Private ruling: Discretion - Fixed entitlements
Date of advice: 17 September 2020
Published: October 2020
Date scheme commenced: 1 July 2019.

Ruling: Q1: Does X (X), the unitholder of X, X, X and X (collectively, the Trusts) have fixed entitlements to all of the income and capital of the Trusts under subsection 272-5(1) to Schedule 2F of the Income Tax Assessment Act 1936 ( ITAA 1936 )? | A1: No. | Q2: If not, will the Commissioner exercise the discretion in subsection 272-5(3) to Schedule 2F of the ITAA 1936 to deem the beneficiary of the Trusts as having fixed entitlements to all of the income and capital of the Trusts, from 1 July 2019? | A2: Yes. | Q3: Is X the head company of a consolidatable group from 1 July 2019? | A3: Yes. | Q4: Are the Trusts all eligible subsidiary members of a consolidatable group from 1 July 2019? | A4: Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. Overview · X currently owns 100% of the units in each of the following Trusts: (a) X (b) X (c) X (d) X · None of the Trusts are: (e) listed for quotation in the official list of an approved stock exchange; (f) a registered managed investment scheme (MIS) for the purposes of Chapter 5 of the Corporations Act 2001 (Corporations Act); (g) an unregistered MIS; or, (h) a widely held trust. · Under the income tax consolidation rules, the Trusts each satisfy the residency requirements contained in section 703-25 of the ITAA 1997. · No Unitholders' Agreement is currently in place. · No Unitholders' Agreement is intended to be implemented. X · X was incorporated on X · The current Directors of X are X (appointed) and X (appointed X) · X was a director of the company until X · X has issued capital 1XX ordinary shares of $X each fully paid · 7X ordinary shares are held by X Pty Ltd ATF X which were allotted on incorporation. This trust is part of the X Family Group · 3X ordinary shares were allotted to X ATF X on incorporation. This trust is part of the X Family Group · The 3X ordinary shares were sold to X ATF X on XX XX 2020 as part of an arm's length disposal between the two trusts. This trust is part of the X Family Group X · X was established on X · On X, 100% of the ordinary units in the trust were acquired by X · The trustee's resolution dated X reflects the transfer of a total of XXX,XXX ordinary units to X · The purchase price for the ordinary units was $X,XXX,XXX · No other classes of units appear to have been issued since the establishment of the trust and only ordinary units were acquired X · The 2019 Financial Statements reflect that the income of the trust was distributed 100% to X in 2019 ($XXX,XXX) and 2018 ($XX,XX) · The unpaid present entitlements (UPE) for the trust reduce the loan balance owing from X each financial year such that there is no outstanding entitlement · Loans from X to entities other than those included in the X Group total $XXX,XXX. An interest rate of X.20% was charged for the year ended 30 June 2019 (received on X July 2019) · Loans to X from entities other than those included in the X Group total $X. An interest rate of X.20% was charged for the year ended 30 June 2019 (paid on X July 2019) · Loans from X to entities other than those included in the X Group total $XXX,XXX. An interest rate of X.37% was charged for the year ended 30 June 2020 (received on X July 2020) · Loans to X from entities other than those included in the X Group total $XX,XXX. An interest rate of X.37% was charged for the year ended 30 June 2020 (paid on X July 2020) · 100% of the income of the trust estate was distributed to X in 2020 · There are no carried forward tax losses in X as at 30 June 2019 X Pty Ltd · The company is the trustee of X and was originally incorporated on X when the trust was established · X and X were appointed as directors on X · X resigned as a director on X · X was appointed as a director of the company on X · X and X acquired the 1XX ordinary shares, 7X/3X respectively on X and the shareholding remains the same as at the date of this application · The ordinary shares are legally and beneficially held by the individuals · X intends to acquire the shares from X in due course, subject to advice in this regard X · X was established on X · On X100% of the ordinary units in the trust were acquired by X · The trustee's resolution dated X reflects the transfer of a total of 1,XXX ordinary units to X · The purchase price for the ordinary units was $X,XXX,XXX · No other classes of units appear to have been issued since the establishment of the trust and only ordinary units were acquired on X · The 2019 Financial Statements reflect that the income of the trust was distributed 100% to X in 2019 ($XXX,XXX) and 2018 ($X,XXX) · X's unpaid present entitlements reduce the loan balance owing from X