Private ruling: Division 6C of Part III of the Income Tax Assessment Act 1936 and Division 275 of the Income Tax Assessment Act 1997
Date of advice: 24 February 2017
Published: May 2017
Ruling period: Income tax year ended 30 June 2017 | Income tax year ended 30 June 2018 | Income tax year ended 30 June 2019 | Income tax year ended 30 June 2020 | Income tax year ended 30 June 2021 | Income tax year ended 30 June 2022 | Income tax year ended 30 June 2023 | Income tax year ended 30 June 2024 | Income tax year ended 30 June 2025 | Income tax year ended 30 June 2026 | Income tax year ended 30 June 2027

Ruling: Q1: Will the Trust be a trading trust under section 102N of the Income Tax Assessment Act 1936 ? | A1: No. Qualification This Ruling does not apply where the Property is sold prior to the first Liquidity Review Date (as defined in clause 15.1 of the UHA).

Relevant facts and circumstances: Ownership structure A stapled security consists of one ordinary share in Company A and one unit in Trust A (of which Trust Co B Pty Ltd is the Trustee). The Trustee of Trust A holds all the units in the Trust B. Capital Company Pty Ltd is the Trustee of Trust B. The Trustee of the Trust B has settled a trust known as the Head Trust ( Trust ). Head Co Pty Ltd is the Trustee of the Trust. The Trustee of the Trust has settled, and holds all the units in, a trust known as Sub Trust 1 ( Sub Trust ). For the purposes of paragraph 102N(1)(b) of the ITAA 1936, the Trustee of the Trust will control the Sub Trust. Sub Co Pty Ltd is the Trustee of the Sub Trust. Head Co Pty Ltd, Manager Pty Limited, L Co Pty Ltd and Project Co Pty Ltd are all subsidiary members of Company A's income tax consolidated group. The Trustee of the Sub Trust will purchase and hold (as the registered proprietor) an estate in fee simple in the land ( Property ). The Trustee of the Sub Trust will appoint a Development Manager to develop on the Property a residential building ( Building ), from which the Trustee of the Sub Trust intends to derive rental income. The Building will be held by the Trustee of the Sub Trust on a build to rent ( BTR ) basis. Documentation The Group has provided a number of documents explaining, in detail, the BTR investment strategy behind the transaction. These documents are: ● Board Papers ● Study Tour Findings; and ● Investment Memorandum. In the event that finance is sought for the purchase of the Property and/or the construction of the Building, it will be sought on the same basis as the facts set out in this Ruling, including that: ● the Trust has a primary purpose of deriving long-term rental income (as opposed to capital gains from the sale of the Property and Building); and ● any information provided to potential financiers regarding forecast returns, rental yields and the value of the Property will be consistent with that provided for this Ruling application. BTR strategy The purpose of the Trust is to invest, indirectly through the Sub Trust, in real property assets on a long-term basis with a focus on the private residential rental sector in Australia, in accordance with the BTR investment strategy, with a view to attracting wholesale investors. The investment strategy of the Trust is to: (a) acquire and develop high quality Australian real estate assets and projects in the private residential rental sector (PRS); (b) develop high quality PRS assets in key growth suburbs with close proximity to critical infrastructure; and (c) strategically acquire land with medium term development potential for the purpose of deriving rent, it being acknowledged that the investment strategy may vary from time to time and from project to project and is subject to obtaining any required Investment Committee approvals. An investment in the Trust will be marketed to investors as a long term investment opportunity with the purpose of deriving long term, stable rental income from Australian residential real estate and the potential for continued growth through the acquisition of additional properties. Changing demographic, social and economic factors have resulted in the growth of BTR residential assets in recent years. A review of the BTR markets in various overseas jurisdictions has been undertaken by the Group, as well as a comparison with the Australian market in determining this asset class to be commercially viable in Australia. Distinguishing features between residential property developed on a “build to sell” basis and that developed on a BTR basis exist in the various jurisdictions. As a result, the design and specifications of the Building, and its ongoing management, will be tailored to its use on a BTR basis over the longer term These modifications are intended to make the Building more attractive to tenants, with the expectation of an increased running rental yield and lower vacancy rates for the Building. The design of the Building and the nature of the Trust are specifically tailored to ensure that the Property is held for the long term. In particular, in approving this investment strategy, the Board of Directors of Company