Private ruling: Tax integrity measures - Part IVA - Dividend stripping
Date of advice: 28 July 2025
Published: 29 September 2025
Ruling period: Income year ending 30 June 20XX

Ruling: Q1: Will section 177E of the Income Tax Assessment Act 1936 ( ITAA 1936 ) apply to the scheme comprising the Proposed Restructure? | A1: No. | Q2: Will the general anti-avoidance provisions in Part IVA of the ITAA 1936 apply to cancel any tax benefit obtained in connection with the Proposed Restructure? | A2: No.

Relevant facts and circumstances: A and B A and B have recently retired. A and B are married and have 2 adult children, C and D. Prior to retirement, A operated a business in Australia ( Business ) through the ABC Trust. The Business was sold in 20XX. ABC Pty Ltd has always been the trustee of the ABC Trust since it was settled in 1970s. A is the sole director and shareholder of ABC Pty Ltd. The beneficiaries of the ABC Trust have always been A, B and members of their family ( the Family ). The Family Trust and the Company In 2007, the Family Trust was settled by a deed of settlement ( Family Trust Deed ). The Family Trust Deed adopts the same terms of the trust deed of the ABC Trust which was settled in the 1970s. XYZ Pty Ltd ( Trustee ) has always been the trustee of the Family Trust. A and B have always been the sole directors and shareholders of the Trustee. A, B, C and D are the Specified Beneficiaries of the Family Trust. The discretionary objects of the Family Trust are currently broad and extend to include the spouses of A and B's lineal descendants (i.e. C, D, their children and grandchildren) as well as wider family members. The Company was incorporated in 2007. A and B have always been the directors of the Company. The sole shareholder of the Company has always been the Family Trust. The Company does not (and has never) carried on a business. Rather, it is used as a passive investment vehicle. Current Structure Since 2007, the profits of the Business have typically been distributed from the ABC Trust to the Company and retained in the Company. From time to time, the Company has declared fully franked dividends to the Family Trust which in turn has distributed those amounts to members of the Family, either directly or through other trusts within the Family. The balance sheet of the Company as at 30 June 2004 indicates it has significant retained earnings of $X. Proposed Restructure A and B have turned their minds to succession planning and wish to ensure that the valuable profits which have been generated by the Business and currently retained in the Company are not exposed to risk. They are concerned that the current structure does not adequately protect the Business profits in the event of a family dispute (for example, if their children (C or D) were to separate from their respective spouses) or from disgruntled beneficiaries. A and B are concerned that claims could be brought under section 90 of the Administration and Probate Act 1958 (Vic) or under section 79 of the Family Law Act 1975 ( Family Law Act ) that would place the profits of the Business at risk. Specifically, A and B are concerned that the recent Victorian Supreme Court of Appeal case of Owies v JJE Nominees Pty Ltd (2022) VSCA 142 ( Owies ) may provide an avenue for disgruntled objects of the Family Trust to challenge how the Trustee of the Family Trust resolves to distribute its income and capital, thereby jeopardising their succession planning goals. A and B are advised by the Advisors in this matter. Together with their Advisors, A and B have decided that their objectives can be fulfilled by undertaking the following steps ( Proposed Restructure ): (a) A new Australian company, New Co 2 was recently incorporated. A and B are the directors and shareholders of New Co 2. New Co 2 is the trustee of a newly created discretionary trust, the New Family Trust, that was recently established by way of execution of a deed of trust ( NFT Trust Deed) . (b) Another new Australian company, New Co, was recently incorporated. The sole shareholder of New Co is New Co 2 as trustee for the New Family Trust. All issued shares in New Co are Ordinary Class shares with equivalent proportionate voting rights and entitlements to dividends and capital. A and B are the directors of Cameron Investment. (c) The Trustee of the Family Trust will nominate in writing for New Co to be a General Beneficiary of the Family Trust in accordance with clause x of the Family Trust Deed. (d) The Company will declare a large fully franked dividend of approximately $X, clearing out its cash reserves and its franking credits. It is expected that the Company's corporate tax rate for imputation purposes will be 30% (since more than 80% of its income will be base rate entity passive income in that income year). (e) The Family Trust will resolve to make New Co presently and