Minority SMSF investors and related unit trusts

AssociatesA popular pro-active SMSF strategy is to skirt the boundaries of the associate rules in Part 8 of the Superannuation Industry (Supervision) Act 1993 (SISA) with minority SMSF investors taking units in a unit trust with no apparent majority controller with other unrelated SMSF or non-SMSF investors. The object of the minority strategy is that the minority SMSF investor and associates have a less than 50% entitlement to income and capital of the unit trust and so the unit trust will not be a related trust of the SMSF automatically. This is an alternative strategy to investing in a non-geared unit trust which complies with Regulation 13.22C of the Superannuation Industry (Supervision) Regulations.

If the minority strategy doesn’t work

If the unit trust is, or becomes, a related trust of the SMSF the consequences can be severe. The investment in the related trust by the SMSF is taken to be an in-house asset. A SMSF that fails to remedy an investment of more than 5% of its assets in in-house assets faces loss of complying status potentially causing:

  • tax at 47% on its current income; and
  • loss of almost half of the assets of the SMSF in a one-off additional tax bill in the year in which the SMSF becomes non-complying; or
  • prosecution for civil or criminal breach of a civil penalty provision under the SISA.

An investment in a non-geared unit trust which complies with Regulation 13.22C is specifically excluded from being an in-house asset. The minority strategy does not give the same assurance to a SMSF investor in units in a unit trust which is not Regulation 13.22C compliant.

Control of a trust

The more  than 50% entitlement to income and capital test is one of the tests of control of a trust in sub-section 70E(2) of the SISA which determine whether or not a trust is controlled and is thus an associate and, by that, a related trust. An alternate test in paragraph 70E(2)(b), sometimes overlooked by users of the minority strategy, is the directions, instructions or wishes test which is an alternative test of control of a trust. Its formulation:

an entity controls a trust if:
…               (b)  the trustee of the trust, or a majority of the trustees of the trust, is accustomed or under an obligation (whether formal or informal), or might reasonably be expected, to act in accordance with the directions, instructions or wishes of a group in relation to the entity (whether those directions, instructions or wishes are, or might reasonably be expected to be, communicated directly or through interposed companies, partnerships or trusts);

is based on a similar formulation in sub-section 318(6) of the Income Tax Assessment Act 1936 which deals with associates under the income tax controlled foreign corporations (CFC) rules.

MWYS v. Commissioner of Taxation

The directions, instructions or wishes test in paragraph 318(6)(b) in the CFC rules was recently considered by the Administrative Appeals Tribunal in MWYS v. Commissioner of Taxation [2017] AATA 3037 (22 December 2017) and the companies in dispute with the Commissioner in that case were found not to be associated even though the companies concerned had the same directors.

Deputy President Logan found that, despite the unanimity of the directors of the companies involved, the companies were not associates as it could not be concluded, on the evidence, that the directors of one company, acting in that capacity, would influence themselves acting in their capacity as directors of the other company. Deputy President Logan observed that the arrangements between the companies involved: an Australian listed company and a UK publicly listed company which enabled them to dual list on the ASX and the London Stock Exchange, were for the purpose of compliance with dual listing requirements but, within that framework, the companies were structured with similarity to unrelated joint venturers. No inference could be drawn about one company acting on the directions of the other.

Moreover the strict governance which applied to both of the listed companies actually helped the companies to establish that the directors were acting independently and at arms length from the other company even where the directors were directors of the other company too. Short of a sham, or a cipher, as arose in Bywater Investments Ltd v Federal Commissioner of Taxation [2016] HCA 45 (see our blog -Why setting up offshore companies for Australians is a tricky business), the AAT was prepared to rely on the meticulous corporate documents which set out the distinct responsibilities of the directors of the companies they separately served.

Directors in common

It is certainly clear from MWYS that commonality of directors of a company, or in the case of paragraph 70E(2)(b) of the SISA, commonality of directors of a corporate trustee is not enough, in itself, to amount to a reasonable expectation that one company will act in accordance with the directions, instructions or wishes of the other company or of a group including it.

Is MWYS good news for SMSFs using the minority strategy?

Is the decision in MWYS a relief to minority SMSF investors in unit trusts concerned about paragraph 70E(2)(b) of the SISA? Maybe not. Documents of SMSF trustees and of unit trusts, in which they invest, are far less likely to be as meticulous at keeping the affairs of entities being examined for control apart. A unit trust deed is more likely than, say, a joint venture arrangement to show that the trustee of a unit trust might act in accordance with the directions, instructions or wishes of a unitholder, albeit a minority unitholder.

