Private ruling: Commissioner's discretion - fixed interests
Date of advice: 2 February 2026
Published: 23 March 2026
Ruling period: Income year ended 30 June 20XX | Income year ended 30 June 20XX | Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Were the interests of the Unit Holders in the capital of the Trust 'fixed interests' under former subsection 160APHL(11) of the Income Tax Assessment Act 1936 (ITAA 1936) for the ruling period? | A1: No. | Q2: If the answer to Question 1 is 'no', will the Commissioner exercise the discretion in former subsection 160APHL(14) of the ITAA 1936 to treat the Unit Holders of the Trust as having a vested and indefeasible interests in the Trust for the ruling period? | A2: Yes.

Relevant facts and circumstances: 1. The Trust is a unit trust. 2. The Trust has a number of Unit Holders. 3. The Unit Holders are unrelated. 4. The Trust is not a family trust pursuant to its meaning in Schedule 2F of the ITAA 1936 or a 'widely held trust' pursuant to the former section 160APHD of the ITAA 1936. 5. Units in the Trust are not listed for quotation on an approved stock exchange. 6. During the ruling period, the unit trust deed for the Trust: • required the Trustee to hold the income and capital of the Trust for the benefit of the Unit Holders, • gave the Trustee power to issue additional units, • allowed Unit Holders and the Trustee to redeem units, • did not require the price of any unit redeemed or issued to be determined based on the Trust's net asset value, according to Australian accounting principles, at the time of the redemption or issue, • gave the Trustee power, with the approval of the Unit Holders, to amend the unit trust deed. 7. No amendment was made to the unit trust deed during the ruling period. 8. No partly paid units have ever been issued. 9. No partly paid units have been forfeited due to non-payment of any instalment. 10. No units have been sold or redeemed. 11. No units have been issued at a discount by the Trustee. 12. Any unit issued during the ruling period was issued for a price based on the net asset value of the units calculated in accordance with Australian accounting principles. 13. The Trust had no losses carried forward. 14. No arrangement has been entered into which resulted in: • a 'related payment' under former section 160APHN of the ITAA 1936 being made; • the Unit Holders having materially diminished risks of loss or opportunities for gain of less than 30% in respect of shares held by the Trustee in its capacity as trustee for the trust (refer to former section 160APHM of the ITAA 1936); • the Unit Holders not being sufficiently exposed to the risk of loss or opportunity for gain in respect of the units in the Trust; • the Commissioner making a determination under paragraph 177EA(5)(b) of the ITAA 1936; • any of paragraphs 207-150(1)(c) to (h) of the ITAA 1997 (inclusive) applying; or • fraud or evasion.

Relevant legislative provisions: Former section 160APHL of the Income Tax Assessment Act 1936

Reasons for decision: Summary: Former subsection 160APHL(11) of the ITAA 1936 states that 'for the purposes of subsection (10), the taxpayer's interest in the trust holding is a fixed interest to the extent that the interest is constituted by a vested and indefeasible interest in so much of the corpus of the trust as is comprised by the trust holding'. The meaning of the terms 'vested' and 'indefeasible' are not defined in the ITAA 1936 or the ITAA 1997. Vested In Dwight v Federal Commissioner of Taxation 92 ATC 4192 ( Dwight ), Hill J made the following comments about the meaning of the word 'vested': Estates may be vested in interest or vested in possession, the difference being between a present fixed right of future enjoyment where the estate is said to be vested in interest and a present right of present enjoyment of the right, where the estate is said to be vested in possession... A person with an interest in remainder, subject to a pre-existing life interest, has an interest which is vested in interest, but being a future interest is not yet vested in possession. That person's interest will vest in possession on the death of the life tenant. In the present context the word "vested" is used in contradistinction to contingent. (at 4202-4203) During the ruling the period, the Trustee held the income and capital of the Trust for the benefit of the Unit Holders. During the ruling period, the Unit Holders were vested in interest in the corpus of the Trust as was comprised by the trust holding. Indefeasible In Dwigh t, Hill J stated that 'an interest is said to be defeasible where it can be brought to an end and indefeasible where it cannot'. (at 4203) In Colonial First State Investments Limited v Commissioner of Taxation [2011] FCA 16 ( Colonial ), Stone J stated that the word indefeasible 'bears its ordinary meaning when applied to an interest, that is that the interest cannot be terminated, invalidated or annulled. (at paragraph 97) Former subsection 160APHL(12) of the ITAA 1936 states: Subject to subsection (13), if the taxpayer has an interest in the trust holding and either: (a) the interest may be redeemed under the terms of the