Private ruling: Commissioner's discretion - fixed entitlement
Date of advice: 2 October 2024
Published: 11 November 2024
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise discretion under subsection 272-5(3) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) to treat the Unit Holders as having a fixed entitlement to a share of the income and capital of the Trust? | A1: Yes. Having regard to the factors subparagraphs 272-5(3)(b)(i), (ii) and (iii) of Schedule 2F to the ITAA 1936 and the submissions of the applicant, it is considered that the facts warrant the exercising of the Commissioner's discretion to deem the Unit Holders to have fixed entitlements to the income and capital of the Trust.

Relevant facts and circumstances: The Trust is a unit trust and a resident trust estate for the purpose of section 95(2) of the ITAA 1936. The Trust is not a registered Managed Investment Scheme (MIS) or proposed to become an MIS during the ruling period for the purposes of the Corporations Act 2001. The Trust carries on a business. There are two classes of units as per Schedule 1 of the Trust Deed: • Ordinary units - holders of Ordinary units are entitled: - to receive notice of and to attend and vote at meetings of the Unit Holders; - to receive distributions of the net income of the Trust (including income treated as capital by the trustee); - to receive distributions of capital of the Trust; and - on the vesting or termination of the Trust, to participate in the division of surplus assets or profits. • Employee units - holders of Employee units are entitled: - to receive notice of and to attend and vote at meetings of the Unit Holders; - to receive distributions of the net income of the Trust (including income treated as capital by the trustee); and - on the vesting or termination of the Trust, to participate in the division of surplus assets or profits to the extent only that the assets or profits comprise net income of the Trust (including income treated as capital by the trustee). The Trust has five Unit Holders who are resident and non-resident for tax purposes. All of the Unit Holders' interest in the Trust are capital in nature. No partly paid units have been issued. No units have been redeemed. The Trust has no carried forward tax or capital losses nor does it expect any tax or capital losses in the current tax year. The Trust has not elected to form a tax consolidated group, nor is it a member of a tax consolidated group. The trustee The Trustee is a resident corporate trustee for tax purposes. The Trustee is not a trustee of any other trusts. The Trustee is not a holder of an Australian Financial Services licence (AFSL) for the purposes of Part 7.6 of the Corporations Act 2001. The Trustee is not subject to any regulation by APRA or any other Australian Federal Government authority. The trust deed The following clauses in the Trust Deed are referenced below. Interest of holders • The beneficial interest in the Fund is divided into a number of units. • Subject to any rights, obligations and restrictions attaching to any particular unit or Class: - All units in a Class rank equally with each other. - Each unit confers on each Holder a beneficial interest in the Fund as a whole subject to liability of the Trust. - A unit does not confer an interest in a particular part of the Fund or in whole or in part of any particular Assets or Fund. Creation of units • The Trustee may create additional classes of units or issue units (including in different classes) to any person (including any person who is not a holder) on any terms or classify/reclassify units as the Trustee thinks fit. • The Trustee will not create new class of units (other than the classes of units specified in Schedule 1 of the Trust deed) or vary the rights, restrictions or obligations attaching to a particular Class without prior approval by a 75% Resolution (i.e., a resolution which has been passed by at least 75% of the total votes that may be cast by Holders entitled to vote on the resolution, including Holders who are not present in person or by proxy). • The price at which units are to be issued is the Net Asset Value divided by the number of units on issue or such other price determined by 75% Resolution. Net asset value is defined as the value of the Assets less the liabilities of the Trust as determined by the Trustee or if applicable the Approved Valuer in accordance with to the Accounting Standards. • Without limiting any power of the Trustee to issue units of one or more Classes, the issued units may include the units in the Classes out in Schedule 1. • The Trustee must issue units only at the Issue Price. The Issue Price is calculated at such time as may be determined by the Trustee. • The Trustee may consolidate and divide all units or units of a class with the approval by 75% Resolution. Redemption of units • The Trustee has no obligation to redeem any units or cause any units to be redeemed. • A Holder may apply in writing to the Trustee to redeem any units held by the Holder. The Trustee must redeem the units out of the Fund for the redemption amount if the application complies with clause 8.1 of the trust deed and there is sufficient liquid funds. • The price at which units are to be redeemed is the net asset value of the Trust divided by the number of units on issue or such other price determined by 75% Resolution. Income and capital distribution • Income distribution - subject to any right or restriction attached to any unit or a contrary direction from all holders, the Trustee must distribute to the Holders on each financial year end date, the net income for that financial year in proportion to the number of units registered in their names on the Financial Year End Date. • The Trustee may determine the type or source of income or capital to be paid or applied including but not limited to, any dividends which are fully or partly franked or unfranked or to which a foreign tax credit attached or any other separately identifiable taxation consequence or benefit is attached or arises or any income of the Trust, including capital profits or gains. • Capital distribution - subject to any right or restriction attached to any unit or direction by a 75% Resolution, the Trustee must distribute the capital or part of the capital of the Fund as directed by the Holders to the Holders in proportion to the number of units registered in their names at the time of distribution. Amendment of trust deed • The Trustee may amend the document by deed with prior approval by 75% resolution. • The Trustee must not amend the document if the amendment permits the Trustee to terminate after the vesting date or reduces the Trustee's liability or obligations under the document or at law. There has been no amendment to the trust deed nor a proposal to amend the trust deed. No streaming of income or capital has occurred, nor such streaming of income or capital will occur during the ruling period. Proposed transaction The Trust is in the process of acquiring a business. It has considered whether its existing structure is still fit for purpose or if a restructure was required prior to this acquisition. With asset protection as its primary objective, the Trust considered that direct acquisition of the ownership interests in the entity that carries on the business, or the assets comprising the business would be undesirable for asset protection purposes as the Trust carries on its own business and is exposed to its own trading risks. In view of this, the Trust has made the decision for a new holding entity to be established to own both units in the Trust and ownership interest in the acquisition target. As the two businesses are owned in separate legal entities, and these separate legal entities were to be owned by a single passive holding entity, failure of one business would not necessarily impact the other. The Trust proposes the following steps: • A new holding trust will be established with the same ownership as this Trust. • The new holding trust will acquire 100% of the units in the current Trust by way of scrip for scrip acquisition. • Under the proposed transaction, the new holding trust will issue a number or units equal to 100% of the undiluted issued unit capital of the new holding unit trust to the Unit Holders. • Immediately prior to the proposed transaction, the Unit Holders held 100% of the issued capital of the Trust. Assumptions Throughout the ruling period: • The Unit Holders are not otherwise exempt from tax. • The units in the Trust are not taxable Australian property for the non-resident Unit Holders. • The Trustee has never and will not exercise a power defeating a beneficiary's interest in the income or capital of the Trust up to and including the period to which the ruling applies. • The Trust has not entered into any arrangements which would result in: - section 272-35 of Schedule 2F of the ITAA 1936 having application; - the trafficking of the tax benefit of the tax loss, bad debt deduction or debt/equity swap deduction; or - fraud or evasion.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 95(2) | Income Tax Assessment Act 1936 section 272-5 Schedule 2F | Income Tax Assessment Act 1936 section 272-65 Schedule 2F | Income Tax Assessment Act 1997 section 995-1


Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.