Following the High Court decision in Bamford, we have
reviewed a lot of unit trust deeds and have seen many unit trusts
with superannuation funds as unitholders.
The danger is that when a superannuation fund holds units in a
typical unit trust, there is a significant risk the ATO will argue
that the income distributed from the unit trust to the trustee of
the superannuation fund is "non arms length"
income - in which case the fund will be taxed at the top marginal
rate of 46.5%.
Income distributed to the trustee of the super fund from a unit
trust will be non-arms length income if:
the super fund does not have a "fixed
entitlement" to the income and capital of the unit trust
(as required by section 295-550(4) of the 1997 Tax Act; or
the dealings between the trustees of the unit trust and super
fund are not on an arms length basis.
There are a number of ways in which clients can avoid the
trustee of the super fund being taxed at the top marginal tax rate.
These include ensuring that:
the unit trust is a "fixed trust"; and
all dealings between the trustees of the unit trust and the
super fund are on arms-length terms.
The ATO has made it clear that, in its view, most private unit
trusts do not qualify as fixed trusts. For example, the ATO
considers that a unit trust will not be a fixed trust if:
units can be issued or redeemed at a value that is not
determined in accordance with applicable accounting standards;
the trust deed allows for different classes of units;
the trustee has power to make gifts; or
the trust deed can be amended without the unanimous consent of
all unit holders.
All trust deeds for unit trusts that have superannuation funds
as unitholders should be reviewed and amended as necessary.
Cooper Grace Ward was named Best Australian Law Firm in the BRW
Client Choice Awards 2010 - Revenue < $50m. Joint Best
Australian Law Firm in the BRW Client Choice Awards 2009 - Revenue
The firm has also been named as the fastest growing law firm in
Australia for 2009 by The Australian.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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