Private ruling: Income tax - assessable income
Date of advice: 12 May 2026
Published: 17 August 2026
Ruling period: Year ended 30 June 202X | Year ending 30 June 202X | Year ending 30 June 202X | Year ending 30 June 202X
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the income the Company (you) receives on behalf of the Parties, assessable to the Company pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. As you carry on the business in the capacity of a trustee for the Parties, the income you receive from carrying on that business is not included in your assessable income under section 6-5 of the ITAA 1997. Rather, as you receive it in your capacity as trustee of a trust that is not a bare trust, it will be included in the net income of that trust under section 95 of the Income Tax Assessment Act 1936 (ITAA 1936) and taxed according to rules in Division 6 of Part III of the ITAA 1936.

Relevant facts and circumstances: The Company is an Australian Proprietary Company limited by shares. The Company was registered with the Australian Securities and Investments Commission(ASIC). Upon incorporation, ordinary shares were issued to the Parties. After incorporation, the Company executed an Agreement with the Parties. The Agreement provides that the Parties hold shares equally in the Company. The shareholders of the Company are formed under the Agreement as two representative members from each of the Parties. The Agreement provides that the Company operates the Business. The Company is registered for GST and remits GST on taxable supplies. The Agreement The Agreement sets the purposes of establishing, maintaining and operating. The Company holds the necessary regulatory approvals and leases the relevant facility. The Agreement, under the relevant Clauses, provides that the Company, in running the Business: • acts as the operational arm of the Agreement, • holds and maintains the licences, • holds assets, • retains income to cover operational costs, • distributes remaining profits to the Parties, • is not entitled to any of the receipts, • acts only on behalf of the Agreement. Financial statements are prepared for the Agreement and distributed to the Parties in agreed proportions at the end of the financial year. The applicant has provided information in a number of documents.

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 6 | Income Tax Assessment Act 1936 section 96 | Income Tax Assessment Act 1936 section 97 | Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 section 99A | Income Tax Assessment Act 1936 subsection 161(1) | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 960-100 | Income Tax Assessment Act 1997 section 960-105 | Income Tax Assessment Act 1997 section 995-1

Reasons for decision: Summary: As you carry on the Business in the capacity of a trustee for the Parties, the income you receive from carrying on that business is not included in your assessable income under section 6-5 of the ITAA 1997. Rather, as you receive it in your capacity as trustee of a trust that is not a bare trust, it will be included in the net income of that trust under section 95 of the Income Tax Assessment Act 1936 (ITAA 1936) and taxed according to rules in Division 6 of Part III of the ITAA 1936. | Detailed Reasoning - Ordinary income: Subsection 6-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a taxpayer's assessable income includes income according to ordinary concepts, which is called ordinary income. It does not however include income of which you are not beneficially entitled ( The Countess of Bective v. Federal Commissioner of Taxation (1932) 47 CLR 417; [1932] HCA 22). Assessable income is defined in subsection 6-1(1) of the ITAA 1997 as consisting of ordinary income and statutory income. In the present context, the central question is in what capacity does the Company derive income from its conduct of the business. Specifically, it must be determined as to whether the income is derived by the Company for its own benefit and if so it would be assessable to it under section 6-5 of the ITAA 1997, or whether it is derived in its capacity as a trustee. Where income is derived by an entity in its capacity as a trustee of a trust, it is not included in its assessable income in a personal capacity under section 6-5 of the ITAA 1997. Where that trust is not a bare trust, it is subject to and assessed to either the trustee in its capacity as a trustee or beneficiaries according to the rules in Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936). | Detailed Reasoning - Joint Venture: Under the ITAA 1997, there is no general definition of "joint venture. However, a joint venture is a contractual arrangement, and the activities are commonly conducted through a recognised type of entity such as a company, trust or partnership: See paragraphs 7 and 17 in GSTR 2004/2 and United Dominions Corporations Ltd v Brian Pty Ltd (1985) 157 CLR ( United Dominions ) at paragraph 5 where the High Court observed: 5. The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred. Accordingly, is it necessary to understand the joint venture agreement and work out through what means the joint venture is being carried out, and by whom. Here the question, noting the Company is appointed to manage the business (the joint venture), is under the terms of the joint venture agreement between the Parties and the arrangement with the Company, does the Company carry on that business in its own right or as a trustee for the parties. If, it is as a trustee, the question then arises as to whether that is a bare trust. | Detailed Reasoning - Trusts