Private ruling: Trust
Date of advice: 10 August 2017
Published: November 2017
Ruling period: 1 July 20xx – 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Is the Entity a 'trust’ or 'trust estate’ for the purposes of Subdivision 840-M of the Income Tax Assessment Act 1997 (ITAA 1997) and Division 11A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. | Q2: Is the trustee of the Entity liable to pay income tax under section 840-805 of the ITAA 1997 in relation to a 'fund payment’ it receives as a beneficiary from the MIT? | A2: No.

Relevant facts and circumstances: 1. The Entity is a non-Australian resident. It operates in a foreign country in the form of an investment fund. 2. The foreign manager (trustee) of the Entity is a company and manages the investment fund. 3. The investment fund operates as follows: ● the main investment principle of the Entity is to invest in private equity holding companies around the world ● the assets of the Entity are entrusted to the trustee and are managed on behalf of the Participants in the Entity ● The Management Regulations governs the relationship between the Entity, the Participants and the trustee ● the trustee on behalf of the Entity has invested in an Australian managed investment trust that is a 'withholding MIT’ for the purposes of Subdivision 840-M of the Income Tax Assessment Act 1997 .

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 840-M | Income Tax Assessment Act 1936 Division 11A of Part III

Reasons for decision: Summary: 'Trust' or 'trust estate’ is not defined in the ITAA 1936 or ITAA 1997. French J in Harmer & Ors v. Federal Commissioner of Taxation (1989) 20 ATR 1461; 89 ATC 5180 stated that a trust 'is notably a definition of a relationship by reference to obligations'. His honour went on to state that the four essential elements of a trust are: 1. the trustee who holds a legal or equitable interest in the trust property 2. the trust property which must be property capable of being held on trust and which includes a chose in action 3. one or more beneficiaries other than the trustee; and 4. a personal obligation on the trustee to deal with the trust property for the benefit of the beneficiaries, which obligation is also annexed to the property. Having regard to the facts presented in the application for the private ruling in relation to the investment fund Entity, it is considered that all four elements necessary for a trust are present so as to give rise to a trust relationship between the trustee and the Participants in the Entity. Paragraph 840-805(2)(c) of the ITAA 1997 has the effect that MIT withholding tax is not imposed on a beneficiary which is a trustee of another trust. Therefore, the trustee of the Entity will not be liable for income tax on the fund payments received from the Fund as it would only be in receipt of such funds payments in its capacity as trustee of another trust, being the Entity. Instead, the underlying Participant beneficiaries of the Entity may be liable depending on their circumstances.