trust for less than its value; or (b) the value of the interest may be materially reduced by: i. if the trust is a unit trust - the issue of further units; or ii. otherwise - in creation of further interests under the trust; the interest is taken to be defeasible. Former subsection 160APHL(13) of the ITAA 1936 states: If: (a) the trust is a unit trust and the taxpayer holds units in the unit trust; and (b) the units are redeemable or further units are able to be issued; and (c) where units in the unit trust are listed for quotation in the official list of an approved stock exchange (within the meaning of section 470) - the units held by the taxpayer will be redeemed, or any further units will be issued, for the price at which other units of the same kind in the unit trust are offered for sale on the approved stock exchange at the time of the redemption or issue; and (d) where the units are not listed as mentioned in paragraph (c) - the units held by the taxpayer will be redeemed, or any further units will be issued, for a price determined on the basis of the unit trust's net asset value, according to Australian accounting principles, at the time of the redemption or issue; then the mere fact that the units are redeemable, or that the further units are able to be issued, does not mean that the taxpayer's interest, as a unit holder, in so much of the corpus of the trust as comprised by the trust holding is defeasible. During the ruling period, the unit trust deed gave the Trustee power to issue additional units, and allowed the Unit Holders and the Trustee to redeem units. These powers would have caused former subsection 160APHL(12) of the ITAA 1936 to apply and treat the Unit Holders interest in the trust holding as defeasible. Former subsection 160APHL(13) of the ITAA 1936 would not have applied to cancel the operation of former subsection 160APHL(12) of the ITAA 1936 as units did not have to be redeemed or issued for a price determined on the basis of the Trust's net asset value, according to Australian accounting principles, at the time of the redemption or issue (as required by former subsection 160APHL(13) of the ITAA 1936). Further, in Colonial , the Federal Court considered the meaning of vested and indefeasible, and whether a power of amendment in section 601GC of the Corporations Act 2001 ,which concerns managed investment funds, caused the interests of the members of the managed investment fund to be defeasible. Stone J stated: 103 ... the court is not concerned with members' rights other that the right to a share of income or capital of the Wholesale Fund. It is only that right that must be vested and indefeasible for the trust to qualify as a fixed trust. The question therefore is could there be an amendment to the Constitution of the Wholesale Fund that terminated, invalidated or annulled the above right in circumstances where the Responsible Entity reasonably considered that the amendment would not adversely affect the right in question... 105 ..., the more telling argument that the right in question is defeasible stems from s601GC(1)(a), which empowers members to modify, repeal or replace the constitution of a unit trust by special resolution. In ING Funds Management Barrett J's commented that s601GC(1)(a) is a plenary power vested in the members. As his Honour observed, at [60]: There is no kind of modification that cannot be made in exercise of the power and by the means it prescribes, although the power is no doubt subject to the implied limitations that generally attend any power enabling a majority to bind a minority. 106 It follows that the members could vote to terminate the present right to a share of income and capital. Although in some circumstances such an exercise of power might be subject to implied limitations to which his Honour refers, there is no reason to believe that this would always be so. For that reason it must be concluded that the Wholesale Fund is not a fixed trust ... During the ruling period, the unit trust deed gave the Trustee power, with the approval of the Unit Holders, to amend the unit trust deed. The unit trust deed gave the Unit Holders and Trustee power to defeat the interests that Unit Holders had in the corpus of the Trust. The interest of the Unit Holders in the corpus of the Trust as was comprised by the trust holding was defeasible. | Detailed Reasoning - Conclusion: During the ruling period, the Unit Holders did not have a vested and indefeasible interest in so much of the corpus of the Trust as was comprised by the trust holding (fixed interest), as required by former subsection 160APHL(11) of the ITAA 1936. | Detailed Reasoning - Question 2: Detailed reasoning Former subsection 160APHL(14) of the ITAA 1936 states: If: (a) the taxpayer has an interest in so much of the corpus of the trust as is comprised by the trust holding; and (b) apart from this subsection, the interest would not be a vested or indefeasible interest; and (c) the Commissioner considers that the interest should be treated as being vested and indefeasible, having regard to: i. the circumstances in which the interest is capable of not vesting or the defeasance can happen; and