Frequently, under unit trust deeds, minority unitholders have the right to vote on resolutions which bind the trustee of the unit trust to act. A minority unitholder may not have the votes, alone, to so bind the trustee; but the question posed by the test is whether the trustee is accustomed to act, or whether there is a reasonable expectation that the trustee of the unit trust will act, in accordance with the directions, instructions or wishes of a minority unitholder. The answer in fact is equivocal – yes, if the minority unitholder votes are in the majority and no, if not. So yes, a part of the time or on some occasions. So the minority SMSF investor and the trustee of the unit trust are associated?

What will facts show under scrutiny?

The concern for SMSF users of the minority strategy is: will their position, that the unit trust they invest in is not a related trust, become less defensible under scrutiny from the Commissioner? From the activities of the SMSF investor, its associates and the trustee of the unit trust the Commissioner can gauge how the trustee of the unit trust has reached decisions, which may not have been in accord with documents, whether sound or not, and form a view as to how likely the trustee of the unit trust is likely to have acted on directions, instructions or wishes of the SMSF investor and its associates.

Until the circumstances of a SMSF using a minority strategy, including the relevant documents, are considered it can be uncertain whether a SMSF minority unitholder may “control” a unit trust and cause it to be a related trust.

Aussiegolfa SMSF hits sole purpose flag

golfflagThe sole purpose test in section 62 of the Superannuation Industry (Supervision) Act 1993 (the SIS Act), which requires that superannuation funds be conducted solely for core and ancillary purposes (superannuation purposes) with core purposes including:

  • funding for retirement from gainful employment of a member;
  • a member reaching a prescribed age; or
  • the death of a member,

is fundamental to the integrity of Australia’s tax-privileged and compulsory superannuation system.

The sole in sole purpose

In practice section 62 is a difficult provision to apply at the margin because of the ostensible purity of purpose of conduct of a superannuation fund to meet the sole purpose standard, or more precisely, a collection of allowed purposes.

Between commencement of the SIS Act in 1993 and December 2017 the meaning and scope of “sole” in the sole purpose test was not specifically considered in reported court cases.

The opening round

In Case 43/95, 1995 ATC 374 (the Swiss Chalet Case) the Administrative Appeals Tribunal considered whether a superannuation fund had met the sole purpose test where the fund had invested in:

  • shares which enabled access to a golf club for; and
  • a Swiss chalet which earned income for the family trust of:

the managing director of the employer-sponsor of the fund. The AAT found that the fund had been conducted for purposes other than superannuation purposes and thus the fund failed the sole purpose test.

The latest play

The Federal Court has now considered “sole” in the sole purpose test and referred, with approval, to the reasoning in the Swiss Chalet Case in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation [2017] FCA 1525. Given the significance of the golf club access of the managing director in the Swiss Chalet Case and the allusion to golf in the name of the trustee of the superannuation fund, one might think that the trustee was looking for the attention and the view of the Commissioner of Taxation, as the regulator of self managed superannuation funds, on the purposes of Aussiegolfa Pty Ltd.

A provisional ball?

Indeed, the facts in Aussiegolfa indicate the trustee sought to test whether residential properties held by self-managed superannuation funds could be used by related parties under the SIS Act.

Facts in Aussiegolfa

In Aussiegolfa the trustee was the trustee of the personal SMSF of the Victorian State Manager of DomaCom Australia Ltd., a managed investment scheme regulated by the Australian Securities and Investments Commission. The trustee of the SMSF and the family of the member of the SMSF invested in units in DomaCom which were directed to and funded investment by DomaCom in a student residential accommodation to be leased to the daughter of the member of the SMSF who was a university student. DomaCom was hopeful that they had initiated an effective and attractive SMSF investment strategy.

Investment in an in-house asset?

The first SIS Act hurdle for the SMSF trustee to overcome in Aussiegolfa was whether there was an investment in a related trust causing the investment to be an in-house asset to which section 82 of the SIS Act would apply (with or without a determination by the Commissioner that the investment was an in-house asset under sub-section 71(4) of the SIS Act).

