ATO ID 2001/50: Exemption from income tax: Whether a Resident Unit Trust is a Trading Trust
Date of decision: 23 July 1998
Business line: Public Groups and International

Issue
Whether a resident unit trust entering into securities lending transactions is a trading trust for the purposes of section 102N of Division 6C of the Income Tax Assessment Act 1936 .

Decision
The resident unit trust is not a trading trust for the purposes of section 102N of the Income Tax Assessment Act 1936 .

Facts
The resident unit trust enters into securities lending transactions of a type to which section 26BC of the Income Tax Assessment Act 1936 applies. The resident unit trust enters into no other types of arrangements.

Reasons for decision
Summary: Division 6C of the Income Tax Assessment Act 1936 is concerned with income of certain public trading trusts. Paragraph 102N(a) of the Income Tax Assessment Act 1936 defines what is meant by a 'trading trust' for the purposes of Division 6C of the Income Tax Assessment Act 1936 . A 'trading trust' is defined to include a unit trust that carries on a 'trading business' at any time during the year of income. Section 102M of the Income Tax Assessment Act 1936 defines 'trading business' to mean a business which does not consist wholly of eligible investment business. The term 'eligible investment business' is itself defined in section 102M of the Income Tax Assessment Act 1936 to include investing or trading in: bonds, debentures, stock or other securities (subparagraph (ii)), shares in a company (subparagraph (iii)), a right or option in respect of such a security or share (subparagraph (xii)), and/or any similar financial instruments (subparagraph (xiii)). Entering into securities lending arrangements constitutes 'eligible investment business' under subparagraph (ii), (iii) or (xiii) of the definition of eligible investment business contained in section 102M of the Income Tax Assessment Act 1936 , the term trading having a broader meaning than merely buying and selling. As the resident unit trust is not in any other business except 'eligible investment business' it is not carrying on a 'trading business' for the purposes of Division 6C of the Income Tax Assessment Act 1936 .

Legislative references: Income Tax Assessment Act 1936 section 102M paragraph 102N(a) Division 6C
Subject references: Public trading trusts Securities lending arrangements Securities transactions