Private ruling: Fixed entitlement
Published: July 2014
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: Year ended 30 June 2010

Ruling: Q1: Is Trust A a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. | Q2: Is Trust B a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936? | A2: Yes. | Q3: Is Trust C a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936? | A3: Yes. | Q4: Does the Commissioner consider it fair and reasonable, for the purpose of Trust A applying the 50% stake test in Subdivision 269-C of Schedule 2F to the ITAA 1936, to treat Company A and Company B as holding the whole of the fixed entitlement they each have, indirectly, to a share of the income and capital of Trust A as an individual and for the individual's own benefit pursuant to subsection 272-30(3) of Schedule 2F to the ITAA 1936? | A4: Yes.

Relevant facts and circumstances: Trust A 1. Trust A is an unlisted unit trust constituted by a deed poll. 2. All of the units, representing 100% of the beneficial interest in Trust A, have been held by the Trustee for Trust B at all times from the settlement of Trust A. Trust B 3. Trust B is a unit trust constituted by a deed poll. 4. All of the units, representing 100% of the beneficial interest in Trust B, have been held by the Trustee for Trust C at all times from the settlement of Trust B. Constitutions of Trust A and Trust B 5. The constitutions of Trust A and Trust B are materially similar. Both constitutions include terms to the effect that: • the beneficial interest in the relevant trust is divided into units and each unit confers an equal undivided interest in the assets of the trust; • the manager has the discretion to determine the application price of units; • units issued against application money paid other than in cleared funds are void if the funds are not cleared within a specified timeframe; • the manager must determine the distributable income and the income of the trust for each • financial year and distribution period; • the manager has a discretion to decide the classification of any item as being on income or capital account; • a unit holder is presently entitled to a proportion of the current and future income of the trust; • the amount of an income distribution for a distribution period is calculated according to a specified formula; • the manager must act in accordance with the directions given by the sole unit holder (if applicable) or jointly by all unit holders; • unit holders will have a right to the capital of the trust in the event of termination; and • the constitution may be amended by resolution or by deed executed by the manager. Trust C 6. Trust C is a unit trust constituted by a deed poll. 7. Trust C is a registered managed investment scheme (MIS) under the Corporations Act 2001 . 8. The units in Trust C have been listed on the Australian Securities Exchange (ASX) and are stapled to units another listed unit trust such that they may not be dealt with independently of each other (the stapled securities). 9. The constitution of Trust C includes terms to the effect that: • the beneficial interest of Trust C is divided into units; • the manager of the trust has the discretion to determine the income entitlement of units in the distribution period in which the unit is issued; • units may be reconstructed, consolidated, divided or reclassified as determined by the manager provided the terms of the issue of the units are complied with; • the manager may forfeit partly paid units where the unit holder does not comply with their obligations to pay an instalment. Where this power is exercised, the unit holder will receive the surplus of the sale proceeds of the forfeited units, after satisfying the unpaid instalment(s), selling costs and interest; • the manager has the discretion to determine the subscription price and application price of units in certain circumstances; • units issued against application money paid other than in cleared funds are void if the funds do not clear within a specified timeframe; • units may be redeemed in limited circumstances; • the manager must determine the distributable income and the income of the trust for each financial year and distribution period; • the manager has the discretion to decide the classification of an item as being on income or capital account; • a unit holder is presently entitled to a proportion of the current and future income of the trust; • the amount of an income distribution for a distribution period is calculated according to a specified formula; • unit holders have a right to the capital of Trust C in the event of termination; and • the constitution of Trust C may be amended by resolution or by deed executed by the manager of the trust, subject to the Corporations Act 2001. The stapled security holders Company A 10. Company A, through its wholly-owned subsidiary, has held a percentage of the stapled securities. 11. Company A is a company whose ordinary shares are listed on the ASX, which is an 'approved stock exchange' as defined in subsection 6(1) of the ITAA 1936 (see Regulation 995-1.05 of, and Schedule 5 to, the Income Tax Assessment Regulations 1997 ). 12. Company A's top 20 shareholders have principally comprised institutional investors, many of which are nominee companies. Company B 13. Company B, through its wholly-owned subsidiaries, has held a percentage of the stapled securities. 14. Company B is a company whose shares are listed on more than one 'approved stock exchange' as defined in subsection 6(1) of the ITAA 1936 (see Regulation 995-1.05 of, and Schedule 5 to, the Income Tax Assessment Regulations 1997 ). 15. The majority of Company B's share capital was held by institutional investors. Other contractual warranties and undertakings 16. The Trustee for Trust A has made a number of warranties and undertakings under various contracts in its capacity as the trustee for Trust A, including broadly: • that it would not issue or agree to issue any additional units in Trust A, except for units that would be indirectly wholly-owned by Trust C; • that it would not issue, redeem or defuse units in Trust C; • that it would not issue units to any entity other than Trust B; and • that it would ensure that the constitution of Trust A is not amended in any material way or revoked. Trust A's prior year tax losses 17. Trust A has incurred tax losses in each of the income years ended 30 June 2009 to 30 June 2012. 18. The Trustee for Trust A expects to be in a position to utilise some of the tax losses of Trust A in the year ended 30 June 2014.