A, and Trust Co B Pty Ltd as the Trustee and Responsible Entity of Trust A, have had regard to the fundamental changes in the residential and investment markets, which make the acquisition of residential assets for long term rental purposes a different proposition when compared to the past decade: The Trust The Trust has been established to indirectly acquire the Property and to operate as an Australian residential real estate investment trust (REIT). The Trust is a wholesale unit trust that is intended to be a Managed Investment Trust pursuant to Division 275 of the ITAA 1997. The units in the Trust are held initially by: ● the Trustee of Trust B - x%; and ● Invest Co Pty Ltd - x%. Following the issue of units to one or more institutional investors ( Investors ), the units in the Trust will be held by more Investors: ● the Trustee of Trust B - x%; and ● the Investors - x%. The units in the Trust may, at a future time, be stapled to one or more other trusts that will, directly or indirectly, hold similar types of property. The activities of the Trustee of the Trust will consist solely of: (a) investing in units in the Sub Trust; and (b) investing in shares in a related financier/borrowing company ( Borrower ) from which the Trustee of the Sub Trust may borrow money to acquire the Property and construct the Building. The Trust offers the potential for the acquisition of additional properties, which will be acquired and held on a BTR basis. Investors It is anticipated that there will initially be only a small number of other Investors in the Trust (e.g. between 3 and 6 Investors). In terms of potential investors, the Trustee of the Trust is targeting entities with long term investment horizons that require predictable annual cash flows over periods measured in decades, such as sovereign wealth funds and large pension funds. These entities are likely to be non-residents, although the applicant has stated that the investment would be equally attractive to Australian investors, notably complying superannuation funds. These entities are not focused on short-term gains as funds from realised investments would have to be redeployed elsewhere to fund the entities' long term commitments. Typically, these investors will have an investment mandate that requires a particular percentage of their assets to be invested in Australia and a particular percentage to be invested in various asset classes including, in more recent times, residential assets. The Trust can provide these types of investors with access to Australian residential assets that deliver the long term, regular and predictable income stream that these investors seek. These investors would not have an interest in investing in the Trust for short-term gains. The Investment Memorandum and any other associated marketing or investment material provided to potential Investors will be consistent with this investment strategy. The relationship between the Trust and each investor will be governed by the “Unitholders' Agreement” ( UHA ), of which a draft has been provided to the Commissioner and forms part of the scheme that is the subject of this Ruling. Acquiring the Property and constructing the Building Property The Property will be acquired by the Trustee of the Sub Trust from an independent third party (directly or via a subsidiary of Company A) and held on a single title, which will continue to be the case following the development of the Building. The acquisition price will be the market value of the Property at that time. Building The Trustee of the Sub Trust will enter into a development management agreement ( DMA ) with Project Co Pty Ltd to construct and deliver the Building in consideration for a fee ( Development Fee ). The essential terms to be included in the executed DMA are the terms that have been provided to the Commissioner in the 'Development Management Agreement (DMA) Term Sheet' ( DMA Term Sheet ). The Building is expected to be completed in a few years' time, and approximately 24 months after the acquisition of the Property. There will be some retail properties on the ground floor of the Building, which will be leased on ordinary commercial terms. The Trustee of the Sub Trust does not intend to sell individual properties in the Building while retaining the remainder of the Building. If the Trustee of the Sub Trust did decide to sell the Property and Building at some future time, it could be sold as a single asset or alternatively be strata-titled and disposed of by a series of individual sales. There will not be significant costs or approvals involved in the strata-titling of the Building. In either case, the whole of the Property and Building would be sold, and only in the event a sale is required following a Liquidity Review (see below). The Trustee of the Sub Trust does not have any intention or preference as to whether the Property and Building will eventually be sold as individual properties or as a single asset. Specifically, whilst there is no existing market in Australia for this single title asset class, based on experience in and