each financial year such that there is no outstanding entitlement · Loans from X to entities other than those included in the X Group total $XXX,XXX. An interest rate of X.20% was charged for the year ended 30 June 2019 (received on X July 2019) · Loans to X from entities other than those included in the X Group total $X. An interest rate of X.20% was charged for the year ended 30 June 2019 (paid on X July 2019) · Loans from X to entities other than those included in the X Group total $XXX,XXX. An interest rate of X.37% was charged for the year ended 30 June 2020 (received on 1 July 2020) · Loans to X from entities other than those included in the X Group total $X,XXX. An interest rate of X.37% was charged for the year ended 30 June 2020 (paid on 1 July 2020) · 100% of the income of the trust estate was distributed to X in 2020 · There are no carried forward tax losses in X as at 30 June 2019 X Pty Ltd · The company is the trustee of X and was originally incorporated on X when the trust was established · X and X were appointed as directors on X · X resigned as a director on X · X was appointed as a director of the company on X · X and X acquired the 1XXX ordinary shares, 8XX/3XX respectively on X and the shareholding remains the same as at the date of this ruling · The ordinary shares are legally and beneficially held by the individuals · X intends to acquire the shares from X in due course, subject to advice in this regard X · X was established on X · On X 100% of the ordinary units in the trust were acquired by X · The trustee's resolution dated X reflects the transfer of a total of XXX,000 ordinary units to X · The purchase price for the ordinary units was $XXX,XXX · No other classes of units appear to have been issued since the establishment of the trust and only ordinary units were acquired on X · The 2019 Financial Statements reflect that the income of the trust was distributed 100% to X in 2019 ($XX,XXX) and 2018 ($XXX,XXX) · The UPE for the trust reduces the loan balance owing from X each financial year such that there is no outstanding entitlement · Loans from X to entities other than those included in the X Group total $XX,XXX. An interest rate of X.20% was charged for the year ended 30 June 2019 (received on X July 2019) · Loans to X from entities other than those included in the X Group total $X. An interest rate of X.20% was charged for the year ended 30 June 2019 (paid on X July 2019) · Loans from X to entities other than those included in the X Group total $XX,XXX. An interest rate of X.37% was charged for the year ended 30 June 2020 (received on X July 2020) · Loans to X from entities other than those included in the X Group total $X,XXX An interest rate of X.37% was charged for the year ended 30 June 2020 (paid on X July 2020) · 100% of the income of the trust estate was distributed to X in 2020 · There are no carried forward tax losses in X as at 30 June 2019 X Pty Ltd · The company is the trustee of X and was originally incorporated on X when the trust was established · X and X were appointed as directors on X · X resigned as a director on X · X was appointed as a director of the company on X · X and X acquired the 1XX ordinary shares, 7X/3X respectively on X and the shareholding remains the same as at the date of this ruling · The ordinary shares are legally and beneficially held by the individuals · X intends to acquire the shares from X in due course, subject to advice in this regard X · X was established on X · On X 100% of the ordinary units in the trust were acquired by · The trustee's resolution dated X reflects the transfer of a total of 1,XXX ordinary units to X · The purchase price for the ordinary units was $XXX,XXX · No other classes of units appear to have been issued since the establishment of the trust and only ordinary units were acquired on X · The trust had no profit available for distribution during the 2019 financial year and no profits available for distribution during the 2020 financial year · The trust is no longer trading, however, it holds the lease for the X business premises and there is a loan obligation owing to X X Pty Ltd · The company is the trustee of X and was originally incorporated on X · X and X were appointed as directors on X · X resigned as a director on X · X was appointed as a director of the company on X · X and X acquired the 1XXX ordinary shares, 8XX/3XX respectively on X and the shareholding remains the same as at the date of this application · The ordinary shares are legally and beneficially held by the individuals · X intends to acquire the shares from X in due course, subject to advice in this regard Assumptions For the purposes of this ruling, the X income tax consolidated group means the proposed consolidated group consisting