The ATO has consistently accepted that 'fixed
entitlement' is not a defined term for the purposes of the
non-arm's length income rule in section 295-550(4) of the
Income Tax Assessment Act 1997. The ATO outlined their
view in TR 2006/7, which provides that an SMSF will have a
'fixed entitlement' if the fund's 'entitlement to
the distribution does not depend upon the exercise of the
trustee's or any other person's discretion'.
In MH Ghali Superannuation Fund  AATA 527, the
ATO submitted that 'fixed entitlement' in section 295-550
did not have a defined meaning but the AAT disagreed and held that
'fixed entitlement' in section 295-550(4) has the same
meaning as the defined term in the loss trust rules in Division 272
of Schedule 2F of the Income Tax Assessment Act 1936.
However, in a recent private ruling (authorisation number
1012585947911), the ATO changed its view and adopted the approach
of the Administrative Appeals Tribunal in Ghali.
If the ATO maintains this view, distributions received by SMSFs
from most (if not all) private unit trusts will be non-arm's
length income and taxed at the top marginal rate. Given the
disproportionate tax consequences, all trust deeds for unit trusts
that have superannuation funds as unitholders should be reviewed
and amended as necessary.
For example, the ATO has previously indicated that a unit trust
will not be a 'fixed trust' under the more stringent
units can be issued or redeemed at a value that is not
determined in accordance with applicable accounting standards;
the trustee has the power to distribute to disproportionately
between unitholders (for example, to special unitholders);
the trust deed can be amended without the unanimous consent of
all unit holders.
Some other issues that also may cause a trust to not be a fixed
trust include where the trustee:
has the power to make gifts;
can establish and support charitable organisations; and
must distribute to unitholders in proportion to their
unitholding where not all the unitholders have fully paid the issue
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Exemptions or concessions on stamp duty could apply when contemplating the purchase or transfer of NSW real estate.
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