research of property markets (including commercial property and BTR properties in other jurisdictions), the applicant has no basis for expecting that one method would result in a greater sale price than the other. Development Fee - funding construction of the Building The DMA will provide for a 'fund through' arrangement (as opposed to a 'turnkey' final payment on completion arrangement) to construct the Building through progress payments ( Progress Payments ) to Project Co Pty Ltd. These Progress Payments will consist of: 1. the cost of design, demolition, construction and development for each quarter, paid in arrears based on actual costs ( Construction and Development Costs ) (as detailed in the DMA Term Sheet); and 2. a Development Management Fee (as detailed in the DMA Term Sheet) equal to x% of the certified Construction and Development Costs. Pursuant to the DMA Term Sheet, at Practical Completion of the Building (defined in the DMA Term Sheet), the Trustee of the Sub Trust will pay a final Development Fee (as opposed to the Development Management Fee) to Project Co Pty Ltd, being: 1. Investor Maximum Price less 2. Project Costs (being Acquisition Price of the Property + Construction and Development Costs + Development Management Fee) less 3. Unpaid coupon amounts (this effectively represents the time value of money to the Trustee of the Sub Trust, in respect of the Progress Payments it will make to Project Co Pty Ltd). The Investor Maximum Price ( IMP ) is determined as between the Trustee of the Sub Trust, Project Co Pty Ltd and the Investors in the Trust (as the Trustee of the Trust will own all of the units in the Sub Trust). There is a divergence of interests between Project Co Pty Ltd, which desires the IMP to be as high as possible, and the Investors and the Trustee of the Sub Trust who desire the IMP to be as low as possible. The Investor Maximum Price will be the arm's length amount that would be expected to be paid had the Group had no other connection or dealings with the Sub Trust, the Trust or the Investors. The Development Fee is calculated so as to ensure that Project Co Pty derives the appropriate arm's length amount of development profit. The use of a 'fund-through' arrangement results in a lower overall cost to the Trustee of the Sub Trust compared to acquisition of a completed property (e.g. due to savings on stamp duty for the purchaser and selling costs for the developer), or development under a 'turnkey' arrangement (due to the time value for money adjustment reflected in the unpaid coupon amounts). The Trustee of the Sub Trust will engage L Co Pty Ltd as the property manager ( Property Manager ). The Property Manager will endeavour to lease the Building to tenants, and will be entitled to a fee from the Trustee of the Sub Trust based on a percentage of the income of the Sub Trust and on certain other events (e.g. new leases). All terms and fees will be an arm's length amount. Financing It is yet to be determined whether there will be any debt funding associated with the scheme. As noted above, the Trustee of the Trust may hold shares in the Borrower. The operations of the Borrower will consist solely of borrowing money from external sources, and on-lending it (on arm's length terms) at interest to the Trustee of the Sub Trust, and entering into associated hedging arrangements. Alternatively, the Trustee of the Sub Trust may borrow directly from an external source to fund part of the costs of acquiring the Property and developing the Building. The Trustee of the Sub Trust will only borrow if it enhances the yield on equity and the debt is otherwise available on favourable terms (e.g. duration). The forecast returns assumes no gearing, however, even with gearing, the annual return to Investors will not decrease materially below the initial forecast amount, including in the initial years. Any documentation provided to potential lenders when finance is being sought for the purchase of the Property and the construction of the Building will be consistent with the information provided in this Ruling application. Investment Manager The Trust will engage Investment Manager Pty Limited ( IM ) as investment manager. IM will be entitled to a fee from the Trust in respect of its role as investment manager. The fee will be an arm's length amount, and comparable to investment management fees charged in respect of other property trusts. Return on investment The forecast annual yield for Investors, as estimated by the Trustee of the Trust, is X%. There is no specified end date for the Trust and it is not intended that the assets of the Trust will be realised at any particular time. It is possible that the units in the Trust will be offered to the public under an initial public offering at some future time, although there are currently no plans in this regard. Although there is no specified end date for the Trust, an exit strategy for the Investors has been provided in the form of a periodical liquidity event. Pursuant to the UHA, there will be a Liquidity Review Date on: ● the 10th anniversary of