specifically entitled to the fully franked dividend. It is expected that New Co will be subject to a corporate tax rate on the fully franked dividend at 30% since 80% or more of its income will be based rate entity passive income. (f) Similar to the Company: (i) New Co will act as a passive investment vehicle for the Family, holding the profits of the Business and reinvesting those amounts when appropriate in listed securities; and (ii) New Co will from time to time declare fully franked dividends to the New Family Trust who in turn will make various beneficiaries of the Family presently or specifically entitled to those amounts. Clause X of the Family Trust Deed provides the Trustee with the following powers to amend the Family Trust Deed: The Trustees for the time being may at any time and from time to time by deeds revoke add to or vary all or any of the trusts hereinbefore limited or the trusts limited by any variation or alteration or addition made thereto from time to time and may by the same or any other deed or deeds declare any new or other trusts or powers concerning the Trust Fund or any part or parts thereof the trusts whereof shall have been so revoked added to or varied... but so that any law against perpetuities is not thereby infringed and so that such new or other trust powers discretions alterations or variations: - ... (Emphasis added) NFT Trust Deed A and B are the Appointors of the New Family Trust. The New Family Trust has a perpetuity period of 80 years commencing on its recent establishment date. Under clause x of the NFT Trust Deed, the beneficiaries of the New Family Trust are the Primary Beneficiaries and the General Beneficiaries. The Primary Beneficiaries are defined under clause x as the persons named in the Schedule of the NFT Trust Deed which presently are A and B. The General Beneficiaries are defined in clause x of the NFT Trust Deed and comprise: (a) the Primary Beneficiaries and their children C and D; (b) the children, grandchildren and further lineal descendants of A, B, C and D; (c) any company where a share is beneficially owned or held by any of the persons in paragraphs 14(a) or 14(b) or by the trustee of any trust under which that person is a beneficiary; (d) the trustee of any trust under which any of the persons described in clauses paragraphs 14(a) or 14(b) is a beneficiary; and (e) such Additional Members of the Class of General Beneficiaries specified in the Schedule of the NFT Trust Deed. Under clause x of the NFT Trust Deed, references to 'children, grandchildren and further lineal descendants' is limited to biological children, biological grandchildren and further biological lineal descendants and does not include adopted children or step-children unless such person is included as an Additional Member of the Class of General Beneficiaries in the Schedule of the NFT Trust Deed. There is currently no persons named as Additional Members of the Class of General Beneficiaries in the Schedule of the NFT Trust Deed. Clause x of the NFT Trust Deed restricts the distribution of income and capital of the New Family Trust to persons defined as a 'Disqualified Beneficiary'. Clause x of the NFT Trust Deed restricts the distribution of income and capital of the New Family Trust to entities referred to as an 'Excluded Individual' or 'Excluded Trust'. According to the Advisors, the NFT Trust Deed is specifically tailored to maximise protection against beneficiary claims as follows: (a) The beneficiaries of the New Family Trust are limited to A, B, C and D and their bloodline lineal descendants, including entities where such persons have some entitlement or are beneficiaries. The eligible beneficiaries will not include wider family members such as the brothers and sisters of A and B (and the spouses and children of such brothers and sisters) and the spouses of A and B's lineal descendants such as the spouses of C and D. The removal of such wider family members as eligible objects of the New Family Trust (unlike the Family Trust) will therefore mitigate the risk of future claims against the trustee of the New Family Trust. (b) Clause x of the NFT Trust Deed prevents the trustee of the New Family Trust from distributing to a Disqualified Beneficiary which captures any person who is exposed to bankruptcy or insolvency risks, suffers a relationship breakdown, separates from their spouse or is party to an application for an order under the Family Law Act. This ensures that a disgruntled spouse is less likely to be able to assert that C and D's entitlement to distributions from the New Family Trust (but for the Disqualifying Beneficiary provision) forms part of the asset pool that may be subject to division under the Family Law Act. (c) Under clause x of the NFT Trust Deed, the trustee of the New Family Trust is prevented from distributing the income or capital of the trust