of X and the Trusts, until such time that this group ceases to exist under section 703-5 of the Income Tax Assessment Act 1997 (ITAA 1997). Our ruling is based on the following assumptions: a) Since the ordinary units were acquired by X on X, the corporate trustees of each trust have never exercised any powers capable of defeating the beneficiary's interest in the income or capital of any of the Trusts b) The Directors of the corporate trustees will not exercise any powers capable of defeating the beneficiary's interest in the income and capital of any of the Trusts c) No units of a class other than ordinary units will be issued by the corporate trustees of the Trusts d) No units will be issued by the Trusts to an entity other than X or a member of the X income tax consolidated group e) No units will be transferred by X unless those transfers are to a member of the X income tax consolidated group, the terms are on an arm's length basis for the disposal of the units, and the price of the units are determined on the basis of the valuation of the assets and liabilities of the respective trusts in accordance with applicable Australian accounting standards f) No units will be redeemed unless that redemption is by X or other members of the BQMG income tax consolidated group, and the price of the units are determined on the basis of the valuation of the assets and liabilities of the respective trusts in accordance with applicable Australian accounting standards g) The application and redemption price of ordinary units in the Trusts will be determined on the basis of the valuation of the assets and liabilities of the respective trusts in accordance with applicable Australian accounting standards h) The existing rights attached to the ordinary units of the Trusts will not be varied by the corporate trustees of the trusts while the trusts are members of the X income tax consolidated group i) The Directors of the corporate trustees of the Trusts will be the same as the directors of X at all times j) The shareholders of the corporate trustees of the Trusts will be amended, and continue to be amended, such that the shareholders of each corporate trustee are the same as the directors of X, or the directors of its ultimate parent company if X becomes a subsidiary member of the X income tax consolidated group (subject to assumption "k") k) The existing 3X% shareholding in each of the corporate trustees will not cause a breach of the assumption at "j" where the shares in each of the corporate trustees are transferred by X to X within a reasonable timeframe sufficient for X to obtain advice on any Queensland stamp duty implications of acquiring these shares or requesting that the Appointor appoints new corporate trustees for each of the Trusts. Upon transfer of the shares, or a change of corporate trustee to new companies that are controlled by X (7X%) and X (3X%) this assumption will be treated as satisfied and no longer relevant l) X will not introduce a Unitholders' Agreement, or any similar documentation separate to the trust Deeds of each trust which will influence whether or not a beneficiary under each of the Trusts has a fixed entitlement to the income and capital m) Where loans and payments are made by the Trusts to shareholders or associates of shareholders of X, the terms of the loans or payments will be on terms at least sufficient to satisfy the requirements of Division 7A of the ITAA 1936, such that no benefit is conferred on the recipient outside of terms accepted by the Commissioner for the purposes of Division 7A of the ITAA 1936 n) Where loans are made by the trusts to parties that are not shareholders or associates of shareholders of X, the terms of the loan will include interest at a rate equivalent to the ATO Benchmark Rate unless sufficient security is taken for the loan for an interest rate equivalent to that offered by the group's major financier in order that no benefits are conferred on the recipients o) No arrangements have or will be entered into that will result in section 272-35 of Schedule 2F of the ITAA 1936 having application p) No schemes will be undertaken that result in a tax benefit from trafficking in tax losses, bad debt deductions, debt/equity swap deductions or any other matters that result in fraud or evasion q) The Directors of each of the corporate trustees of each of the Trusts will each prepare a written resolution confirming both the assumptions, and that that the beneficiary has a vested and indefeasible interest in a share of income of the trust that the trust derives from time to time, or of the capital of the trust, as agreed with the Commissioner as part of this application, in order for the Commissioner to deem fixed entitlement for each of the Trusts.

