Private ruling: Eligible investment business
Date of advice: 29 April 2026
Published: 22 June 2026
Ruling period: 1 July 2025 to 30 June 2026
Date scheme commenced: 1 July 2025

Ruling: Q1: Will the Trusts' investments in the Properties constitute the carrying on of a business that consists wholly of an eligible investment business as defined in section 102M of the Income Tax Assessment Act 1936 during the Relevant Period, where the Trusts enter into the Leases? | A1: Yes

Relevant facts and circumstances: All legislative references are to the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 unless otherwise indicated. OS Trust is a real estate investment trust (REIT) entered into by Headco ML (as Manager) and ABC Trust Services (as Trustee). Headco ML is a wholly owned subsidiary of Headco Investment Limited. The principal activity of OS Trust is to invest, directly or indirectly, in real estate which is income producing. OS Trust has a long-term investment horizon for its assets, and this investment mandate applies to itself and all its subsidiary trusts. As a REIT, OS Trust holds its properties for the long term to generate a healthy level of income distribution for its unitholders. Headco AU Trust is an Australian unit trust and operates as a managed investment trust (MIT) and a withholding MIT. OS Trust holds 99% of the units in Headco AU Trust. Headco AU Trust owns 100% of the units in Headco AB Trust (an Australian unit trust) and does not carry on any other activities. Headco AB Trust owns 100% of the units in C Trust and D Trust respectively (Trusts). Each Trust is an Australian unit trust. C Trust has a 100% interest in C Property, and D Trust has a 100% interest in D Property (together, the Properties). Headco AU Trust, Headco AB Trust, C Trust and D Trust are special purpose trusts established to acquire and hold the Properties as long term investments for the primary purpose of deriving rental income. AA Co carries on a business of granting licences to third parties to use its facilities in return for a licence fee. Investment strategy OS Trust's aim is to be a premier commercial REIT which delivers stable returns to unitholders. OS Trust's aim is to drive net property income (NPI) and capital growth over time by acquiring properties in existing and new markets which satisfy key criteria such as potential growth in yield, accretion, rental sustainability, and the potential for value creation over time. OS Trust future-proofs its portfolio by prudently balancing asset requirements and capital expenditure, including by proactively managing leasing activities, and through disciplined portfolio reconstitution. OS Trust proactively manages its debt funding profile to manage maturity risk, which is consistent with the long-term holding of property investments. OS Trust maintains an optimal mix of fixed and floating rate borrowings and well-spread debt maturity profile. Investment strategy for the acquisition of the Trusts The Trusts derive rent from granting leasehold interests in respect of floors within the Properties to lessees. The primary purpose for each Trust holding the Properties is to derive rental income. The key commercial driver for the acquisition of the Trusts was that the Properties represented strong opportunities for growth and increased rental income. As part of the due diligence for the acquisition of the Trusts, OS Trust considered the Properties' strategic location, property value, actual and forecast NPI, and annualised and implied yields. OS Trust also prepared forecast modelling using actual cash flow information taken from rent rolls provided by the vendor and market assumptions at the time. Following acquisition of the Trusts, renovations and refurbishment works were undertaken on the Properties. Further works are planned to be undertaken progressively. Leases and the Side Deeds The Trusts (as Landlord/Lessors) each separately entered into a lease with AA Co (as Lessee/Tenant), granting AA Co a leasehold interest over levels of C Property and D Property, respectively. The key terms of each of the executed leases and side deeds (the Leases) are substantially the same form as one another. Under the Leases, AA Co is permitted to grant licences to third parties in return for a licence fee. The Leases use a rent calculation arrangement whereby the net rent per annum for each property is comprised of a guaranteed rent component and a balance rent component. The guaranteed rent component is calculated as a percentage of the net rent and is subsequently indexed under the rent review structure described in the Leases. The balance rent component is capped at a maximum, fixed dollar amount per month over the term of the Leases. Net rent is within the comparable market rent range and within the range for other tenants in the Properties. Modelling provided by OS Trust estimated the balance rent component would represent no more than 4.3% of the gross revenue of C Trust, and no more than 2.5% of the gross revenue of D Trust, and that there would be a low probability of triggering meaningful or significant balance rent payments during the term of the Leases. Lease agreements executed with the other tenants at the Properties are generally on standard, market terms that would be typically expected for comparable Australian commercial leases. No other leases executed with the other tenants at the Properties contain a rent calculation arrangement like that of the Leases executed with AA Co. Assumptions 1. For the income year ended 30 June 2025, being the income year prior to the commencement of the Leases on 1 July 2025, Headco AU Trust was a MIT and a withholding MIT. 2. For each income year of the Trusts during the term of the Leases, their rent (not including balance rent) will be at least 75% of their gross revenue for each income year.