The investment by the SMSF trustee was in units in DomaCom, a managed investment trust. The Federal Court worked its way through the terms of the constitution of DomaCom, and amendments of it, and a series of product disclosure statements to determine the basis on which the SMSF trustee had invested in DomaCom at the time of its investment. Pagone J. found that the trustee had invested in a sub-trust which was a discrete trust and so a related trust of the SMSF for SIS Act purposes.

Not out of bounds

That finding was despite equivocal provisions in the applicable terms of the constitution of DomaCom which sought to reinforce, unsuccessfully to Pagone J., that the units in DomaCom did not give a unit holder, whose investment had been directed to certain assets and whose income and entitlements were ring-fenced to those assets, an interest in those particular assets and that DomaCom was one indivisible trust of many assets.

It followed from this framing of what was the trust by the Federal Court that the SMSF trustee could not rely on the widely held unit trust exclusion in paragraph 71(1)(h) of the SIS Act from being a related trust and an in-house asset.

… and hitting the sole purpose red flag

Turning to the sole purpose issue, Pagone J. accepted the reasoning in the Swiss Chalet Case and applied authority which explains how a “sole” purpose requirement is to be interpreted and applied. Broadly, Pagone J. concluded that:

  • the inquiry into sole purpose is a question of fact;
  • the inquiry is not an inquiry into motive but into the “end sought to be accomplished”;
  • the sole purpose requirement precludes there being any other purpose , however minor; and
  • there may be facts which could suggest pursuit of other purposes, if those facts were considered separately, but these do not necessarily connote other purposes if they show pursuit for the required sole purpose.

In Aussiegolfa Pagone J. held that providing housing to the daughter of the member of the SMSF was not within and inconsistent with superannuation purposes and so the SMSF failed the sole purpose test.

A two shot penalty

The trustee of the SMSF in Aussiegolfa had hoped that its investment in units in DomaCom would not jeopardise its status as a complying superannuation fund. But due to the decision of the Federal Court:

  • the units are an in-house asset comprising more than 5% of the assets of the SMSF so section 82 can be applied to deprive the SMSF of complying superannuation fund status if the level of the in-house assets of the SMSF is not brought to 5% or under before the end of the income year following the income year of acquisition of the in-house asset; and
  • the SMSF can be made non-complying because it has failed the sole purpose test in section 62;

and various other civil and criminal penalties can potentially be applied for both of the SMSF’s breaches of the SIS Act by the Commissioner of Taxation.

An uncertain lie in the rough?

Pagone J. observed in Aussiegolfa that there may be circumstances where a lease to a related party would not breach the sole purpose test but, in Aussiegolfa, he observed that the evidence was that the purpose of the investment through DomaCom was, in part, for another purpose of providing housing to the daughter of the member of the SMSF. This is not a complete reassurance to other SMSFs that invest in business real property to lease to a related party. That investment can be excluded from being an in house asset under paragraph 71(1)(g) of the SIS Act but does it follow that the investment is in the circumstances which would not breach the sole purpose test Pagone J. describes? Can we safely infer that an investment that attracts a statutory exclusion from being an in-house asset should be excluded from failing the sole purpose test too?

Checking my card

I have paraphrased particularly in describing how Pagone J. applied the sole purpose test. I also take responsibility for the golfing headings through this post which I appreciate will be vague and wearisome to those lucky enough to be non-golfers.

GST withholding on residential property sales to plug a phoenix hole

The Federal Government, through the Phoenix Task Force involving the Australian Taxation Office (ATO) and other government agencies, has been cracking down on invidious “phoenix” activity through this decade.

The phoenix swindle

The idea behind a phoenix entity is that the entity, usually a company, is set up to undertake and undertakes a money-making activity where a considerable portion of the money made is owed to government, usually as taxes such as PAYG withholding or GST, perhaps after a significant claim of GST input tax credits, or to other agencies or creditors. Before the taxes, or money owed, can be collected, the money made by the entity is stripped from the entity by the controllers of the entity. The controllers can then rise from the ashes, phoenix like, with a new entity which can again make money for the controllers in the same way and can again be stripped of money owed to government, agencies and creditors by them.

Proposed GST withholding by purchasers of residential land

The government is addressing a phoenix trouble spot with property developers by the proposed introduction of a GST withholding from 1 July 2018 under which purchasers must retain one eleventh of the price of the property on or before settlement of sale of residential land for remission to the ATO. The Exposure Draft: Treasury Laws Amendment (2017 Measures No. 9) Bill 2017 has now been released in line with an announcement in the 2017/18 Budget. The withholding requirement in the Exposure Draft Bill would be a short circuit to the usual GST regime which obliges a vendor who is registered or required to be registered for the GST to collect GST on a taxable supply to a purchaser and for the vendor to pay it to the ATO via their BAS.