Relevant legislative provisions: Income Tax Assessment Act 1936 , Schedule 2F | Income Tax Assessment Act 1936 , section 272-5 of Schedule 2F | Income Tax Assessment Act 1936 , subsection 272-5(1) of Schedule 2F | Income Tax Assessment Act 1936 , subsection 272-5(2) of Schedule 2F | Income Tax Assessment Act 1936 , subsection 272-5(3) of Schedule 2F | Income Tax Assessment Act 1936 , subsection 272-35 of Schedule 2F | Income Tax Assessment Act 1936 , section 272-75 of Schedule 2F | Income Tax Assessment Act 1997 , subsection 995-1(1)

Reasons for decision: Summary: No. The terms of the Deeds do not provide the unitholder of the Trusts with vested and indefeasible interests in all of the income and capital of the Trusts. | Detailed Reasoning - Fixed entitlements: 1. A 'fixed trust' is defined in section 272-65 of Schedule 2F to the ITAA 1936: A trust is a fixed trust if persons have fixed entitlements to all of the income and capital of the trust. 2. A 'fixed entitlement' is defined in subsection 995-1(1) of the ITAA 1997: [A]n entity has a fixed entitlement to a share of the income or capital of a company, partnership or trust if the entity has a fixed entitlement to that share within the meaning of Division 272 in Schedule 2F of the Income Tax Assessment Act 1936 . 3. Subsection 272-5(1) of Schedule 2F to the ITAA 1936 provides that: If, under a trust instrument , a beneficiary has a vested and indefeasible interest in a share of income of the trust that the trust derives from time to time, or of the capital of the trust, the beneficiary has a fixed entitlement to that share of the income or capital. [emphasis added] | Detailed Reasoning - Meaning of the word 'interest': 4. For the purposes of Schedule 2F to the ITAA 1936, in order for an interest to be recognised as a fixed interest, it must be a right with respect to a share of the income or capital of the trust that is susceptible to measurement (i.e. the right must have 'the necessary quality of definable extent': Gartside v. Inland Revenue Commissioner [1968] AC 553). | Detailed Reasoning - Meaning of the words 'vested and indefeasible': 5. The terms 'vested and indefeasible' are not defined in the ITAA 1936 or ITAA 1997. 6. The Explanatory Memorandum to the Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997 (EM) discusses the nature of a 'vested interest': 13.4 A person has a vested interest in something if the person has a present right relating to the thing. Stated simply, a vested interest is one that is bound to take effect in possession at some point in time... 13.5 In traditional legal analysis, a person can be said to be either 'vested in possession' or 'vested in interest'. A present interest, i.e. one that is being enjoyed, is said to be 'vested in possession'; a future interest, i.e. one which gives its holder a present right to a future enjoyment, is said to be a 'vested interest'. A person is vested in possession where the person has a right to immediate possession or enjoyment of the thing in question. In the definition of fixed entitlement, 'vested' includes both vested in possession and vested in interest. 7. This is reflected in paragraph 13 of the Practical Compliance Guideline PCG 2016/16 Fixed entitlements and fixed trusts (PCG 2016/16). 8. The EM also addresses when a vested interest is indefeasible: 13.7 A vested interest is indefeasible where, in effect, it is not able to be lost. A vested interest is defeasible where it is subject to a condition subsequent that may lead to the entitlement being divested. A condition subsequent is an event that could occur after the interest is vested that would result in the entitlement being defeated, for example, on the occurrence of an event or the exercise of a power. For example, where a beneficiary's vested interest is able to be taken away by the exercise of a power by the trustee or any other person, the interest will not be a fixed entitlement. 'Trust instrument' 9. It is an essential element of subsection 272-5(1) of Schedule 2F to the ITAA 1936 that, in order to have a fixed entitlement to a share of income or capital, there must be a vested or indefeasible interest 'under a trust instrument'. 10. The determining factor in deciding whether fixed entitlements exist will be the terms of the trust instrument under which the trust is constituted. Neither the form of the trust nor the labels that are attached to it can determine this question. 