Product Ruling may rely on its contents provided the scheme actually carried out is carried out in accordance with the scheme described in paragraphs 16 to 20 of this Product Ruling.

If the scheme actually carried out is materially different from the scheme that is described in this Product Ruling, then: • this Product Ruling has no binding effect on the Commissioner because the scheme entered into is not the scheme on which the Commissioner has ruled, and • this Product Ruling may be withdrawn or modified.

This Product Ruling applies prospectively from 1 July 2015. It therefore applies only to the specified class of entities that enter into the scheme from 1 July 2015 until 30 June 2018, being its period of application. This Product Ruling will continue to apply to those entities even after its period of application for schemes entered into during the period of application.

However the Product Ruling only applies to the extent that there is no change in the scheme or in the entity's involvement in the scheme.

Although this Product Ruling deals with the income tax laws enacted at the time it was issued, later amendments may impact on this Product Ruling. Any such changes will take precedence over the application of this Product Ruling and, to that extent, this Product Ruling will have no effect.

Entities who are considering participating in the scheme are advised to confirm with their taxation adviser that changes in the law have not affected this Product Ruling since it was issued.

Product Rulings were introduced for the purpose of providing certainty about tax consequences for entities in schemes such as this. In keeping with that intention the Commissioner suggests that promoters and advisers ensure that participants are fully informed of any legislative changes after the Product Ruling has issued.

Subject to the assumptions in paragraph 20 of this Product Ruling: (a) Changing the Investor's portfolio structure (see paragraph 19(d) of this Ruling) will not constitute a CGT event for an Investor for the purposes of Division 104. (b) An additional investment into the Fund by an Investor to an existing Unit will be included in the cost base of the Investor's Unit in the Fund under section 110-25. (c) An additional investment into the Fund by an Investor to an existing Unit will not alter the acquisition date of that Unit under section 109-10. (d) When an Investor makes a partial withdrawal of their investment in the Unit prior to the Fund's election into the Attribution Managed Investment Trust (AMIT) regime, CGT event E4 will happen to the investor under section 104-70. (da) When an Investor makes a partial withdrawal of their investment in the Unit subsequent to the Fund's election into the AMIT regime, the amount withdrawn will, for the purposes of making an annual adjustment to the cost base and reduced cost base of the Unit under section 104-107B, be included in the Unit's 'AMIT cost base reduction amount' for the income year under section 104-107D. (e) The anti-avoidance provisions contained in Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) will not apply to a change in an Investor's portfolio structure, the acquisition of a Unit, the making of an additional investment to, or a partial withdrawal from, a Unit.

The scheme that is the subject of this Product Ruling is identified and described in the following documents: • application for a Product Ruling as constituted by documents and information received from Perpetual Investment Management Limited (PIML) on 12 February 2015, 2 February 2018 and 13 February 2018. • Perpetual WealthFocus Investment Advantage and Perpetual WealthFocus Wholesale Investment Advantage Product Disclosure Statements dated 1 July 2014, 17 April 2015 and 1 May 2017 • Perpetual WealthFocus Investment Advantage and Perpetual WealthFocus Wholesale Investment Advantage Features Books dated 1 July 2014, 17 April 2015 and 1 May 2017 • Perpetual WealthFocus Investment Book dated 1 July 2014, 17 April 2015 and 1 May 2017, and • Consolidated Constitution to the Perpetual WealthFocus Investment Advantage Fund prepared on 28 November 2013, 31 March 2015 and 21 June 2017. Note: certain information has been provided on a commercial-in-confidence basis and will not be disclosed or released under Freedom of Information legislation.

For the purposes of describing the scheme to which this Product Ruling applies, there are no other agreements, whether formal or informal, and whether or not legally enforceable, which an Investor or any associate of an Investor, will be a party to, which are a part of the scheme. The effect of these agreements is summarised in paragraph 19 of this Product Ruling. Unless otherwise defined, capitalised terms in this Product Ruling take their meaning as per the Constitution referred to in paragraph 16 of this Ruling.

All Australian Securities and Investments Commission (ASIC) requirements are, or will be, complied with for the term of the agreements.