and Division 6 of the ITAA 1936: Where a company derives income solely in its capacity as trustee of a trust, the taxation of that income is governed by Division 6 of Part III of the ITAA 1936. Division 6 of the ITAA 1936 provides a statutory framework for the taxation of trust income by allocating liability to either the beneficiaries or the trustee depending on whether beneficiaries are presently entitled to the income of the trust estate at the end of the income year and whether they are under a legal disability. | Detailed Reasoning - Express trusts: An express trust is one where the legal owner of property holds the property and the benefit is conferred on another. It is created by express declaration, which can be affected by some agreement or common intention held by the parties to the trust. For an express trust to be created it is necessary that there is certainty of the intention to create a trust, the trust's subject matter, and the object of the trust, such that there is a clear intent that the legal and beneficial ownership of property is split. It is not necessary for the parties to explicitly use the terminology of trust, what matters is the substance of the arrangement they have entered into and whether it creates a trust. The Supreme Court of Victoria in Imam Ali Islamic Centre v Imam Ali Islamic Centre Inc [2018] VSC 413 ( Imam Ali Islamic Centre) set out the following useful commentary about trusts: Express trusts [389] An express trust is one in which there is an express intention manifested by the words or conduct of the relevant parties to create a trust relationship. This will occur principally in one of two ways: a transfer of the property to a trustee or a declaration that the property is held on trust. For an express trust to be validly constituted, the intention to create a trust, the identification of the trust property and the identification of the beneficiaries must be sufficiently certain. The objective, not subjective, intentions of the settlor of an express inter vivos trust are relevant in providing an intention to create such a trust. It is, however, unnecessary that the word 'trust' be used by the settlor to establish the creation of the trust. In Imam Ali Islamic Centre , the Court further provided the following summaries about constructive trusts: Constructive trusts [396] The term constructive trust is used in various manners to identify a remedy provided by a court of equity. Some variations of constructive trusts create proprietary interests while some merely impose a personal liability. The chief motivation of the courts of equity in imposing a constructive trust over property is to ensure that, "when property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee". [397] The imposition of a constructive trust over property is a serious measure. A court will consider whether there is an appropriate equitable remedy that falls short of the imposition of a constructive trust. Although the catalyst for the imposition of a constructive trust may be unconscionability by a party in the assertion of a legal interest free of equitable encumbrance, the construction of such a remedy must be determined by reference to established equitable principles and not a vague notion of fairness or justice. In particular, mere unjust enrichment is not a sufficient basis for the award of a constructive trust. There are a variety of recognised categories of constructive trusts. Joint endeavour constructive trust. [399-401] The first category of constructive trust is called a joint endeavour or Baumgartner constructive trust. This form of trust was most notably considered in Muschinski v Dodds and Baumgartner v Baumgartner. This form of constructive trust may be imposed regardless of the actual or presumed intention to create a trust. The principles articulated by the High Court in Muschinski v Dodds (1985) 160 CLR 583 ( Muschinski) and Baumgartner v Baumgartner (1987) 164 CLR 137 ( Baumgartner) , include that a joint venture or a joint endeavour exists where parties combine resources for a common purpose, with an expectation that the benefits derived will be shared in accordance with their participation. In Muschinski , the Court held that where parties embark upon a joint venture which subsequently fails, equity may intervene to prevent one party from asserting legal title in a manner that is unconscionable, having regard to the parties shared purpose and contributions. Similarly, in Baumgartner , the High Court found that the pooling of income and resources for a common domestic and economic purpose constituted a joint endeavour. Upon failure of that endeavour, it was unconscionable for the legal owner to retain the benefit of property acquired through that pooled arrangement without accounting to the other party and found that the property was held on trust such that the proceeds were to be distributed by reference to contributions made through the pooled resources. This approach reflects that beneficial ownership arises from the joint venture arrangement itself, rather than from legal form. | Detailed Reasoning - Resulting or implied trusts: On the purchase of real property, a resulting trust may arise in situations where the legal title that vests in one or more of the parties does not reflect the respective contributions of the parties to the property's purchase price. A resulting trust arises by operation of law including where someone purchases property in the name of another ( Calverley v Green (1984) 155 CLR 242). The law presumes that the purchaser intended to retain the beneficial interest unless