Last week's post explored the framework around the application of Division 149 of the 1997 Tax Act to trust owned assets acquired before 20 September 1985.
In addition to Taxation Ruling IT 2340 (profiled last week), there are some examples of factual scenarios where the Tax Office has explained its views about the application of Division 149 in relation to family trusts, the main ones of which are summarised below. As usual, if you would like copies of any of the rulings please contact me.
- In Private Ruling Authorisation Number 1012801220820, it is confirmed that the issue of what constitutes 'one family' for the purposes of IT 2340 must be considered based on the facts of the particular case. Generally, what is described as an 'extended' family (that is, including grandparents, children, grandchildren and their spouses) will qualify as a 'family' for these purposes. Furthermore, if distributions are made to post-19 September 1985 additions to a family (for example, the birth of new family members and new persons joining a family through marriage), the 'family' distribution criteria would also ordinarily be satisfied.
- In Private Ruling Authorisation Number: 1012191260298, it is confirmed that where a bare trust had made all distributions of income to the same person when the trust vested to that same person, the beneficial interest was not taken to have changed. In other words, the vesting of the trust did not change the majority underlying interests in the company's assets.
- The above mentioned Private Ruling also confirmed that pursuant to subsection 149-30(4) of the 1997 Tax Act, if an ultimate owner has acquired an interest in an asset which is transferred to them as a result of the death of a person, the new owner is treated as having held the underlying interest of the former owner over the years. In other words, the new owner will 'stand in the shoes' of the former owner for the purposes of Division 149.
- Finally, in ATO Interpretative Decision 2011/107, the allotment of a discretionary dividend only share in a pre-CGT company to a family trust was held to have triggered Division 149. In particular, the Tax Office argued it could not be satisfied, or find it reasonable to assume, that more than 50% of the beneficial interests in the income of the company (and therefore the majority underlying interests) would be held at all times by the same ultimate owners who held such interests immediately before 20 September 1985. Arguably the decision here is an outlier in that unless there was in fact a change of 50% or more in the underlying interests based on a tracing of distributions paid on the discretionary dividend only share and then distributed via the trust, Division 149 may not in fact have been triggered.