Private ruling: Marriage breakdown - transfer of units in a trust to another trust
Date of advice: 7 October 2021
Published: December 2021
Ruling period: Financial year ended 30 June 20xx
Date scheme commenced: 1 July 20xx

Ruling: Q1: Will the Commissioner seek to apply Subdivision E of the Income Tax Assessment Act 1936 (ITAA 1936), in particular section 109XA if: • A proportion of the units in the Business A Unit Trust held by the Person A Family Trust were transferred to Person B in their individual capacity; and/or • A proportion of the units in the Person C Unit Trust held by Person B Family Trust were transferred to Person B in their individual capacity. | A1: No. Taking into account the facts below and the reason for the transfer the Commissioner would not apply section 109XA. | Q2: If section 109XA does not have application to the proposed transfer of units, would the Commissioner seek to apply section 109T of the ITAA 1936. | A2: No. Taking into account the facts below and the reason for the transfer the Commissioner would not apply section 109T. | Q3: If a proportion of the ordinary shares held by Person A in Person A Pty Ltd were required to be transferred to the spouse under a Family Court order, would the Commissioner seek to apply Part IVA, in particular section 177 E of the ITAA 1936 given the position taken in the Audit of the group finalised some years ago? | A3: No. Taking into account the facts below and the reason for the transfer the Commissioner would not apply section 177E.

Relevant facts and circumstances: The marriage of Person A and Person B has broken down and the parties have separated. The parties have not agreed on a final division of marital assets. Assets will be required to be transferred under Orders issued by the Family Court. It is proposed a proportion of the following marital assets be transferred to the Person B under a Family Court order: • Units in the Business A Unit Trust owned by the Person A Family Trust. • Units in the Person C Unit Trust owned by the Person B Family Trust. • Ordinary shares in Person A Pty Ltd. It is proposed the finalisation of the division of marital assets and issue of Family Court orders will occur in the 20xx-xx financial year. The business structures concerned are: Business A Unit Trust • Business A Unit Trust was established by deed over XX years ago. • The trustee of the Business A Unit Trust is Trustee Z Pty Ltd. • A1 units were issued on establishment of the trust at an issue price of $X per unit. • Trustee Y Pty Ltd as trustee for the Person A Family Trust holds A2 units in the Business A Unit Trust. • There have been no changes to the original unit holdings. Person C Unit Trust • The Person C Unit Trust was established by deed over XX years ago. • The trustee of the Person C Unit Trust is Person C Holdings Pty Ltd. • C1 units were issued on establishment of the trust at an issue price of $X per unit. • Trustee Y Pty Ltd as trustee for the Person B Family Trust holds C2 units in the Person C Unit Trust . • There have been no changes to the original unit holdings. Person A Family Trust • The Person A Family Trust was settled by way of deed over XX years ago. • The trustee of the Person A Family Trust is Trustee Y Pty Ltd. • Person A and Person B are joint Appointors of the Person A Family Trust. • Person B is an A Class Beneficiary of Person A Family Trust. • The vesting date of Person A Family Trust is over XX years in the future. • Person A Family Trust owns A2 units in Business A Unit Trust. • Person A Family Trust has an unpaid present entitlement owing to Business B Pty Ltd. Person B Family Trust • Person B Family Trust was settled by way of deed over XX years ago. • The trustee of Person B Family Trust is Trustee Y Pty Ltd. • The joint Appointors of the Person B Family Trust are Person A and Person B. • Person B is an additional member of the Class of General Beneficiaries. • The vesting date of Person B Family Trust is over XX years in the future. • Person B Family Trust owns C2 units in the Person C Unit Trust. • Person B Family Trust has an unpaid present entitlement owing to Business B Pty Ltd. Business B Pty Ltd • Business B Pty Ltd was incorporated over XX years ago. • The ordinary shareholders were: ­ Person A - BB1 A Class Shares ­ Person D - BB1 B Class Shares; and ­ Person E - BB1 C Class Shares. • The shares originally owned by Person E were passed to Person F on the death of Person E. • The current shareholders of Business B Pty Ltd are: Share Class Number Issued Shareholder A Class Ordinary BB1 Person A B Class Ordinary BB1 Person G C Class Ordinary BB1 Person F D Class Ordinary BB2 Person A Pty Ltd E Class Ordinary BB2 Business C Pty Ltd F Class Ordinary BB2 Person H Pty Ltd In the xxxx-xx financial year, a corporate restructure was undertaken as part of a family succession plan and D, E and F Class Ordinary shares were issued to the following entities ("the New Companies"): ­ Person A Pty Ltd ­ Business C Pty Ltd; and ­ Person H Pty. • In the xxxx-xx financial year the entire retained profits of Business B Pty Ltd were distributed in equal proportions to the holders of the D, E and F Class Ordinary shares. • Some years ago, the ATO considered the application of section 177E of the Income Tax Assessment Act 1936 (ITAA 1936) to the payment of the dividends from Business B Pty Ltd to the holders of the D, E and F Class Ordinary shares. The ATO found section 177E of the ITAA 1936 did not apply at the time the dividends were paid from Business B Pty Ltd, however it was noted the Commissioner would consider applying Part IVA if in the future, either; ­ The New Companies declare a dividend to a shareholder who is not the original shareholder of Business B Pty Ltd and that entity has a preferred tax profile in comparison to the original shareholder, or ­ Division 7A would have taken an amount to be a dividend paid by Business B Pty Ltd if it had had a distributable surplus. Person A Pty Ltd Person A Pty Ltd was incorporated about XX years ago. The shareholders of Person A Pty Ltd are as follows: Share Class Number Issued Shareholder DV - Ordinary PA1 Person A DV1 - Dividend (V) PA1 Person I DV2 - Dividend (V) PA1 Person J E - E Class Shares PA1 Person B F - F Class Shares PA1 Person K ORD - Ordinary Shares PA2 Person A

Relevant legislative provisions: Income Tax Assessment Act 1936 section 109T | Income Tax Assessment Act 1936 section 109XA | Income Tax Assessment Act 1936 section 177E