GST withheld 10% – GST owing less?

If the vendor applies the margin scheme then the purchaser will have withheld too much GST. The withholding rules in the Exposure Draft Bill include a mechanism which allow a vendor, who is not a monthly BAS lodger, to seek an early refund of the overpaid GST when too much GST has been withheld for the vendor by the purchaser.

GST withholding will apply to a taxable supply of land by a vendor who is registered or required to be registered for the GST under the Exposure Draft Bill. Both new residential premises and land that is potentially residential land, though not if it is input taxed as existing residential premises, require GST withholding by the purchaser. In other words the withholding obligation is broadly imposed so that the purchaser does not need to inquire about whether the land is new residential premises for GST purposes to the vendor. Broadly, and subject to exceptions, it is understood that the withholding obligation arises on the purchase of land from a vendor who is registered or required to be registered for the GST as follows:

Chart of kinds of supply

Purchaser might need to withhold 22.5% for the ATO!

The proposed introduction of the GST withholding regime follows two years after the introduction of the non-resident capital gains tax withholding tax which requires a purchaser to withhold 12.5% of the price unless the vendor produces a ATO clearance certificate to verify that the vendor is not a non-resident: see Australia is now tracking & surcharging foreign buyers of land. These withholding obligations will require focus in conveyancing with enterprises which sell residential or potential residential land in the course of their operations.

Both measures visit responsibility to collect tax on the purchaser because of the some time difficulty of collecting tax from a vendor who departs with the sale money leaving taxes and creditors owed. Potentially both withholding obligations can apply to a purchaser who would then be withholding 22.5% of the price to pay to the ATO. There is no clearance certificate or other relief to relieve a purchaser from GST withholding, as yet, which may mean that one-eleventh GST withholding will have a broad application to buyers of residential land from GST registered property developers and traders should the Exposure Draft Bill become law.

Commissioner pushed too far to rule on private ruling – Hacon

Efforts by a $35 million pastoral dynasty to get tax certainty over their plans to restructure its farming holdings have come to an end with the Full Federal Court upholding the Commissioner of Taxation’s appeal and allowing the Commissioner to decline to rule on the applicants’ private ruling application.

Must the Commissioner rule on anything?

In theory, with enough information, the Commissioner can provide any private ruling on the way in which the Commissioner considers a tax law applies or would apply to any set of current or future facts and circumstances to a private ruling applicant. Does this afford scope for a determined taxpayer to base an extravagant application for a private ruling on a favourable but not necessarily realistic matrix of circumstances, which are yet to occur, particularly in an anti-avoidance context? Is this matrix really “information” which the private ruling must reflect?

Under the private ruling regime in Schedule 1 of the Taxation Administration Act 1953 (“Sch 1 TAA”) there are two competing limitations on the issue of private rulings:

  • If the Commissioner finds that further information is needed to make a private ruling then the Commissioner must request the applicant for that information – the Commissioner can only decline to rule if the applicant does not provide the information requested within a reasonable time: section 357-105 of Sch 1 TAA.
  • If correctness of a private ruling depends on an assumptions about a future event or other matter the Commissioner may either decline to rule or make assumptions that the Commissioner considers most appropriate: section 357-110 of Sch 1 TAA.

Info&Assumptions

Commissioner of Taxation v Hacon Pty. Ltd.

In Commissioner of Taxation v Hacon Pty. Ltd. [2017] FCAFC 181 the applicants sought a private ruling over whether the general anti-avoidance provisions in Part IVA of the Income Tax Assessment Act 1936 would apply to a proposed demerger of assets in their farming group which included a routing of the assets, by way of dividends on redeemable preference shares, to a new series of trusts.

The applicants asserted that the matters on which the Commissioner declined to rule, which were expressly listed as assumptions about future events, could have been satiated by information which the Commissioner could and should have sought from the applicants as required by section 357-105. The applicants successfully contended this at first instance in the Federal Court. However the Full Federal Court on appeal by the Commissioner, comprising Robertson, Pagone and Derrington JJ., took a different view. The Court, at paragraph 8 of the joint judgment, observed that:

The word “information” is an ordinary English word apt to cover a large range of facts and circumstances including events yet to occur and assumptions about future events.

and found that the matters set out in the Commissioner’s letter, although satiable by information, did indeed require assumptions about future events or other matters so that declining to rule, without seeking explanation by way of information from the applicant, was an option available to the Commissioner under section 357-110.

