ATO ID 2003/73: Trading trust: Trading Business - Eligible Investment Business
Date of decision: 11 December 2002
Year of income: Year ended 30 June 2002
Business line: Public Groups and International

Issue
Is a resident unit trust deriving income from rent and the provision of secretarial services, a 'trading trust' for the purposes of section 102N of Division 6C of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision
Yes. A resident unit trust deriving income from rent and the provision of secretarial services, is a 'trading trust' for the purposes of section 102N of Division 6C of the ITAA 1936.

Facts
A resident unit trust, carries on a business which consists of leasing premises from a third party, providing these premises as fitted out premises for rent, and providing secretarial services to the tenants of these premises. The trust derives its income from renting the premises, and from the provision of secretarial services to the tenants. The income derived from the provision of secretarial services to tenants represents approximately 25% of the total income derived by the trust each year.

Reasons for decision
Summary: Division 6C of the ITAA 1936 is concerned with the income of certain public trading trusts. Section 102N of the ITAA 1936 defines what is meant by a 'trading trust' for the purposes of Division 6C of the ITAA 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 (paragraph 102N(a) of the ITAA 1936). Section 102M of the ITAA 1936 defines 'trading business' to mean a business which does not consist wholly of 'eligible investment business'. The term 'eligible investment business' is also defined in section 102M of the ITAA 1936 and includes 'investing in land for the purpose, or primarily for the purpose, of deriving rent'. The provision of secretarial services to tenants is an activity distinct from, and not properly part of, the 'eligible investment business' of investing in land for the purpose, or primarily for the purpose, of deriving rent. Therefore, the business of the trust does not consist wholly of 'eligible investment business'. Therefore the trust is carrying on a 'trading business' for the purposes of section 102M of the ITAA 1936. Accordingly the resident unit trust is a 'trading trust' under section 102N for the purposes of Division 6C of the ITAA 1936.

Legislative references: Income Tax Assessment Act 1936 Division 6C section 102M section 102N paragraph 102N(a)
Subject references: Eligible investment business Public trading trusts Trading trusts