ii. the likelihood of the interest not vesting or the defeasance happening; and iii. the nature of the trust; and iv. any other matter that the Commissioner thinks relevant; the Commissioner may determine that the interest is to be taken to be vested and indefeasible. Former paragraph160APHL(14)(a) of the ITAA 1936 - the taxpayer has an interest in so much of the corpus of the trust as is comprised by the trust holding As discussed in question 1, during the ruling period, the Unit Holders had a vested interest in the corpus of the Trust as was comprised by the trust holding. Former paragraph160APHL(14)(b) of the ITAA 1936 - the interest would not be a vested or indefeasible interest As discussed in question 1, during the ruling period, the interest of the Unit Holders in the corpus of the Trust was not indefeasible and could have been defeated. Former paragraph160APHL(14)(c)(i) of the ITAA 1936 - the circumstances in which the interest is capable of not vesting or the defeasance can happen As discussed in question 1, the interests of the Unit Holders was defeasible as the terms of the Trust: • gave the Unit Holders and the Trustee power to redeem units, • gave the Trustee power to issue additional units, • gave the Trustee (with the approval of the Unit Holders) power to amend the unit trust deed. Former paragraph160APHL(14)(c)(ii) of the ITAA 1936 - the likelihood of the interest not vesting or the defeasance happening During the ruling period: • no units were redeemed, • new units in the Trust were issued based on the net value of the units calculated in accordance with Australian accounting principles (see former subsection 160APHL(13) of the ITAA 1936), • there was no amendment to the unit trust deed. Based on the above, no defeasance happened in relation to the Unit Holders interests in the corpus of the Trust during the ruling period. Former paragraph160APHL(14)(c)(iii) of the ITAA 1936 - the nature of the trust The Trust is a unit trust with Unit Holders who are unrelated. Units in the Trust are not listed for quotation on an approved stock exchange, and the Trust is not a widely held trust. Former paragraph160APHL(14)(c)(iv) of the ITAA 1936 - any other matter that the Commissioner thinks relevant The discretion in former subsection 160APHL(14) of the ITAA 1936 relates to the utilisation of a tax offset for a share of the franking credit on a franked distribution. It was introduced as part of integrity measures aimed at defeating franking credit trading schemes. The Explanatory Memorandum to the Taxation Laws Amendment Bill (No.2) 1999, which accompanied the introduction of former subsection 160APHL(14) of the ITAA 1936 outlined the purpose of the integrity measures: 4.6 One of the underlying principles of the imputation system is that the benefits of imputation should only be available to the true economic owners of shares, and only to the extent that those taxpayers are able to use the franking credits themselves: a degree of wastage of franking credits is an intended feature of the imputation system. 4.7 In substance, the owner of shares is the person who is exposed to the risks of loss and opportunities for gain in respect of the shares. However, franking credit trading schemes allow persons who are not exposed, or have only a small exposure, to the risks and opportunities of share ownership to obtain access to the full value of franking credits, which often, but for the scheme, would not have been used at all, or would not have been fully used. Some of these schemes may operate over extended periods, and typically involve a payment related to the dividend which has the effect of passing its benefit in economic terms to a counterparty. The schemes therefore undermine an underlying principle of imputation. When considering the exercise of the discretion, the Commissioner must ensure that the purpose of the integrity provisions is not undermined. During the ruling period, no arrangement was entered into which resulted in: • a 'related payment' under former section 160APHN of the ITAA 1936 being made; • the Unit Holders having materially diminished risks of loss or opportunities for gain of less than 30% in respect of shares held by the Trustee in its capacity as trustee for the trust (refer to former section 160APHM of the ITAA 1936); • the Unit Holders not being sufficiently exposed to the risk of loss or opportunity for gain in respect of the Units in the Trust; • the Commissioner making a determination under paragraph 177EA(5)(b) of the ITAA 1936; • any of paragraphs 207-150(1)(c) to (h) of the ITAA 1997 (inclusive) applying; or • fraud or evasion. During the ruling period, the Unit Holders were the true economic owners of the shares held by the Trustee under the Trust, and were exposed to the risk of loss and opportunity for gain in respect of the shares. Taking into consideration the above, it is considered appropriate for the Commissioner to exercise the discretion under former subsection 160APHL(14) of the ITAA 1936 to treat the Unit Holders interest in so much of the corpus of the Trust as was comprised by the trust holding as vested and indefeasible, during the ruling period.