practical completion under the DMA in respect of the Property and Building (approximately 12 years from the acquisition of the Property); and ● every 10th anniversary thereafter. Under the UHA, on a Liquidity Review Date: ● (if the strategy involves a winding up of the Trust), or in all other cases by unanimous resolution of the Investment Committee. The Trustee of the Sub Trust will not attempt to dispose, in any manner or form, of the Property or Building before the first Liquidity Review Date, nor will the Trustee of the Trust dispose of units in the Sub-Trust or seek to cause the Trustee of the Sub Trust to dispose of the Property or Building before that time or other than as a result of a Liquidity Request Notice being given. Rather, the intention of the Trustee of the Trust is to expand its residential property portfolio over time, acquiring and holding a number of properties for long-term rental. Neither the Trustee of the Trust nor the Trustee of the Sub-Trust have any intention or expectation that a Liquidity Request Notice will be given on the Liquidity Review Date by either the Trustee of the Trust B or any other Investor. Any decision to give a Liquidity Review Notice will be made on the basis of facts and circumstances at the time of the Liquidity Review Date, and there is no existing fact or circumstance, including in particular the forecast rental yield at the time of the Liquidity Review Date, that would indicate that a Liquidity Request Notice is likely to be made. Furthermore, in the event that a Liquidity Request Notice is given, neither the Trustee of Trust nor the Trustee of the Sub Trust will have any preferred means of providing liquidity - that is, the strategy for providing liquidity will be determined with regard to the facts and circumstances at the time, and there is no existing fact or circumstance that would indicate a preference for the adoption of any particular strategy. In this regard, the Trustee of the Sub Trust will not undertake any change in its activities ahead of the Liquidity Review Date - for example, it will continue to enter into and renew leases spanning the Liquidity Review Date for similar lease terms as previously, and will not undertake any actions consistent with preparing the Property and Building (or any part thereof) for sale. Rental yield and capital growth The expected return (year-to-year yield) from rent and capital growth has been determined by the Trustee of the Trust. The expected return from rent was measured both on a gross basis and after taking into account direct operating costs. The rental yields were both separately greater than the capital yield. (NB Net rental yield is based on gross rent less direct operating costs. Overhead costs such as management fees and interest are not deducted. Capital expenditure is also not deducted.) The methodology used for calculating these returns is as follows: 1. an overall internal rate of return (IRR) for the Property is determined using the forecast value of the Property 10 years after commencement of the leases of the Property; 2. a separate IRR for the Property is determined assuming that the value of the Property remains equal to the cost of development - this is the rental yield; 3. the rental yield is subtracted from the overall IRR to determine the annual capital growth. The year 12 terminal value in the IRR calculation represents a forecast of the present value (in year 12) of all future net rent in respect of the Property. Historical annual capital growth figures of units in the chosen area were not used for the purposes of the year 12 terminal value because those figures contain distortions arising from supply and demand. Therefore, the historical data may not be necessarily reflective of the circumstances in 12 years' time. This methodology and the underlying assumptions are consistent with those used for other property assets. The underlying assumptions (including the forecast growth in property yields) are realistic and based on best estimates for the Property and Building. Neither the applicant nor any other member of the Group has any other modelling or analysis, qualitative or quantitative, that indicates that the capital growth is expected to exceed rental yield on an IRR basis, nor is it aware of any fact or circumstance that it considers would likely have an impact on the forecasts. The Trustee of the Trust has confirmed that these forecasts will be used in any material provided to potential Investors and any external financiers, and that no other forecasts or analysis will be provided regarding the potential performance of the Property. The investment management outperformance fee is determined on the basis of these forecasts. The Trustee of the Sub Trust attaches far greater certainty to rental returns compared to capital growth for this class of asset. The rental return is considered the more certain of the returns from the investment due to residential rental vacancy rates being below 2.5% over the past 10 years. Residential rental yields are also relatively stable, exhibiting