Tax Laws Amendment (2004 Measures No. 2) Act 2004 (83 of 2004)

Schedule 2   Consolidation etc.

Part 2   Certain unit trusts heading consolidated groups

Division 1   Main amendment

Income Tax Assessment Act 1997

2   After Subdivision 713-A

Insert:

Subdivision 713-C - Some unit trusts treated like head companies of consolidated groups

Guide to Subdivision 713-C

713-120 What this Subdivision is about

A corporate unit trust or public trading trust can sometimes choose to form a consolidated group and be treated like a company and head company of the group. The treatment affects the trust, the trustee and other entities connected with the trust (such as members of the trust and entities the trustee holds membership interests in).

Table of sections

Object of this Subdivision

713-125 Object of this Subdivision

Choice to form a consolidated group

713-130 Choosing to form a consolidated group

Effects of choice

713-135 Effects of choice

713-140 Modifications of the applied law

[This is the end of the Guide.]

Object of this Subdivision

713-125 Object of this Subdivision

(1) The main object of this Subdivision is to provide, by the means described in subsections (2) and (3), for certain unit trusts to be treated like companies, and therefore like *head companies of *consolidated groups, with consequent effects on other entities including:

(a) the trustees; and

(b) *members of the trusts; and

(c) entities the trustees hold *membership interests in.

(2) The first means is letting a *corporate unit trust, or *public trading trust, that could become the *head company of a *consolidated group if the trust were a company, choose to form such a group (with other entities as *subsidiary members).

(3) The second means is changing the way in which the law relating to income tax applies on and after the time the choice takes effect, so that law (with some modifications) applies in relation to the trust or the trustee (as appropriate) in a way corresponding to the way in which that law applies in relation to a company.

Note: The law relating to income tax includes legislation relating to associated imposts (such as those connected with the imputation system).

Choice to form a consolidated group

713-130 Choosing to form a consolidated group

A trust may make a choice under section 703-50 (Choice to consolidate a consolidatable group), as if the trust were a company (the assumed company ), but only if:

(a) the assumed company could make the choice, if it beneficially owned the *membership interests in other entities that are legally owned by the trustee; and

(b) the day specified in the choice is the first day of an income year for which the trust is a *corporate unit trust or a *public trading trust.

Note: Assuming that a trust is a company also involves assuming:

(a) that the company has characteristics of the trust, such as the location of the central management and control (which is relevant to residence), the business of the trust, not being incorporated etc.; and

(b) that membership interests in the trust are membership interests in the company (owned by the same persons and in the same way as membership interests in the trust are owned); and

(c) that the company's taxable income is taxed at the same rate as the trust's net income.

Effects of choice

713-135 Effects of choice

(1) If the trust makes the choice, the law (the applied law ) described in subsection (2) applies in relation to the trust in a way corresponding to the way in which that law applies to a company. The applied law applies in that way in relation to the trust or trustee (as appropriate):

(a) with the appropriate modifications (including those described in section 713-140, so far as they are appropriate); and

(b) in relation to all times at or after the start of the day specified in the choice; and

(c) so far as it is relevant to the operation of the applied law in relation to the trust and a time at or after the start of that day - in relation to a time when the trust existed before the start of that day.

Note 1: The application of the applied law in this way affects not only the trust and the trustee but also other entities connected with the trust, such as members of the trust and entities in which the trustee holds membership interests. Some examples of that effect are that:

(a) a consolidated group comes into existence on the day specified in the choice; and

(b) there may be a scrip for scrip roll-over for an entity exchanging its shares in a company for membership interests in the trust.

Note 2: The application of the applied law in this way involves treatment of characteristics, things and persons relating to the trust corresponding to the treatment by the applied law of analogous characteristics, things and persons relating to a company (as envisaged in the note to section 713-130). These are some examples of analogous things and analogous persons:

(a) units in the trust and shares in a company;

(b) unitholders in the trust and shareholders in a company;

(c) trust voting interests and voting shares in a company.

(2) The applied law is:

(a) this Act (other than this Subdivision); and

(b) an Act that imposes any impost payable under this Act; and

(c) the Income Tax Rates Act 1986; and

(d) the Taxation Administration Act 1953, so far as it relates to an Act covered by paragraph (a), (b) or (c); and

(e) any other Act, so far as it relates to an Act covered by paragraph (a), (b), (c) or (d); and

(f) regulations and other legislative instruments under an Act covered by any of the preceding paragraphs.

(3) Subsection (1) does not make an entity liable to a criminal, civil or administrative penalty.

Note: An entity is liable to such a penalty under the applied law only if that law, as it applies apart from subsection (1), makes the entity liable.

713-140 Modifications of the applied law

Overview

(1) This section describes modifications of the applied law in its application in relation to a trust or trustee under section 713-135, but does not limit the modifications of that law that are appropriate for the purposes of that section.

General modifications

(2) A reference in the applied law to a thing or person described in column 2 of an item of the table includes a reference to a thing or person described in column 3 of the item.

Note: An expression in column 2 of an item of the table has the meaning that the expression has in the provision of the applied law containing the reference.

(3) The trust is not covered by a reference in the applied law to a trust.

Note: Subsections (3) and (4) of this section do not affect an entity's liability for criminal, civil and administrative penalties under the applied law, as those subsections modify (so far as appropriate) the applied law as it applies because of subsection 713-135(1), and that subsection does not affect liability for such penalties (see subsection 713-135(3)).

(4) The trustee is not covered by a reference in the applied law to a trustee (except a reference in section 254 of the Income Tax Assessment Act 1936).

Note: Section 254 of the Income Tax Assessment Act 1936 deals with obligations and liabilities of trustees.

Modifications of specific provisions

(5) A provision of an Act identified in an item of the table is modified as set out in the item.