Private ruling: Fixed trust for the purposes of section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936
Date of advice: 13 September 2016
Published: October 2016
Ruling period: The income years ended 30 June 2014 to 30 June 2016 inclusive
Date scheme commenced: 1 July 19XX

Ruling: Q1: Do the unit holders of the Trust have fixed entitlements to all of the income and capital of the Trust under subsection 272-5(1) of Schedule 2F to the ITAA 1936? | A1: No | Q2: Will the Commissioner exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to deem the beneficiaries of the Trust as having fixed entitlements to all of the income and capital of the Trust? | A2: 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. The Trustee has operated a commercial going concern, for some decades now, with net assets in excess of $5 million. During the period to which this ruling applies, the trust deed (the relevant trust instrument) contained certain clauses by which a beneficiary's interest in a share of the income or capital of the Trust may have been defeated or otherwise prevented from vesting. On review of your application, in respect of entitlements under the trust: • the circumstances in which the entitlements were capable of not vesting or a defeasance happening were remote; • the likelihood of the entitlements not vesting or a defeasance happening appear on balance to be remote; • The underlying beneficial ownership and control of the Unitholders has remained constant throughout the Ruling Period. • It is also noted that Units have only been issued on a net asset backed basis; • The only amendment to the Trust Deed was to reduce the ability of the interests in Units in the Trust to be defeased.

Relevant legislative provisions: Income Tax Assessment Act 1936 • Section 272-5 of Schedule 2F | • Subsection 272-5(1) of Schedule 2F | • Subsection 272-5(2) of Schedule 2F | • Subsection 272-5(3) of Schedule 2F | • Section 272-65 of Schedule 2F

Reasons for decision: Summary: Subsection 995-1(1) of the ITAA 1997 states that a trust is a 'fixed trust' if entities have fixed entitlements to all of the income and capital of the trust. Fixed entitlements are determined with reference to Division 272 of Schedule 2F to the ITAA 1936. Under subsection 272-5(1), a 'fixed entitlement' exists if a person has a vested and indefeasible interest in the income and capital of the trust. The trust deed of the trust contains certain clauses under which a unit holder's interest in a share of income, or of the capital, of the trust may be rendered defeasible. Therefore, we consider it reasonable to conclude, pursuant to the definition of 'fixed entitlement' under subsection 272-5(1) of Schedule 2F to the ITAA 1936, that the unit holders (or beneficiaries) do not have fixed entitlements to all of the income and capital of the trust. We have given consideration to the requirements of subsection 272-5(3) of Schedule 2F to the ITAA 1936, and submissions from your adviser. There is a reasonable case for the Commissioner to exercise the discretion under subsection 272-5(3) of Schedule 2F to the ITAA 1936, such that the unit holders (or beneficiaries) of the trust should be treated as having fixed entitlements to all of the income and capital of the trust. Therefore, the trust will be a fixed trust from 1 July 2013 to 30 June 2016, pursuant to the exercise of the Commissioner's discretion under subsection 272-5(3) of Schedule 2F to the ITAA 1936.