ATO ID 2007/90: Trust Losses: unlisted very widely held trust - all of the trust's units must carry the same rights under paragraph 272-120(1)(c) of Schedule 2F to the ITAA 1936
Date of decision: 24 April 2007
Year of income: Year ended 30 June 2005 Year ended 30 June 2006
Business line: Public Groups and International

Issue
Where a trust seeks to be classified as an 'unlisted very widely held trust' pursuant to subparagraph 266-150(2)(a)(iii) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936), are all of the trust's units required to carry the same rights throughout the entire 'test period' for the purposes of paragraph 272-120(1)(c) of Schedule 2F of the ITAA 1936?

Decision
Yes. The requirement in paragraph 272-120(1)(c) of Schedule 2F to the ITAA 1936 that 'all of its units carry the same rights' means that all of the trust's units must carry the same rights at all times throughout the test period.

Facts
Trust A has tax losses available to it from the Loss Year which it is seeking to deduct in the Income Year. At the beginning of the Loss Year, the units of Trust A comprised Ordinary Units and Special Units. Different rights were attached to these two classes of units. The Special Units were later redeemed during the Loss Year.

Reasons for decision
Summary: Section 272-120 of Schedule 2F to the ITAA 1936 establishes the rules for a trust to be classified as an 'unlisted very widely held trust'. One of the requirements, under paragraph 272-120(1)(c) of Schedule 2F to the ITAA 1936, is that 'all of its units carry the same rights'. The 'test period' for a trust that is, at all times, an unlisted very widely held trust, and that seeks to deduct a tax loss from an earlier year is set out in subparagraph 266-150(2)(a)(iii) of Schedule 2F to the ITAA 1936. For Trust A, the 'test period' runs from the beginning of the Loss Year until the end of the Income Year. In order to satisfy paragraph 272-120(1)(c) of Schedule 2F to the ITAA 1936, all of the units of Trust A must carry the same rights throughout this test period. The existence of both Ordinary Units and Special Units during part of the Loss Year means that all of the units of Trust A did not carry the same rights throughout the test period.

Legislative references: Income Tax Assessment Act 1936 subparagraph 266-150(2)(a)(iii) of Schedule 2F section 272-120 of Schedule 2F paragraph 272-120(1)(c) of Schedule 2F
Subject references: Fixed trusts Unit trusts