much less variability than capital values of residential properties. In this regard, as the Trustee of the Sub Trust will not sell the Property other than as required following a Liquidity Review Date, there is no ability or intention to hold the Property for re-sale during favourable market conditions - that is, the timing of any sale is dictated by the Liquidity Review Dates, and not the maximising of sale proceeds. The net rental yield on the Property and annual yield to Investors: ● compares favourably with defensive assets such as bonds, and, unlike those assets, rental returns are expected to grow annually, and there is also the potential for further growth in rental yield and / or capital growth from the Property and Building; ● compares favourably to that of equivalent residential property assets in other countries; ● is comparable (including on a yield on value basis) to the effective net rental yields on office assets in the chosen area. For these reasons, and on the basis of the forecast returns provided, Investors would consider an investment in the Trust commercially attractive on the basis of the rental yield, and one that will satisfy their investment mandate thresholds regarding stable, long-term annual yields and overall yields. The Property and Building held by the Trustee of the Sub Trust will be valued on the basis of the annual rental yield, and will not include any speculative profits from a sale of the Property. This valuation would be the basis for any further issue or redemption of interests in the Sub Trust or Trust. Neither the Trustee of the Trust nor the Trustee of the Sub Trust will seek to make distributions/returns of capital to their respective unit holders on the basis of any (unrealised) increase in the value of the Property and Building. The Group also derives development and management fees from the scheme. However, investment in the Trust is considered commercially attractive to the Group on the basis of rental yield, without regard to those additional sources of income. Sources of income of the Trustee of the Sub Trust Residential leases The residential leases in respect of the Building will be standard residential tenancy leases for periods ranging from 6 months to 10 years. The Trustee of the Sub Trust will have a preference for longer-term leases, and will market this aspect to prospective tenants. The rent will be a fixed amount per week, with annual rent reviews. Tenants will either pay a gross rent that includes outgoings and utilities, or will pay for their share of outgoings and for utilities consumed. Lessees will not be granted options or other rights to acquire the leased properties. The residential units will be let on an unfurnished basis. The Property may contain a gym and a concierge desk, but no separate charge will be imposed by the Trustee of the Sub Trust for these services. There will be no additional services provided by the Trustee of the Sub Trust to tenants for a fee. The Property Manager may, in its own capacity, provide services to tenants for a fee. However, these would not be services ordinarily provided by a lessor in connection with a residential lease, and the ability of the Property Manager to separately provide services to tenants will not be taken into account in the fees charged by the Property Manager to the Trustee of the Sub Trust. Retail leases The retail leases in respect of the Building will be standard retail leases for a period of approximately 5 years. The rent will be a fixed amount per month (i.e. with no profit-based component), subject to annual rent reviews. Retail tenants will pay for their share of outgoings and for utilities consumed. Solar panels/electricity The Trustee of the Sub Trust may install solar panels on the roof of the Building and use the resulting power in respect of common areas of the Property. In the alternative, the Trustee of the Sub Trust may grant a lease of the roof of the Building to an entity to install and operate solar panels. In this scenario, the Trustee of the Sub Trust would not own or operate the solar panels but would purchase electricity from the lessee. In either scenario, the Trustee of the Sub Trust will not re-sell any electricity to tenants or to any third party at a profit. Rental Guarantee Under the DMA, Project Co Pty Ltd will provide the Trustee of the Sub Trust with a rental guarantee for the initial period of the project. Other income There is no income currently forecast to be derived by the Trustee of the Sub Trust other than rent, the Rental Guarantee amounts and outgoings reimbursed by tenants under the various leases. However, it is possible that the Trustee of the Sub Trust will derive minor amounts of other income from: ● telecommunications tower licence fees (sometimes a mandatory requirement of planning permission, and sometimes a voluntary private treaty with telecommunication companies); and ● signage licence fees from the retail tenants. If derived, this other income would not exceed 5% of the total gross revenue from the Property and Building in any income year.