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 6C | Income Tax Assessment Act 1936 section 102M | Income Tax Assessment Act 1936 subsection 102MB(1) | Income Tax Assessment Act 1936 s ubsection 102N | Income Tax Assessment Act 1936 subsection 102N(1) | Income Tax Assessment Act 1997 paragraph 275-10(1)(a) | Income Tax Assessment Act 1997 subsection 275-10(3) | Income Tax Assessment Act 1997 paragraph 275-10(3)(b) | Income Tax Assessment Act 1997 subsection 275-10(4)

Reasons for decision: Summary: To qualify as a MIT under paragraph 275-10(1)(a), a trust must satisfy the requirements specified in subsection 275-10(3) for the income year in which it operates. Paragraph 275-10(3)(b) provides that the trust must not be a trust covered by subsection 275-10(4). Subsection 275-10(4) provides that a trust (whether the trust is a unit trust or otherwise) is covered by the subsection if the trust would satisfy the trading trust definition in Division 6C of Part III. Subsection 102N(1) in Division 6C of Part III provides that a unit trust is a trading trust if at any time in the income year, the trustee: (a) carried on a trading business; or (b) controlled, or was able to control, directly or indirectly, the affairs or operations of another person in respect of the carrying on by that other person of a trading business. A 'trading business' is defined under section 102M as a business that does not consist wholly of eligible investment business. Eligible investment business is defined in section 102M to include business that consists of investing in land for the purpose of, or primarily for the purpose, of deriving rent. Subsection 102MB(1) extends the meaning of investing in land to include investments in moveable property. Investing in land other than for the sole or primary purpose of deriving rent would not be an eligible investment business, i.e. a business of dealing in land or developing land (either freehold or leasehold) for resale would not be an eligible investment business. Headco AU Trust owns 100% of the units in the Trusts and controls the affairs or operations of the Trusts. To qualify as a MIT, the business of Headco AU Trust (and the Trusts) must be examined to determine whether the trading trust definition in section 102N is satisfied in relation to a relevant year of income. That is, it must be determined whether the Trusts' investments in the Properties for which they have an interest in, including by way of the Trusts entering into the Leases, is investing in land for the purpose, or primarily for the purpose, of deriving rent. To determine whether a trustee's investment in land satisfies the primary purpose test requirement in section 102M, regard must be had to all the relevant facts and circumstances of the investment. Paragraph 13 of Law Companion Ruling LCR 2020/2 Non-concessional MIT income (LCR 2020/2) states when determining whether an investment in land is for the purpose, or primarily for the purpose, of deriving rent, regard should be had to several factors, including: • the trust's investment strategy • the length of time the interest in land is, objectively assessed, intended to be held for (assessed initially and continually), as well as the time such interest is actually held and any strategy for its disposal • the actions taken by the trustee to make the land available for leasing by prospective tenants • the terms of the lease • any other arrangements entered into or activities undertaken by the trustee (including in relation to any development of the land, its management, and other incidental activities) • features of the land affecting its suitability for long-term rental or its potential for profit on sale, and • projected rental yield and capital growth. No one factor is determinative, and all relevant facts and circumstances must be weighed to determine whether the primary purpose test is satisfied. Furthermore, as the test is an annual test, changes in facts and circumstances over time must be considered to determine whether the trustee's purpose has also changed (Paragraph 14 of LCR 2020/2). The Commissioner considers that 'rent'...takes a traditional meaning, being payments made for periodic use of land under a lease of land ( Commissioner of Stamp Duties (NSW) v JV (Crows Nest) Pty Ltd (1986) 7 NSWLR 529; 86 ATC 4740 at [4742] and [4747]; Commissioner of Stamp Duties (NSW) v Commonwealth Funds Management Limited (1995) 38 NSWLR 173; 95 ATC 4756 at [4762]). Payments under a lease of land (rent) are contrasted with payments in respect of land use under an agreement which is not a lease (for present purposes, referred to as a licence) (paragraph 52 of LCR 2020/2). To determine whether the Trusts' investments in the Properties are for the purpose, or primarily for the purpose, of deriving rent under section 102M where the Trusts enter into the Leases, the following factors are considered relevant: The Trusts' investment strategy • The Trusts derive rent from granting leasehold interests in respect of levels within the Properties to lessees. The Trusts' primary purpose for holding the Properties is to derive rental income. • The principal activity of OS Trust is to invest, directly, or indirectly, in real estate which is income producing and is used or primarily used for commercial purposes. OS Trust has a long-term investment horizon for its assets and this investment mandate applies to itself and all its trusts. • OS Trust's investment strategy involves increasing tenant occupancy and optimising rental rates by enhancing the quality of its properties. Acquisitions must satisfy key criteria such as yield, accretion, rental sustainability, and the potential for value creation over time. • OS Trust maintains an optimal mix of floating rate borrowings and well-spread debt maturity profile. • OS Trust adopts a prudent capital and proactive management approach, with a focus on diversifying its funding sources and extending its debt maturity profile. • The investment strategy of the Trusts is consistent with OS Trust, Headco AU Trust and Headco AB Trust's broader investment strategy to derive rental income