Relevant legislative provisions: Corporations Act 2001 Chapter 5C | Corporations Act 2001 Section 601GC | Corporations Act 2001 Paragraph 601GC(1)(b) | Income Tax Assessment Act 1936 Subsection 6(1) | Income Tax Assessment Act 1936 S ubsection 95A(2) | Income Tax Assessment Act 1936 Subdivision 269-C of Schedule 2F | Income Tax Assessment Act 1936 Section 269-50 of Schedule 2F | Income Tax Assessment Act 1936 Subsection 269-55(1) of Schedule 2F | Income Tax Assessment Act 1936 Division 272 of 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 Paragraph 272-5(2)(c) of Schedule 2F | Income Tax Assessment Act 1936 Paragraph 272-5(2)(d) of Schedule 2F | Income Tax Assessment Act 1936 Subsection 272-5(3) of Schedule 2F | Income Tax Assessment Act 1936 Paragraph 272-5(3)(a) of Schedule 2F | Income Tax Assessment Act 1936 Paragraph 272-5(3)(b) of Schedule 2F | Income Tax Assessment Act 1936 Subparagraph 272-5(3)(b)(i) of Schedule 2F | Income Tax Assessment Act 1936 Subparagraph 272-5(3)(b)(ii) of Schedule 2F | Income Tax Assessment Act 1936 Subparagraph 272-5(3)(b)(iii) of Schedule 2F | Income Tax Assessment Act 1936 Section 272-10 of Schedule 2F | Income Tax Assessment Act 1936 Section 272-20 of Schedule 2F | Income Tax Assessment Act 1936 Subsection 272-30(3) of Schedule 2F | Income Tax Assessment Act 1936 Section 272-30(4) of Schedule 2F | Income Tax Assessment Act 1936 Section 272-65 of Schedule 2F | Income Tax Assessment Act 1936 Section 272-135(1) of Schedule 2F | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Regulations 1997 Regulation 995-1.05 | Income Tax Assessment Regulations 1997 Schedule 5

Reasons for decision: Summary: Trust A will be a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936 for the period to which this Ruling applies, on the basis that the Commissioner has exercised the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat the interests of all unit holders in the income and capital of Trust A as fixed entitlements. | Detailed Reasoning - Detailed reasoning: A 'fixed trust' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and section 272-65 of Schedule 2F to the ITAA 1936. That definition provides that: A trust is a fixed trust if persons have fixed entitlements to all of the income and capital of the trust. The definition of 'fixed entitlement' in subsection 995-1(1) of the ITAA 1997 provides that 'an entity has a fixed entitlement to a share of the income or capital of a trust if the entity has a fixed entitlement to that share within the meaning of Division 272 in Schedule 2F to the ITAA 1936'. Subsection 272-5(1) of Schedule 2F to the ITAA 1936 defines a fixed entitlement in a trust: 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. In addition, subsection 272-5(2) of Schedule 2F to the ITAA 1936 states that: If: (a) a person holds units in a unit trust; and (b) the units are redeemable or further units are able to be issued; and (c) if units in the unit trust are listed for quotation in the official list of an approved stock exchange - the units held by the person 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) if the units are not listed as mentioned in paragraph (c) - the units held by the person will be redeemed, or any further units will be issued, for a price determined on the basis of the net asset value, according to Australian accounting principles, of the unit trust 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 person's interest, as a unit holder, in the income or capital of the unit trust is defeasible. The word 'interest' is a word that is capable of many meanings. In the absence of a definition, one must infer its meaning from the context in which it is found (see Gartside v Inland Revenue Commissioners [1968] AC 553 at 602-603 and 617-618; Commissioner of Stamp Duties (Queensland) v Livingston (1964) 112 CLR 12 at 28-29; and CPT Custodian Pty Ltd v Commissioner of State Revenue (Vic); Commissioner of State Revenue (Vic) v Karingal 2 Holdings Pty Ltd (2005) 224 CLR 98). There may be circumstances in which the word 'interest' could be interpreted broadly to include any right or advantage that a person might be able to claim with respect to the income or capital of the trust and/or in respect of the trustee, whether present or future, ascertained or potential. In the context of Schedule 2F to the ITAA 1936, however, it is clear that for an interest to be recognised as a fixed interest it must be a right with respect to a share of the income or of the capital of the trust that is susceptible to measurement. To adopt the words of Lord Wilberforce in Gartside v Inland Revenue Commissioners , the right must have 'the necessary quality of definable extent'. The term 'vested and indefeasible' is not defined in the income tax legislation. However, the Explanatory Memorandum to the Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997 (EM) does discuss its