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 6C of Part III | Income Tax Assessment Act 1936 section 102M | Income Tax Assessment Act 1936 subsection 102MB(2) | Income Tax Assessment Act 1936 subsection 102MB(4) | Income Tax Assessment Act 1936 section 102N | Income Tax Assessment Act 1936 paragraph 102N(1)(b) | Income Tax Assessment Act 1997 Division 275

Reasons for decision: Summary: While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision. All legislative references are to the Income Tax Assessment Act 1936 unless otherwise specified. A unit trust will be a trading trust under section 102N if, broadly, the trustee either carried on a trading business, or controlled or could control another entity's trading business, at any time during the income year. Section 102M defines a 'trading business' as a business that does not consist wholly of eligible investment business. Section 102M defines 'eligible investment business' broadly in terms of investing in land to derive rent or investing or trading in certain equities, financial instruments or financial arrangements. Where the activities of the Trust and the Sub Trust consist wholly of 'eligible investment business', the Trust will not be a trading trust for the purposes of Division 6C. This precludes the Trust from being a public trading trust and from being taxed as a corporate tax entity. | Detailed Reasoning - The activities of the Trust: The Trust is a wholesale unit trust whose activities consist wholly of investing in: (a) units in the Sub Trust; and (b) shares in a potential financier/borrowing company. Paragraph (b) of the definition of 'eligible investment business' includes investing in shares in a company or units in a unit trust. The activities of the Trust fall wholly within this definition and therefore the Trustee of the Trust will not carry on a trading business for the purposes of Division 6C. | Detailed Reasoning - The activities of the Sub Trust: The Trustee of the Trust holds all of the units in the Sub Trust. The Trust will be a trading trust if the Trustee of the Sub Trust carries on a trading business and the Trustee of the Trust is in a position to control the affairs or operations of the Sub Trust in respect of carrying on that trading business. It is therefore necessary to determine whether the Sub Trust's activities amount to a trading business. A trading business means a business that does not consist wholly of eligible investment business. In section 102M: ● paragraph (a) of the definition of 'eligible investment business' refers to 'investing in land for the purpose, or primarily for the purpose, of deriving rent'; ● 'land' is defined to include 'an interest in land and fixtures on land'. Therefore, the acquisition of the Property and paying for the construction of the Building constitute an investment in land. A safe harbour rule is then provided in subsection 102MB(2). Under this rule, the Sub Trust's investments in land will be taken to be for the purpose, or primarily for the purpose, of deriving rent during a year of income if: ● each of the Sub Trust's investments in land is for non-trading purposes that include a purpose of deriving rent; ● at least 75% of the gross revenue from those investments for the year of income consists of rent (except excluded rent); and ● none of the remaining 25% of gross revenue is excluded rent, or from carrying on a business that is not incidental and relevant to the renting of the land. Whilst the primary purpose test and the safe harbour rule are distinct tests, both tests require the investments in land to be for a rental purpose (of varying degrees) and therefore the same factors are relevant in applying each of these. The common factors that have been considered in applying both tests are: ● the BTR investment strategy of the Trust; ● the documentation presented to the Board of Directors; ● the intention of the Trustee of the Sub Trust to hold the Property long-term; ● the Property is not intended to be strata-titled; ● the forecast rental yield compared with the forecast capital growth; ● the type of investors targeted; ● the marketing to investors; ● the engagement of the Property Manager by the Trustee of the Sub Trust; and ● the services and design features of the Building. Investment strategy and Board documentation When the Trustee of the Sub Trust acquires the Property and enters into the DMA with Project Co Pty Ltd, the investment strategy of the Trust (which holds all of the units in the Sub Trust) involves acquiring Australian real estate assets and projects in the private residential rental sector and acquiring land with medium term development potential for the purpose of deriving rent. The focus of this investment strategy in the rental sector is consistent with the Trustee of the Sub Trust investing in land for the purpose of deriving rent. In seeking approval from the Company A Board of Directors (the Board) to proceed with the acquisition of the Property and the construction of the Building, a presentation was made to the Board. That presentation aligns with this investment strategy. Each of these is consistent with the Trustee of the Sub Trust investing in land for the purpose of deriving rent. Intention to hold the Property long-term and the Property not being intended to be strata-titled The UHA provides for a Liquidity Review process, under which the Unitholders can request liquidity for their units. This may result in the Trustee of the Sub Trust selling the Property. A Liquidity Review Date first occurs on the 10 th anniversary of practical completion of the Building, and every 10 years thereafter. The Building is expected to be completed approximately 24 months after the acquisition of the Property. The Trustee of the Sub Trust has no intention or expectation of selling the Property before the first Liquidity Review Date in approximately 12 years, nor is there any intention or expectation that the Trustee of the Sub Trust will be required to sell the Property as a result of the first Liquidity Review Date. This is consistent with the Trustee of the Sub Trust investing