11. For the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936, the Commissioner accepts that a 'trust instrument' includes documents such as a deed, constitution, investment memorandum, unitholders agreement etc. | Detailed Reasoning - Applying the law to your circumstances: The 'trust instrument' 12. The 'trust instrument' is comprised of the terms of the following Deeds: (a) Trust Deed for the X, dated X (b) Trust Deed for the X, dated X (c) Trust Deed for the X, dated X (d) Trust Deed for the X, dated X 13. There is no Unitholders' Agreement currently in place for the Trusts. | Detailed Reasoning - Clauses in the 'trust instrument' which may contain defeasible powers: 14. Pursuant to paragraph 16 of PCG 2016/16, below is a non-exhaustive list of clauses in the trust Deeds for X and X which may cause a beneficiary's interest to be defeasible: · Clauses 3.1 & 3.4 - respective portions or classification of units - portions or classification of units may be adjusted from time to time. · Clause 4.1 - additional units - the trustee may issue new units and the price of those units is not based on the net asset value of the trust. · Clause 8.1 - determination of income - in the event the trustee has reclassified the units, the trustee may unanimously decide how the net income is distributed among holders of a particular class of units in different proportions. · Clauses 8.3 & 8.4 - distribute income - the trustee has full discretion to distribute or accumulate income to different classes of unitholders. The trustee also has discretion to determine what constitutes a class of income and to whom it will be paid. The trustee may also determine how outgoings and deductions are to be applied or apportioned in calculating the income of any class. · Clause 11.1.30 - distribution of capital - the trustee has full discretion to make an interim distribution(s) of capital when it sees fit. · Clause 32.1 - variation of the trust Deed - the trustee can modify the trust Deed where 100% of unitholders consent. 15. Pursuant to paragraph 16 of PCG 2016/16, below is a non-exhaustive list of clauses in the trust Deeds for X and X which may cause a beneficiary's interest to be defeasible: · Sub - Clause 2.2(f) - equal value of units- the trustee may issue new units and the price of those units is not based on the net asset value of the trust. · Clause 2.3 - additional units / reclassification / change rights - the trustee may issue new units and classify them with or without different rights and obligations. The price of those units is not based on the net asset value of the trust. Unitholders may also consent to the reclassification or restriction of their entitlement to the income or capital of the trust. · Sub-Clause 3.1(d)(1) & 3.2(a) - redemption of units - the trustee may redeem units of the trust, and the price of those units is not based on the net asset value of the trust. · Sub-Clause 5.1(b) - determination and classification of income - the trustee has full discretion to classify the income or capital of the trust into one or more classes. · Sub-Clause 5.2(b)(7) - distribution of income - the trustee has discretion on how income may be distributed. · Sub-Clause 6.1(b)(29) - creation of a new trust - the trustee can hold property on another trust with 100% unitholder approval. · Clause 7.1 - variation of the trust Deed - the trustee may modify the trust Deed with special consent of unitholders. · Third Schedule to the trust Deed - rights and classes of units. | Detailed Reasoning - Conclusion: 16. The terms of the trust instruments do not provide the unitholder of the Trusts with vested and indefeasible interests in all of the income and capital of the Trusts. 17. As a result, the unitholder of the Trusts does not have fixed entitlements to all of the income and capital of the Trusts for the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936. | Detailed Reasoning - Question 2: If not, will the Commissioner exercise the discretion in subsection 272-5(3) to Schedule 2F of the ITAA 1936 to deem the beneficiary of the Trusts as having fixed entitlements to all of the income and capital of the Trusts, from 1 July 2019? | Summary: Yes. Subject to the assumptions outlined above, the Commissioner will exercise his discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to deem the beneficiary of the Trusts as having fixed entitlements to all of the income and capital of the Trusts. | Detailed Reasoning - Commissioner's discretion: 18. The Trustee may request that the Commissioner exercise his discretion under subsection 272-5(3) of Schedule 2F for the ITAA 1936 to deem the beneficiary's interest as being vested and indefeasible pursuant to paragraphs 25 and 26 of PCG 2016/16. 