Private ruling: Management Investment Trust
Published: November 2011

Ruling: Yes. | Detailed reasoning | 'Trust' is not defined in the Income Tax Assessment Act 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'. He 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. | The Four Elements of a Trust | The elements of a trust as outlined by Justice French in Harmer & Ors v FC of T are satisfied for the XY Fund and the ABC Fund. Having regard to the foregoing, the XY Fund and the ABC Fund are trusts for the purposes of Section 12-402(4)(a) of Schedule 1 of the TAA 1953.




Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns. | Subject: Management Investment Trust: The scheme that is the subject of the ruling: | &squf; ABC is an Australian resident unlisted 'wholesale' unit trust which satisfies the requirements outlined in subsection 12-402(1) or subsection 12-402(1A) of Schedule 1 of the TAA 1953. | &squf; ABC is a managed investment trust (MIT) as defined in Section 12-400 of Schedule 1 of the TAA 1953. | &squf; The trustee of the ABC will be an Australian company wholly owned by the XY Fund. | &squf; Approximately 99.9% of the units in the ABC will be held by the XY Fund. | &squf; The XY Fund is a regulated investment fund, set up and operated under a European law as a special fund targeting global real estate investments. | &squf; The XY Fund is managed by a European management company (EUR). The assets of the XY Fund are managed and administered by EUR (as the manager) in the interests of the unitholders in the XY Fund. EUR (as the manager) holds legal title to the assets, but does not have any economic interest in the assets. EUR receives funds from the investors, selects and undertakes the acquisition of the investments and has all of the control of the investments. EUR (as the manager) also receives all income from the investments, but does not have an economic interest in that income. | &squf; The XY Fund was originally established by contractual agreements between EUR as the manager, a custodian bank and various European pension funds in accordance with the regulations of the European law. | &squf; The ABC Fund is established by contractual agreements between EUROM (an European asset management company set up as an European limited company) as the manager, a custodian bank and the unitholder (i.e. MN Fund) in accordance with the regulations of the European law. | &squf; All of the units in the XY Fund are, amongst other assets, currently held by the manager of the ABC Fund. | MN Fund: &squf; The MN Fund is an entity that satisfies the requirements in Section 12-402(3)(f)(i) of Schedule 1 of the TAA 1953. | &squf; The MN Fund is the sole unitholder in the ABC Fund. | Relevant provisions: Taxation Administration Act 1953 Subdivision 12H. | Issue 1: Will the XY Fund and the ABC Fund each be considered to be a trust for the purposes of Section 12-402(4) (a) of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953)? | This advice applies for the following periods: 1 July 20XX to 30 June 20XX | Question: Is the ABC an entity covered by Section 12-402(3)(f)(iii) of Schedule 1 the TAA? | Section 12-402(3)(f) states: | "(f) an entity, the principal purpose of which is to fund pensions (including disability and | similar benefits) for the citizens or other contributors of a foreign country, if: | (i) the entity is a fund established by an *exempt foreign government agency; or | (ii) the entity is established under a foreign law for an exempt foreign government | (iii) the entity is a *wholly-owned subsidiary of an entity mentioned in subparagraph (i) | The XY Fund is an entity within section 12-402(3)(f)(i) of Schedule 1 the TAA 1953. Despite the fact that the ABC Fund is a wholly owned subsidiary of the MN Fund, it is not the principle purpose of ABC Fund to fund pensions for the citizens or contributors of a foreign country. The ABC Fund merely acts as a pooling vehicle for particular investments of the MN Fund. | Based on the above analysis, it is considered that the ABC Fund is not an entity covered by Section 12-402(3)(f)(iii) of Schedule 1 the TAA 1953 as the principle purpose requirement is not satisfied by the ABC Fund. | Will the MN Fund be treated as a member in the Australian MIT on the basis that it will hold an interest in the Australian MIT indirectly through a 'chain of trusts' in accordance with Section 12-402(4)(a) of Schedule 1 of the TAA 1953? | The MN Fund will be treated as a member in the Australian MIT on the basis that it will hold an interest in the MIT indirectly through a 'chain of trusts' in accordance with Section 12-402(4)(a) of Schedule 1 of the TAA 1953. | Section 12-402(4)(a) of Schedule 1 of the TAA 1953 provides: | "(a) if an entity that is not a trust holds interests in the trust indirectly, through a *chain of trusts: | (i) treat the entity as a member of the trust; and | (ii) do not treat a trust in the chain of trusts as a member of the trust;" | We note that for this purpose, an entity covered by Section 12-402(3) of Schedule 1 of the TAA 1953 is an entity that is not a trust. The Applicant has advised that the MN Fund is an entity covered by Section 12-402(3) and that the XY Fund and the ABC Fund are not entities covered by Section 12-402(3). | According to Section 995-1 of the ITAA 1997, the term 'chain of trusts' has the meaning given by Section 104-71 of the ITAA 1997. Section 104-71(5) of ITTA 1997 defines a chain of trusts as follows: | "A chain of trusts consists of 2 or more trusts where at least one of these conditions is satisfied for | (a) the trustee of the trust owns units or interests in another trust; or | (b) the trustee of another of the trusts owns units or interests in the trust." | This means that section 12-402(4)(a) of Schedule 1 of the TAA 1953 will be satisfied if the MN Fund (being an entity that is not a trust) hold its interests in the MIT indirectly through a chain of trusts. | In outlined in question 1, the XY Fund and ABC Fund are regarded as trusts. Accordingly, MN Fund will hold an indirect interest in the MIT through XY Fund and the ABC Fund, therefore forming a chain of trusts (with the MIT) in accordance with Section 104-71(5) of the ITAA 1997.