ordinary meaning at some length, at paragraphs 13.4 to 13.9. The meaning of the term 'vested and indefeasible' (in the context of Schedule 2F to the ITAA 1936) has not been judicially considered, other than a discussion in Colonial First State Investments Ltd v Commissioner of Taxation [2011] FCA 16; (2011) 192 FCR 298; 81 ATR 772; 2011 ATC 20-235 in the limited context of amending the constitution of a registered managed investment scheme under section 601GC of the Corporations Act 2001 . Stone J stated at [97]: … The Act does not define 'indefeasible' and therefore, subject to the qualification in s 272-5(2), it bears its ordinary meaning when applied to an interest, that is that the interest cannot be terminated, invalidated or annulled. Certainly this is the meaning to which the qualification in s 272-5(2) is directed. However, the term 'vested and indefeasible' does appear in subsection 95A(2) of the ITAA 1936 and has been considered in that context by the courts - see Estate Mortgage Fighting Fund Trust v FC of T 2000 ATC 4525; Walsh Bay Developments Pty Ltd v Commissioner of Taxation (1995) 95 ATC 4378; Dwight v Commissioner of Taxation (1992) 92 ATC 4192; Harmer v FC of T (1991) 173 CLR 264; 91 ATC 5000. Also relevant are MSP Nominees Pty Ltd v Commissioner of Stamps (SA) (1999) 198 CLR 494; 99 ATC 4937; Queensland Trustees Ltd v Commissioner of Stamp Duties (1952) 88 CLR 54; Glenn v Federal Commissioner of Land Tax (1915) 20 CLR 490. 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'. In all cases, the determining factor in deciding if 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. The first step in determining whether a beneficiary has a vested and indefeasible interest in a share of the income or capital of a trust is to ascertain the terms of the trust upon which the relevant trust property is held. As the High Court stated in CPT Custodians Pty Ltd v Commissioner of State Revenue (Vic); Commissioner of State Revenue (Vic) v Karingal 2 Holdings Pty Ltd (2005) 224 CLR 98 at [15], in taking this step: … a priori assumptions as to the nature of unit trusts under the general law and principles of equity [will] not assist and would be apt to mislead. All depends, as Tamberlin and Hely JJ put it in Kent v SS "Maria Luisa" (No 2) , upon the terms of the particular trust. The term "unit trust" is the subject of much exegesis by commentators. However, "unit trust", like "discretionary trust", in the absence of an applicable statutory definition, does not have a constant, fixed normative meaning which dictate the application to particular facts of the [relevant statutory definition]… There will be some circumstances in which a trust instrument must be read subject to the operation of a particular legal rule, whether under the general law or statute. For example, the provisions of Chapter 5C of the Corporations Act 2001 , if inconsistent with the constitution of a registered MIS, can have the effect of altering or modifying the scheme's constitution. It is possible for a constitution to be altered or modified by operation of law irrespective of whether the trust instrument itself expressly recognises the relevant general law rule or statute, and the entitlements of a beneficiary under the trust instrument are those as so altered or modified by operation of law. For the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936, the trust instrument of Trust A consists of the constitution of Trust A. It is accepted that the constitution of Trust A provides the Trustee for Trust B, the sole unit holder of Trust A, with a vested interest in the income and capital of Trust A. The beneficial interest in Trust A is divided into units. The unit holder's interest is not contingent upon any event. The constitution of Trust A contains clauses that confer unit holders with a present right to the current and future income of Trust A and a right to the capital of Trust A. For the purposes of the phrase 'vested and indefeasible' in subsection 272-5(1) of Schedule 2F to the ITAA 1936, the fact that a power held by the trustee or manager has not yet been exercised is not relevant when determining if the power results in an interest being defeasible. The exercise of the power is relevant to determining whether an interest has in law been defeased, not to whether the interest is defeasible. The key question is whether the power, if exercised, would result in a defeasance of some or all of a unit holder's (or beneficiary's) rights to the income and/or capital of the trust. The constitution of Trust A contains several clauses under which a unit holder's interest in a share of the income or capital of Trust A may be defeased. In particular, under the constitution of Trust A: • the manager of the trust is able to issue further units at a price that does not comply with paragraph 272-5(2)(d) of Schedule 2F to the ITAA 1936; • the