in land for the purpose of deriving rent. The Property will be held by the Trustee of the Sub Trust under a single title (i.e. it will not be strata-titled). There is currently no expectation that strata titling will be likely to occur even if a sale of the Property is required. Any decision to strata-title will only be made in the event that the Property is required to be sold. This suggests that the Trustee of the Sub Trust has no intention to construct the Building and sell off individual lots in order to realise short term gains. This is consistent with the Trustee of the Sub Trust investing in land for the purpose of deriving rent. Forecast rental yield The Trustee of the Sub Trust has relied on the forecast rental yield (gross and net) which are both higher than the forecast capital growth yield, and the Trustee of the Sub Trust expects that the net rental yield will exceed the capital growth of the Property over the 10 year rental period. In determining these forecasts, the Property and Building have been valued on the basis of the annual rental yield and does not include any speculative profits from a sale of the Property. The applicant has stated that these rental yield forecasts are comparable with other property assets and that the forecast capital growth is based on its best estimates for the Property. However, the returns from the Property, particularly over a 12 year period, are unable to be predicted with a sufficient degree of accuracy for these forecasts, of themselves, to be determinative of the Trustee's purpose. However, they are not inconsistent with the Trustee of the Sub Trust investing in land for the purpose of deriving rent. The Development Fee ensures that profit from the development of the Building is paid to Project Co Pty Ltd, rather than remaining in the Sub Trust. This, coupled in particular with the intention to hold the Property for the long-term, is consistent with the Trustee of the Sub Trust intending to benefit from this investment primarily through the rental yield as opposed to development profit. Investors targeted and marketing to investors The purpose of the Trustee of the Sub Trust to derive rent from the Property is further indicated by the targeting of potential investors who seek predictable, stable annual cash flows over long periods, coupled with the marketing of the investment as one which can provide a long-term, regular and predictable income stream. This suggests that the stable, long-term return expected from the net rental yield on the Property may be desirable for such investors, particularly when it compares favourably with defensive assets and investments in certain other property assets. Engagement of the Property Manager The engagement of the Property Manager by the Trustee of the Sub Trust, together with the intention to enter into long-term residential leases, aligns with the BTR investment strategy, and is consistent with the Trustee of the Sub Trust investing in land for the purpose of deriving rent. Services and design features of the Building The success of the BTR investment strategy appears to be dependent on maximising the customer (i.e. the tenant) experience through the provision of premium services, offering security of tenure and including specific design features. | Detailed Reasoning - Other sources of income: The Trustee of the Sub Trust may receive income under the Rental Guarantee. However, the Rental Guarantee expires no later than 24 months after practical completion of the Building. Other potential income of the Trustee of the Sub Trust, including electricity costs reimbursements, telecommunication tower licence fees and signage licence fees, if any, will be minor. While installation of telecommunication towers is often a requirement in the construction of such buildings and signage for retail tenants of the Building may also be required, the income, if any, from these sources would not exceed 5% of the gross revenue of the Sub Trust in any year. There is no information currently available to suggest that any of these activities would constitute a business separate from the renting of the Building. On the above bases, it is expected that this other income, if any, would be incidental to the renting of the Building. | Detailed Reasoning - Conclusion: Weighing up the above factors, and in the absence of any information to the contrary, the following factors in particular support, on balance, the conclusion that the Trustee of the Sub Trust is investing in land primarily for the purpose of deriving rent: ● the intention to hold the Property for at least 12 years and the absence of any intention or expectation that the Property will be sold at any particular point in time; ● the reliance of investors on the regular and stable rental yield expected from the Property, which is comparable to yields on similar assets; ● the implementation of the Trust's BTR investment strategy; ● the specific design features of the Building and the offering of services and long-term leases suited to renters; and ● the likelihood, based on the information provided, of the safe harbour rule in subsection 102MB(2) being satisfied in the event of a disposal of the Property after the first Liquidity Review Date. It is noted that in applying subsection 102MB(2) to an income year, any capital gain from a disposal of land is disregarded (subsection 102MB(4)). In the event that the Property is disposed of only after 12 years and in all other respects in accordance with the information provided, any gain from the disposal of the Property would be on capital account and therefore disregarded for the purposes of subsection 102MB(2). Therefore, as the activities of the Sub Trust consist wholly of eligible investment business, the Sub Trust is not considered to be carrying on a trading business. As the Trustee of the Trust and the Trustee of the Sub Trust are not carrying on a trading business, the Trust is not a trading trust for the purposes of Division 6C.

Reasons for decision: These reasons for decision accompany the Notice of private ruling for The Trustee of the Head Trust.