19. Subsection 272-5(3) of Schedule 2F to the ITAA 1936 provides: If: (a) a beneficiary with an interest in a share of income that the trust derives from time to time, or of the capital of a trust, does not have a fixed entitlement to the share; and (b) the Commissioner considers that the beneficiary should be treated as having the fixed entitlement, having regard to: (i) the circumstances in which the entitlement is capable of not vesting or the defeasance can happen; and (ii) the likelihood of the entitlement not vesting or the defeasance happening; and (iii) the nature of the trust; the beneficiary has the fixed entitlement. Paragraph 272-5(3)(a) 20. As provided in paragraph 25 of PCG 2016/16, the Trusts are not discretionary trusts or trusts with default income or capital beneficiaries; that is, no beneficial interest in the income or capital of the Trusts is capable of being defeated, partly or wholly, by virtue of a power of appointment of income or capital by the trustees. 21. However, the beneficiary of the Trusts does not have vested and indefeasible interests in the income and capital of the Trusts. Paragraph 272-5(3)(b)(i) 22. The circumstances in which the defeasance of an interest can happen have been discussed at paragraphs 14 - 17 above. Paragraph 272-5(3)(b)(ii) 23. The likelihood of defeasance occurring is considered low, on the basis that: (a) Since X acquired the Trusts, the trustees have not exercised any power capable of defeating the beneficiary's interest in the income or capital of the Trusts. (b) This ruling includes a number of assumptions outlined above to ensure the risk of defeasance is low. 24. The Commissioner is of the view that it is unlikely that a defeasance of the unitholder's interests will occur as a result of the existence of the powers contained in the Deeds. Paragraph 272-5(3)(b)(iii) 25. The nature of the Trusts are as follows: (a) The Trusts are not registered or unregistered MIS'. (b) The Trusts are held solely by X. (c) The Trusts operate medical centres. Schedule 2F to the ITAA 1936 and tax losses 26. The Commissioner notes: (a) The Trusts do not have any carried forward losses. (b) The following assumptions have been included: (i) No arrangements have or will be entered into that will result in section 272-35 of Schedule 2F of the ITAA 1936 having application. (ii) No schemes will be undertaken that result in a tax benefit from trafficking in tax losses, bad debt deductions, debt/equity swap deductions or any other matters that result in fraud or evasion. 27. On this basis, it is reasonable for the Commissioner to conclude that the transfer of the tax benefit of a tax loss deduction does not constitute a material risk. | Detailed Reasoning - Conclusion: 28. As highlighted in the answer to Question 1, the terms of the trust instruments do not provide the unitholder of the Trusts with vested and indefeasible interests in all of the income and capital of the Trusts. 29. As a result, the unitholder of the Trusts does not have fixed entitlements to all of the income and capital of the Trusts for the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936. 30. However, as: (a) The Corporate Trustee will not exercise a power capable of defeating a beneficiary's interest to defeat a beneficiary's interest in the income or capital of the trust; (b) The likelihood of defeasance is low; (c) There is little likelihood of a tax benefit of the Trusts being transferred; the Commissioner will exercise his discretion under subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat the beneficiary of the Trusts as having fixed entitlements to their share of the income and capital of the Trusts. | Detailed Reasoning - Question 3: Is X the head company of a consolidatable group from 1 July 2019? | Summary: Yes. X is the head company of a consolidatable group from 1 July 2019. | Detailed Reasoning - Detailed reasoning: Pursuant to s.703-10 of the ITAA 1997 a consolidatable group consists of a single head company (X) and all of the head company's subsidiary members of the group (the Trusts). Subsection 