manager must determine the distributable income and income of the trust for each financial year and distribution period. The manager also has a discretion to decide the classification of any item as being an income or capital account. If the manager of the trust issued classes of units with different rights to income and capital (and it is acknowledged that there is no express provision in the constitution of Trust A allowing this), these powers could enable the manager to stream income or capital (or different proportions of income or capital) to particular unit holders, with the effect that other unit holders will not receive income or capital to which they would otherwise be entitled; • the constitution of Trust A may be amended by resolution (that is, without the unanimous consent of all unit holders) or by deed executed by the manager. An amendment, whether approved by resolution of unit holders or effected by the manager's own act, could permit the introduction of defeasible powers into the constitution which do not currently exist. Therefore, due to the existence of these articles in the constitution of Trust A, it can be concluded, in accordance with subsection 272-5(1) of Schedule 2F to the ITAA 1936, that the sole unit holder of Trust A (the Trustee for Trust B) does not have a fixed entitlement to all of the income and capital of Trust A. | Detailed Reasoning - Commissioner's discretion to deem fixed entitlement: Subsection 272-5(3) of Schedule 2F to the ITAA 1936 contains a discretion whereby, in cases where beneficiaries do not have a fixed entitlement, the Commissioner may treat such beneficiaries as having a fixed entitlement, having regard to the factors prescribed in paragraph 272-5(3)(b). These factors are: (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. In view of the conclusion above that the sole unit holder does not have a vested and indefeasible interest in the income and capital of Trust A, and hence does not have a fixed entitlement to all of the income and capital of Trust A pursuant to subsection 272-5(1) of Schedule 2F to the ITAA 1936 (satisfying paragraph 272-5(3)(a)), the only way the Trustee for Trust B can have a fixed entitlement to all of the income and capital of Trust A (thus causing Trust A to be a 'fixed trust') is if the Commissioner exercises the discretion in subsection 272-5(3). Based on the information provided by the Applicant and after having regard to the matters referred to in subparagraphs 272-5(3)(b)(i), (ii) and (iii) of Schedule 2F to the ITAA 1936, it is considered that it is reasonable for the Commissioner to exercise the discretion pursuant to subsection 272-5(3) to treat the interests of all of the unit holders (there being only one) in the income and the capital of Trust A as fixed entitlements for the period to which this Ruling applies. | Detailed Reasoning - Conclusion: On the basis that the Commissioner has exercised the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat the interests of all unit holders in the income and capital of Trust A as fixed entitlements, Trust A will be a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936 for the period to which this Ruling applies. | Summary: Trust B will be a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936 for the period to which this Ruling applies, on the basis that the Commissioner has exercised the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat the interests of all unit holders in the income and capital of Trust B as a fixed entitlement. | Detailed Reasoning - Detailed reasoning: For the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936, the relevant trust instrument of Trust B consists of the constitution of Trust B. It is accepted that the constitution of Trust B provides the Trustee for Trust C, the sole unit holder of Trust B, with a vested interest in the income and capital of Trust B. The constitution of Trust B provides that the beneficial interest in Trust B is divided into units. The unit holder's interest is not contingent upon any event. The unit holders have a present right to the current and future income of Trust B. The constitution of Trust B also confers unit holders with a right to the capital of Trust B in the event of termination. The constitution of Trust B is the same in all material respects as the constitution of Trust A. In particular, the constitution of Trust B contains the same clauses under which a unit holder's interest in a share of the income or capital of Trust B may be defeased. Therefore, due to the existence of these clauses in the constitution of Trust B, it can be concluded, in accordance with subsection 272-5(1) of Schedule 2F to the ITAA 1936, that the sole unit holder of Trust B (the Trustee for Trust C) does not have a fixed entitlement to all of the income and capital of Trust B. | Detailed Reasoning - Commissioner's discretion to deem