to an Excluded Individual which includes the current or former spouses of A and B's lineal descendants and the trusts and companies where an Excluded Individual (i.e. non-bloodline family member) is in control of the entity. Another benefit which is motivating A and B is that the New Family Trust will have a perpetuity period of 80 years compared to the vesting date of the Family Trust which will occur earlier. An extension of the perpetuity date allows A and B to further their succession planning goals for the benefit of their children. Compared to the Family Trust Deed (based on a trust deed that was established in the 1970s), the NFT Trust Deed is more modern and tailored to deal with recent trust law developments (for example, streaming of dividends and capital gains). Effectively, the result of the Proposed Restructure is that the valuable profits of the Business will be transferred from the Company to New Co which is owned exclusively by New Co 2 as trustee of the New Family Trust. The Proposed Restructure is fundamentally a duplication of the current structure, but with the important modification of more robust asset protection measures in place in respect of the discretionary trust where the eligible beneficiaries will be restricted to A and B's bloodline lineal descendants. Alternatives A and B maintain that their goal to protect the wealth they have generated cannot be achieved by the simple amendment of the Family Trust Deed to exclude certain beneficiaries as eligible objects. Clause X of the Family Trust Deed only allows the trustee to 'revoke add to or vary all or any of the trusts hereinbefore limited'. This restrictive amendment power means that the Family Trust Deed is unlikely to be able to be varied to the extent required to achieve all the asset protection features provided by the Proposed Restructure in the form of the tailored NFT Trust Deed (as outlined in paragraph 19). The Advisors have also considered a court ordered variation of the Family Trust Deed pursuant to section 63A of the Trustee Act 1958 (Vic). However, based on their own practical experience, they do not think this option is viable on the basis of the cost for their client and the likelihood of success in respect of such an order would be 'negligible' given the breadth of the variations to the trust sought to be implemented. Assumptions The Proposed Restructure will not comprise any material steps, events or transactions which are not referred to in this ruling.

Relevant legislative provisions: Income Tax Assessment Act 1936 Part IVA | Income Tax Assessment Act 1936 section 177D | Income Tax Assessment Act 1936 subsection 177D(2) | Income Tax Assessment Act 1936 section 177E | Income Tax Assessment Act 1936 section 177F

Reasons for decision: Summary: The Proposed Restructure will not constitute either a dividend stripping scheme or a scheme having substantially the same effect for the purposes of section 177E. Detailed reasoning Section 177E is an anti-avoidance provision designed to prevent tax benefits being obtained as part of a dividend stripping scheme or a scheme with substantially the same effect as a dividend stripping scheme. Section 177E embraces a scheme which can be said objectively to have the dominant (although not necessarily exclusive) purpose of avoiding tax. Assessing the purpose of the scheme is an objective test having regard to the characteristics of the scheme and the objective circumstances in which the scheme was designed and operated. A and B's succession planning goals, including to protect the profits from beneficiary claims and potential family disputes (reinforced by the recent Owies decision), appear to be genuine motivating reasons for undertaking the Proposed Restructure. It cannot be concluded that the dominant purpose for entering the scheme is the avoidance of tax on the distributions to the original shareholder of the Company. | Summary: The Proposed Restructure will not constitute a scheme to which section 177D applies so as to attract the application of Part IVA. Detailed reasoning Section 177D provides that Part IVA applies to a scheme, or any part of the scheme, entered into or carried out by a person for the dominant purpose of enabling a taxpayer to obtain a tax benefit in connection with the scheme. If Part IVA applies to a scheme, the Commissioner can make a determination under section 177F to cancel the tax benefit obtained under the scheme. A conclusion about a relevant person's purpose is the conclusion of a reasonable person based on all the facts and evidence that are relevant to considering the matters outlined in subsection 177D(2). Although there is a tax benefit from the scheme, having consideration of the matters outlined in subsection 177D(2), there is insufficient tax purpose to engage the application of the general anti-avoidance provisions in Part IVA.