703-10(2) of the ITAA 1997 confirms that a consolidatable group cannot consist solely of the head company. A trust can be an eligible subsidiary member of a consolidatable group provided that it is an Australian resident and is a wholly-owned subsidiary entity. | Detailed Reasoning - Australian resident: Item 2 of the table in section 703-25 of the ITAA 1997 is relevant for the Trusts. The trusts are each required to be Australian resident trusts under both Division 6 of the ITAA 1936 and for Capital Gains Tax purposes as defined in section 995-1 of the ITAA 1997. As the trustee companies of each of the Trusts are Australian incorporated companies the Trusts will be residents for Division 6 purposes. Each of the Trusts is a unit trust, having issued ordinary units to X, and is required to meet the definition in section 995- 1 of the ITAA 1997. In this regard X, X and X are all carrying on business in Australia and the central management and control of the respective Trusts is in Australia. The only assets of X are a lease for the premises that the X business is operated from and an intercompany loan owing from X, that is, X is not currently carrying on a business. However, as the trust has property that is situated in Australia and also has its central management and control in Australia it will be a resident trust for CGT purposes. | Detailed Reasoning - Wholly-owned subsidiary entity: Section 703-30 provides that the to be a wholly-owned subsidiary (as is required to be an eligible subsidiary member of a consolidated group), all membership interests in that entity must be beneficially owned by the holding entity, by a wholly owned subsidiary of the holding entity, or owned both by the holding entity and by a wholly owned subsidiary member of the holding entity. The Trusts will each be a wholly-owned subsidiary, as defined in section 703-30(1)(a) of the ITAA 1997 where all the membership interests are beneficially owned by the holding entity (X). You are a member of a trust pursuant to Item 3 of the table in section 960-130(1) of the ITAA 1997 if you are a beneficiary, unitholder or object of the trust. Pursuant to section 960-135 each interest, set of interests or each right, or set of rights of a member of an entity is a membership interest. Therefore, for the Trusts to be eligible subsidiary entities of X the trusts must be wholly-owned . | Detailed Reasoning - Fixed entitlements: In this regard, given the Commissioner will exercise his discretion to deem X to have fixed entitlements to all the income and capital pursuant to the exercise of the power provided to the Commissioner in section 272-5(3) of Schedule 2F of the ITAA 1936 from 30 June 2019, each of the Trusts will be wholly-owned as X will own 100% of the interests and rights of the respective Trusts. Where at least one of the trusts is deemed to be a fixed trust, X will be the head company of a consolidatable group. | Detailed Reasoning - Question 4: Are the trusts all eligible subsidiary members of a consolidatable group from 1 July 2019? | Summary: Yes. The trusts all eligible subsidiary members of a consolidatable group from 1 July 2019. | Detailed Reasoning - Detailed reasoning: As outlined above, the requirements for an entity to be are a subsidiary member of a consolidatable group are that it be an Australian resident and a wholly-owned subsidiary. For the reasons outlined above, we understand the Trusts each satisfy the residency requirements contained in section 703-25 of the ITAA 1997 nor is it excluded under section 703-20 of the ITAA 1997. Further, since the Commissioner will exercise his discretion under subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat the beneficiary of the Trusts as having fixed entitlements to their share of the income and capital of the Trusts, each entity should meet the wholly-owned subsidiary entity requirements contained in section 703-30 of the ITAA 1997. Accordingly, the Trusts will each be eligible subsidiary members of the X income tax consolidated group.

Reasons for decision: These reasons for decision accompany the Notice of privateruling for X. | While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision . | Does X, the unitholder of X, X, X and X (collectively, the Trusts) have fixed entitlements to all of the income and capital of the Trusts under subsection 272-5(1) to Schedule 2F of the Income Tax Assessment Act 1936 (ITAA 1936)?