fixed entitlement: As set out in the detailed reasoning for Question 1, subsection 272-5(3) of Schedule 2F to the ITAA 1936 contains a discretion whereby, in cases where beneficiaries do not have a fixed entitlement, the Commissioner may treat such beneficiaries as having a fixed entitlement, having regard to the factors prescribed in paragraph 272-5(3)(b). In view of the conclusion above that the sole unit holder, the Trustee for Trust C, does not have a vested and indefeasible interest in the income and capital of Trust B, and hence does not have a fixed entitlement to all of the income and capital of Trust B pursuant to subsection 272-5(1) of Schedule 2F to the ITAA 1936 (satisfying paragraph 272-5(3)(a)), the only way the Trustee for Trust C can have a fixed entitlement to all of the income and capital of Trust B (thus causing it to be a 'fixed trust') is if the Commissioner exercises the discretion in subsection 272-5(3). After having regard to the matters referred to in subparagraphs 272-5(3)(b)(i), (ii) and (iii) of Schedule 2F to the ITAA 1936, it is considered that there is a reasonable case for the Commissioner to exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat the interests of all of the unit holders (there being only one) in the income and capital of Trust B as a fixed entitlement for the period to which this Ruling applies. | Detailed Reasoning - Conclusion: On the basis that the Commissioner has exercised the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat all of the unit holders as having a fixed entitlement to all of the income and capital of Trust B, Trust B will be a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936 for the period to which this Ruling applies. | Summary: Trust C will be a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936 for the period to which this Ruling applies on the basis that the Commissioner will exercise the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat all of the unit holders as having a fixed entitlement to all of the income and capital of Trust C. | Detailed Reasoning - Detailed reasoning: For the purposes of subsection 272-5(1) of Schedule 2F to the ITAA 1936, the trust instrument of Trust C consists of the constitution of Trust C. It is accepted that the constitution of Trust C provides the unit holders with a vested interest in the income and capital of Trust C. The constitution of Trust C provides that the beneficial interest in Trust C is divided into units. The interests of the unit holders are not contingent upon any event. Unit holders have a present right to the current and future income and capital of Trust C and a right to the capital of Trust C in the event of termination. The constitution of Trust C contains several clauses under which a unit holder's interest in a share of the income or capital of Trust C may be defeased. In particular: • The manager has the ability to issue units with different income rights. The manager could use this power to issue units with preferred or diminished rights to particular investors. • The manager has the ability to reclassify units, provided that the terms of issue of the units are complied with. The manager must also determine the distributable income and the income of the trust for each financial year may decide the classification of any item as being on income or capital account. In combination, these powers enable the manager to stream income or capital (or a greater proportion of income or capital) to particular unit holders, with the effect that other unit holders will not receive income or capital to which they would otherwise be entitled. • The manager has the discretion to determine the application price and subscription price of units in certain circumstances. This enables the manager to issue units at a price that does not comply with paragraph 272-5(2)(c) of Schedule 2F to the ITAA 1936. • Subject to the Corporations Act, the constitution of Trust C may be amended by resolution (which means without the unanimous consent of unit holders) or by deed executed by the manager. An amendment, whether approved by resolution of unit holders or effected by the manager's own act, could permit the introduction of defeasible powers into the constitution which do not currently exist. Therefore, due to the existence of these articles in the constitution of Trust C, it can be concluded, in accordance with subsection 272-5(1) of Schedule 2F to the ITAA 1936, that the unit holders of Trust C do not have a fixed entitlement to all of the income and capital of Trust C. | Detailed Reasoning - Commissioner's discretion to deem fixed entitlement: As set out in the detailed reasoning for Question 1, subsection 272-5(3) of Schedule 2F to the ITAA 1936 contains a discretion whereby, in cases where beneficiaries do not have a fixed entitlement, the Commissioner may treat such beneficiaries as having a fixed