from long-term investments in Australian real property. The Trusts' investment strategy indicates that the investments in the Properties are for the purpose, or primarily for the purpose of deriving rent, and entering into the Leases does not disturb this purpose. The length of time the interest in land is, objectively assessed, intended to be held for (assessed initially and continually), as well as the time such interest is actually held and any strategy for its disposal • The Properties have been acquired as long-term investments. The long-term nature of the holdings therefore indicates that the Trusts' investments in the Properties are for the purpose, or primarily for the purpose of deriving rent, and entering into the Leases does not disturb this purpose. Actions taken by the trustee to make the land available for leasing by prospective tenants • After the Trusts were acquired, renovations and refurbishment works were undertaken on the Properties, and other improvement works are planned to be rolled out progressively. • The rent calculation arrangement of the Leases ensures that OS Trust remains committed to ongoing maintenance and refurbishment of the Properties so that AA Co can maximise its ability to grant licences to third parties to use the accommodation leased by AA Co, resulting in the Trusts increasing their rental income from the Leases. The actions taken by the trustees of the Trusts to make the land available and attractive for leasing by prospective tenants contribute to a finding that the Trusts' investments in the Properties are for the purpose, or primarily for the purpose of deriving rent. The terms of the Leases • The Trusts (as Landlord/Lessor) entered into Leases and Side Deeds with AA Co (as Tenant/Lessee) granting a leasehold interest over levels within the Properties. The Leases are long term in nature, and include options to extend for a further period. • AA Co may possess the Properties during the Term of the Leases without disturbance from the Landlord (or persons claiming through it) except to the extent disturbance is expressly permitted by the Leases. • AA Co may use the common areas in common with the Landlord (and others entitled to use them) in accordance with the Leases. • The Landlord must not grant a lease, sublease, licence or other right of occupancy over any part of the Property to another third party for the purpose of operating a similar business from the Property: (i) AA Co must not, and must procure that AA Co's affiliates do not, without the Landlord's prior written consent (which may be granted or withheld in the Landlord's absolute discretion): establish, set up or otherwise operate a business like that of AA Co, or (ii) lease, licence or otherwise occupy another premises for the purpose of operating a business like that of AA Co within the boundaries surrounding the Properties. • The rent amounts included in the Leases incorporate the entire net rent amount, which includes the balance rent component. Balance rent is part of the payment made under the lease arrangement for exclusive possession of the defined area in the Properties. • Based on 2024 financial year data, the balance rent component of the gross revenue of the particular Leases (if payable) would only constitute approximately 2-3% of the overall trust revenue. Modelling also estimates that the balance rent component of the Leases, if payable, would only ever constitute approximately 1.4-4.3% of the gross revenue of the Trusts. This indicates the balance rent payment under the Leases is insignificant in the context of evaluating the purpose of the trustees of the Trusts' investments in land as a whole, as required by the definition of 'eligible investment business' in section 102M. • The Leases are on standard, market terms for comparable leases. While the Leases include a rent calculation arrangement, this is not considered to disturb the overall character of the Leases, which is to derive rent. All other lease agreements with the various tenants at the Properties are generally on standard, market terms that would be typically expected for comparable leases. No other leases contain a similar 'turnover' or 'balance' rent component, demonstrating the rent calculation arrangement under the Leases is unique and not an arrangement that is prevalent throughout other lease arrangements in the Properties. • The rent and reimbursements revenue from the Trusts comprised 90% and 96% of trust revenue for the 2024 financial year, which indicates that the primary purpose of the investments in the Properties is to derive rent. The terms of the lease agreements at the Properties, including the Leases, indicate that the Trusts' investments in the Properties are for the purpose, or primarily for the purpose of deriving rent. | Detailed Reasoning - Conclusion: Having regard to the above factors when considering whether an investment in land is for the purpose, or primarily for the purpose, of deriving rent, the Trusts' investments in the Properties constitute the carrying on of a business that consists wholly of an eligible investment business. The primary purpose of the investments is to derive rental income from granting leasehold interests to tenants. The entering into the Leases in respect of specific floors of the Properties to AA Co does not disturb this conclusion. The guaranteed rent and balance rent paid by AA Co under the terms of the Leases constitute an insignificant proportion of the overall revenue generated from the Trusts' wider investment strategy to derive rental income from the Properties in their entirety. Accordingly, entering into the Leases does not result in the Trusts carrying on a business that no longer consists wholly of eligible investment business for the purposes of section 102M. It follows that the Trusts are not considered to be conducting trading businesses where they enter into the Leases, and are therefore not trading trusts as defined in section 102N. It then follows that Headco AU Trust and Headco AB Trust, by virtue of their interest and control of the Trusts, will also not be trading trusts under section 102N.