The following is a summary of the scheme: (a) The Fund constitutes a trust. The responsible entity is PIML. The beneficial interest in the Fund is divided into Units. Each Investor holds one Unit in the Fund. Each Unit confers an undivided, but not necessarily equal interest in the Fund. (aa) The Fund elected into the AMIT regime for the year ending 30 June 2018 and all subsequent income years pursuant to subparagraph 276-10(1)(e)(i). (b) The Fund is notionally divided into Asset Groups comprising different types of investment portfolios. Some Asset Groups may be closed and others may be added over time. (ba) Each Asset Group is not a separate AMIT pursuant to section 276-20, nor is there any other class of membership interests in the Fund which is treated as a separate AMIT pursuant to section 276-20. (c) An Investor is able to choose one Asset Group or a combination of Asset Groups (the Investor's portfolio structure). (d) An Investor can change their portfolio structure at any time by reallocating their investment between Asset Groups without a payment or transfer of their Unit. Changing the portfolio structure may not change the value of the Unit (other than through any fees payable at the time and a provision for the transaction costs in adjusting the investments in the Asset Groups). Changing the portfolio structure will, however, cause the proportion of each Asset Group within their portfolio structure to be recalculated. (e) An Investor's entitlement to distributions from the Fund is based on their portfolio structure. (f) The value of an Investor's Unit is initially the amount originally invested less any fees payable at the time. (g) The value of an Investor's Unit changes based on changes in the net asset value and the proportion of each Asset Group within their portfolio structure. (h) An Investor can make additional investments. The value of their Unit is increased by the amount of the additional investment less any fees payable at the time. There is no additional Unit issued. (i) An Investor can withdraw some of the value of their Unit by partially redeeming their investment in the Unit, subject to maintaining an overall minimum balance. The value of their Unit is reduced by the amount of the withdrawal. (j) Although an Investor's entitlements are calculated based on their portfolio structure, their interest as a Unit holder in the Fund is in the Fund's assets as a whole and not any particular Asset Group.

This Ruling is made on the basis of the following assumptions: (a) each Investor is an Australian resident for income tax purposes; (b) the Investors are not traders in investments and are not treated for taxation purposes as trading in interests in the Fund, carrying on a business of investing in the Fund, or holding their interests in the Fund as trading stock or as a revenue asset; (c) all dealings between the Investors, PIML and the Fund will be at arm's length; (d) the scheme will be executed in the manner described in the Scheme section of this Product Ruling and the scheme documentation referred to in paragraph 16 of this Ruling; and (e) the Investors are not subject to Division 230 in respect of this scheme.

The Investor holds a Unit in the Fund which constitutes an asset for CGT purposes (see Taxation Determination TD 2000/32 [1] ).

Under the Trust Deed an Investor does not have a right to any particular asset of the Fund. If an Investor wishes to transfer their interests in the Fund, they must do so by transferring the Unit.

When an Investor changes their portfolio structure, they continue to hold that same Unit in the Fund.

No CGT event happens in respect of that Unit as there has been no change in its beneficial ownership and no surrendering of any entitlements. As such, no capital gain or loss is realised by the Investor at this time.

The Unit held by the Investor represents a right to a proportionate undivided interest in the assets of the Fund. If an Investor makes an additional investment, a new Unit will not be issued. The Investor will have a right to a greater proportion of the assets of the Fund (as opposed to the Fund's assets having increased).

Additional amounts invested by an Investor will be included in the cost base of the Investor's Unit under section 110-25.

The Unit is acquired otherwise than as a result of a CGT event happening. Pursuant to item 3 of the table in section 109-10, the Investor acquires the Unit when a contract is entered into or, if there is no contract, when the Unit is issued.

Additional contributions to an existing investment in a Unit will not alter the acquisition date of that Unit.

If an Investor makes a partial withdrawal of the value of their Unit, CGT event C2 does not happen because the Unit continues to exist. When an Investor makes a partial withdrawal of their investment in the Unit prior to the Fund's election into the AMIT regime, CGT event E4 will happen to the Investor under section 104-70. If some or all of the partial withdrawal results in a non assessable payment to the Investor, the cost base of the Investor's Unit is reduced by the non assessable amount (subsection 104-70(6)).

As a member of an AMIT, the Investor will make annual adjustments to the cost base and the reduced cost base of their Unit in the Fund pursuant to section 104-107B equal to the Unit's 'AMIT cost base net amount' worked out under section 104-107C (being the net difference between the AMIT cost base reduction amount and the 'AMIT cost base increase amount'). In determining the Unit's AMIT cost base net amount for the income year, the amount partially withdrawn by the Investor will be included in the calculation of the Unit's AMIT cost base reduction amount for the income year under section 104-107D.

In the event that the AMIT cost base net amount for the income year exceeds the Investor's cost base in the Unit, the cost base and the reduced cost base of the Unit will be reduced to nil and CGT event E10 under section 104-107A will happen to the Investor such that a capital gain equal to that excess will arise.

Provided that the scheme ruled on is entered into and carried out as disclosed in this Product Ruling, Part IVA of the ITAA 1936 will not apply to a change in the portfolio structure, the making of an additional investment in an existing Unit or a partial withdrawal of an investment in an existing Unit.

The following is a detailed contents list for this Ruling: Paragraph What this Ruling is about 1 Class of entities 4 Superannuation Industry (Supervision) Act 1993 7 Qualifications 8 Date of effect 10 Changes in the law 12 Note to promoters and advisers 14 Ruling 15 Application of this Ruling 15 Scheme 16 Overview 19 Assumptions 20 Appendix 1 - Explanation 21 Division 104 - Investors changing their portfolio structure 21 Section 110-25 - additional investments 25 Section 109-10 - acquisition date 27 Section 104-70 - partial withdrawal pre AMIT election 29 Section 104-70D - partial withdrawal post AMIT election 29A Part IVA - anti-avoidance 30 Appendix 2 - Detailed contents list 31