entitlement, having regard to the factors prescribed in paragraph 272-5(3)(b). In view of the conclusion above that the unit holders of Trust C do not have a vested and indefeasible interest in the income and capital of Trust C, and hence do not have a fixed entitlement to all of the income and capital of Trust C pursuant to subsection 272-5(1) of Schedule 2F to the ITAA 1936 (satisfying paragraph 272-5(3)(a)), the only way the unit holders of Trust C can have a fixed entitlement to all of the income and capital of Trust (thus causing it to be a 'fixed trust') is if the Commissioner exercises the discretion in subsection 272-5(3). After having regard to the matters referred to in subparagraphs 272-5(3)(b)(i), (ii) and (iii) of Schedule 2F to the ITAA 1936, it is considered that there is a reasonable case for the Commissioner to exercise the discretion in subsection 272-5(3) to treat the interests of all of the unit holders in the income and capital of Trust C as a fixed entitlement for the period to which this Ruling applies. | Detailed Reasoning - Conclusion: On the basis that the Commissioner has exercised the discretion in subsection 272-5(3) of Schedule 2F to the ITAA 1936 to treat all of the unit holders as having a fixed entitlement to all of the income and capital of Trust C, Trust C will be a 'fixed trust' for the purposes of section 272-65 of Schedule 2F to the ITAA 1936 for the period to which this Ruling applies. | Summary: For the purpose of Trust A applying the 50% stake test in Subdivision 269-C of Schedule 2F to the ITAA 1936, the Commissioner considers that it is fair and reasonable to treat Company A and Company B as holding the whole of the fixed entitlement they each have, indirectly, to a share of the income and capital of Trust A as an individual and for the individual's own benefit pursuant to subsection 272-30(3) of Schedule 2F to the ITAA 1936. | Detailed Reasoning - Detailed reasoning: The 50% stake test is in Subdivision 269-C of Schedule 2F to the ITAA 1936. Subsection 269-55(1) of Schedule 2F to the ITAA 1936 states: If, at all times during a period, or at 2 times: (a) the same individuals have more than a 50% stake in the income of a trust; and (b) the same individuals (who may be different from those in paragraph (a)) have more than a 50% stake in the capital of the trust; the trust passes the 50% stake test for the period or in respect of the 2 times. Section 269-50 of Schedule 2F to the ITAA 1936 explains what it means to have more than a 50% stake in the income and capital of the trust: More than a 50% stake in income 269-50(1) If there are individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the income of a trust, those individuals have more than a 50% stake in the income of the trust. More than a 50% stake in capital 269-50(2) If there are individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the capital of the trust, those individuals have more than a 50% stake in the capital of the trust. Accordingly, for Trust A to pass the 50% stake test under sections 269-50 and 269-55 of Schedule 2F to the ITAA 1936, the same individuals must have, directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the income and the capital of Trust A. Under subsection 272-30(3) of Schedule 2F to the ITAA 1936, if at the test time a listed public company or widely held unit trust has, directly or indirectly, a fixed entitlement to a share of the income or capital of the main entity (defined in subsection 272-30(1)), and if having regard to the matters set out in subsection 272-30(4) the Commissioner considers it fair and reasonable to treat the company or trust as holding, at the test time, the whole or part of its fixed entitlement as an individual and for the individual's own benefit, the company or trust is treated as so holding the whole or the part of its fixed entitlement. Before subsection 272-30(3) of Schedule 2F to the ITAA 1936 can be applied, it must be established that at the test time, a listed public company or widely held unit trust has, directly or indirectly, a fixed entitlement to a share of the income or capital of the main entity. In this case, the main entity is Trust A, being a trust that is endeavouring to establish whether it will pass the 50% stake test. Both Company A and Company B are a 'listed public company' as defined in subsection 272-135(1) of Schedule 2F to the ITAA 1936, because their shares are listed for quotation in the official list of an approved stock exchange. Both Company A and Company B hold their interests in the stapled securities through their wholly-owned subsidiaries. Company A and Company B therefore hold their interests in Trust A indirectly through a chain of interposed entities. Accordingly, subsection 272-30(3) of Schedule 2F to the ITAA 1936 may apply to Company A and Company B, provided they have, indirectly , a fixed entitlement to a share