displaced. Exceptions include evidence of a specific contrary intention, application of the presumption of advancement and court-ordered trusts. | Detailed Reasoning - Legal and equitable ownership: Legal ownership is determined by registered title. Equitable ownership may differ where a trust is established. The Commissioner's position in Taxation Ruling TR 93/32 Income tax: rental property - division of net income or loss between co-owners (TR 93/32) is that there are extremely limited circumstances where legal and equitable interests differ and that clear evidence is required. This includes contemporaneous documentation evidencing intention and consistent treatment of the property. The High Court in Muschinski and Byrnes v Kendle [2011] HCA 26 (Byrnes v Kendle) confirms the central role of contemporaneous written evidence in determining trust relationships. Accordingly, for the Commissioner to accept that beneficial ownership differs from legal title, clear and compelling evidence of a trust must be provided. This is consistent with the position in relation to fixed unitised trusts. For both section 6-5 of the ITAA 1997 and Division 6 of the ITAA 1936, beneficial ownership, and therefore the derivation of income or present entitlement to trust income arises from the fixed rights conferred under the trust rather than from registered title to the underlying assets. | Detailed Reasoning - Bare trusts: A "bare" trust is one under which the trustee or trustees hold property without any interest therein , other than that existing by reason of the office and the legal title to that property as trustee, and without any duty or further duty to perform , except to convey the trust property upon demand to the beneficiary or beneficiaries or as directed by them, for example, on sale to a third party. ( Herdegen v Commissioner of Taxation (Cth) (1988) 20 ATR 24)( Herdegen ). Where a trustee does not hold an income producing assets as a bare trustee, the income it derives for the benefit of the beneficiaries of that trust from its use of those assets as trustee is subject to the taxation rules in Division 6 of the ITAA 1936. | Detailed Reasoning - Application to your circumstances: The Commissioner has thoroughly considered the relevant facts and circumstances of the scheme as defined, having regard to the applicable taxation provisions and authorities. The Commissioner's view of the scheme is as follows: • During the relevant income year, the Company carried on activities of a commercial nature with a profit-making purpose, in operating the business. Those activities were undertaken by the Company in its own name, but not for its own personal benefit. It also included holding leases and licences, maintaining insurance, employing staff and acting as the registered operator of the facility with the relevant licensing authorities and the Commissioner of Taxation. • The nature of the arrangement between the Company and the Parties is that it was understood and agreed that: - The Company was to hold and possesses the assets necessary to carry on the business for the benefit of the Parties, including being obliged to care for, maintain and insure them, in respect of licenses it was expressly stated it was to do so as a bare trustee. - The Company would be obliged, under the Agreement, to carry on the business at the direction of the management committee appointed by the Parties. - The Company was not entitled to retain for its own benefit any of the income (profit) derived from operating the business, but it was obliged to apply it only as permitted to run that business and it was thus received this for the benefit of the Parties, who are entitled to a fixed number of shares of the net income of the business, other than to pay the expenses of operating it and approved expenses, or certain of its own administrative expenses. • In the circumstances, it is clear the parties intended that the Company holds the assets used to carry on the business and the income it receives from it, for the benefit of the Parties, not itself (except to the extent it is entitled to retain and apply some of those receipts to cover its own costs of acting as manager, trustee and operator of the business). • The Company thus carries on the business and holds the assets used to carry on that business or income it receives from doing so in the capacity as a trustee. • This trust is not a bare trust, as the Company has active duties and obligations that extend beyond merely holding assets and transferring them to the beneficiaries (the Parties) on demand. Rather, the Company is required to undertake all activities necessary to carry on the business, subject to the direction of the management committee appointed by the Parties, including holding the assets of that business for the Parties, accounting for, maintaining and protecting the property, insuring it, maintaining the necessary licenses, employing staff, managing regulatory requirements, and entering into contracts and leases including the land lease. Accordingly, the income received by the Company from its conduct of the business is derived by the Company in its capacity as trustee of trust for the benefit of the parties. That income is therefore subject to the trust taxation provisions in Division 6 of Part III of the ITAA 1936 and is included in the net income of that trust under section 95 of the ITAA 1936 and then included in assessable income of either the beneficiaries or, where applicable, the Company in its capacity as trustee under Division 6 of the ITAA 1936.

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