of the income or capital of Trust A. Section 272-20 of Schedule 2F to the ITAA 1936 states: A person holds a fixed entitlement to a share of the income or capital of a company, partnership or trust indirectly if the person holds the entitlement indirectly through fixed entitlements to shares of the income or capital, respectively, of interposed companies, partnerships or trusts. Therefore, to satisfy section 272-20 of Schedule 2F to the ITAA 1936, there must be a chain of fixed entitlements from each of Company A and Company B through to Trust A. This means establishing that each entity has a fixed entitlement in the entity in which it holds a direct interest. The ownership chain consists of: • Company A and Company B each owning 100% of the shares in the relevant wholly-owned subsidiaries (i.e. the subsidiaries that directly own the units in Trust C); • the relevant wholly-owned subsidiary each owning a percentage of the units in Trust C; • the Trustee for Trust C owning 100% of the units in Trust B; • the Trustee for Trust B owning 100% of the units in Trust A. It has been assumed for the purposes of this Ruling that Company A and Company B each have a 'fixed entitlement' to all of the income and capital of the relevant wholly-owned subsidiaries pursuant to section 272-10 of Schedule 2F to the ITAA 1936. Additionally, in response to Questions 1, 2 and 3 of this Ruling, the Commissioner has concluded that: • the unit holders (including the relevant subsidiaries of Company A and Company B) of Trust C have a fixed entitlement to all of the income and capital of Trust C; • the Trustee for Trust C, the sole unit holder of Trust B, has a fixed entitlement to all of the income and capital of Trust B; and • the Trustee for Trust B, the sole unit holder of Trust A, has a fixed entitlement to all of the income and capital of Trust A. Therefore, as there is a chain of fixed entitlements from each of Company A and Company B to Trust A, it can be concluded that Company A and Company B each have, indirectly, a fixed entitlement to a share of the income and capital of Trust A (as defined in section 272-20 of Schedule 2F to the ITAA 1936). As Company A and Company B are each a listed public company that has, indirectly, a fixed entitlement to a share of the income and capital of Trust A, they will each satisfy the threshold condition for the Commissioner to consider exercising the discretion in subsection 272-30(3) of Schedule 2F to the ITAA 1936. The next issue is whether, having regard to the matters set out in subsection 272-30(4) of Schedule 2F to the ITAA 1936, the Commissioner considers it fair and reasonable to treat Company A and Company B as each holding the whole of their respective fixed entitlement to the income and capital of Trust A as an individual and for the individual's own benefit. The matters set out in subsection 272-30(4) are: (a) the practicability of identifying any individuals who at the test time have fixed entitlements to a share of the income or capital of the main entity indirectly through the company or trust and for their own benefit; and (b) any change before or after the test time in the individuals who can be identified as having fixed entitlements of the kind mentioned in paragraph (a); and (c) any other matter that the Commissioner considers relevant Paragraphs 13.43 - 13.44 of the EM, in reference to subsections 272-30(3) and (4) of Schedule 2F to the ITAA 1936, state: 13.43 There are considerable practical difficulties in tracing interests in or through listed public companies, because of the large number of shareholders and the likelihood that individuals will not hold shares in the listed public company directly. Similar problems arise for widely held unit trusts. The main problem is that it may be difficult, in particular cases, to identify all the direct and indirect holders of fixed entitlements in those entities. 13.44 A provision has been included in the Bill to assist in overcoming difficulties in appropriate cases. This provision will allow the Commissioner to treat all or part of the fixed entitlements in a trust (or interposed entity where relevant) held, directly or indirectly, by a listed public company or widely held unit trust as being held by that company or trust as an individual for its own benefit. Having regard to the matters set out in subsection 272-30(4) of Schedule 2F to the ITAA 1936 and based on the information provided by the Applicant, the Commissioner considers that for the purpose of Trust A applying the 50% stake test in Subdivision 269-C of Schedule 2F to the ITAA 1936, it is fair and reasonable to treat Company A and Company B as holding the whole of the fixed entitlement they each have, indirectly, to a share of the income and capital of Trust A as an individual and for the individual's own benefit pursuant to subsection 272-30(3) of Schedule 2F to the ITAA 1936.