Assumptions give scope to the Commissioner to opt out

It follows from the decision of the Full Federal Court in Commissioner of Taxation v Hacon Pty. Ltd. that, if the Commissioner needs to make assumptions about future events in order to rule in a private ruling application, the Commissioner can opt not to rule rather than being obliged to make assumptions which are not appropriate in the Commissioner’s estimation. That view can be apposite for future events where the information an applicant provides about them may not be convincing.

Objections and aged tax assessments

Time Limit expires

Challenging conclusive tax assessments

In an earlier blog post we looked at if an objection is needed to amend a tax assessment. We observed that, under the law, an assessment is taken to be correct and conclusive and an objection is the way by which a taxpayer can challenge that concluded correctness under the design of the law.

But, for reasons of convenience, cost and informality, taxpayers and tax agents often seek a request for an amendment of an assessment by the Commissioner of Taxation. But, as stated in our blog post, a request for an amendment is unassertive and the Commissioner has no particular obligation to consider and accede to the request.

Aged tax assessment

If a tax assessment is an aged assessment a taxpayer, who requests an amendment of the assessment, may be prevented by a time limit from obtaining the reduction in tax they seek. The Commissioner can amend an aged assessment of tax, including an amendment to decrease tax sought in a written request for the decrease by a taxpayer, within periods specified in section 170 of the Income Tax Assessment Act 1936. For individual taxpayers, with simpler income tax affairs, the period allowed is two years from the day on which the taxpayer was given notice of the assessment and, for individuals with more complex affairs, it is four years from that day – see items 1 and 4 in the table under sub-section 170(1).

If the period applicable to the taxpayer has expired then the Commissioner is prevented from making the amendment sought in a request for an amendment of the assessment by the taxpayer unless an exception in section 170 applies.

Amendment of an aged assessment following an objection

Time limits for amendments of assessments in section 170 are subject to:

  • an exception to give effect to a decision on an objection or an appeal – in Item 6 of the table; and
  • an exception where the taxpayer requests an amendment in the approved form before the time limit has been reached even if the Commissioner will not be able to amend the assessment by the time the time limit is reached: sub-section 170(5).

It follows that an objection is the only way to achieve an amendment of an aged assessment of tax if the assessment has aged so far that the applicable section 170 period for amendment has expired and the taxpayer is yet to seek an amendment of the assessment.

That only way, viz. by objection, has its own distinct time limits which match amendment of assessment time limits but with an important difference which has been in place since 1986 (see NT87/1594 and Commissioner of Taxation [1988] AATA 73; (1988) 19 ATR 3336; 88 ATC 381 at paragraph 22). If a taxpayer seeks to object against an aged assessment, where the applicable section 170 period has expired, then the taxpayer can apply for an extension of time to lodge the objection under section 14ZX of the Taxation Administration Act 1953. In the application the taxpayer must make the case why the extension of time to extend the period in which the objection can be lodged should be allowed. We have looked at late objections in our blog – Is there a time limit for putting in an objection.

The vital difference

So the difference between an objection against an aged assessment and a request for an amendment on an aged assessment, where the statutory time limit to amend or object has expired, is that the Commissioner has the power to:

  • allow an application for an extension of time to lodge an objection against an aged assessment;
  • allow the objection lodged out of time; and
  • amend the relevant assessment accordingly;

but an aged assessment can’t be requested and amended out of time if the time period allowed to the Commissioner to amend the aged assessment has expired.

Full Federal Court pinpoints year end trust resolutions that fail

failContractual principles apply to construe trust resolutions

The Full Court of the Federal Court in Lewski v. Commissioner of Taxation [2017] FCAFC 145 has given us a roadmap to construing trust resolutions in line with principles for the construction of contracts, from Byrnes v Kendle [2011] HCA 26, and has applied two of those principles of contractual construction to pinpoint invalid trust resolutions as follows:

  • an invalid trust resolution can be severed from another valid resolution or resolutions so that those resolutions can stand, but only if those resolutions are not interdependent with the invalid resolution and it is not artificial for them to stand severed from the invalid resolution; and
  • if there are two open constructions of a trust resolution, one of which results in validity and one of which results in invalidity, the construction that preserves validity is to be preferred.

Trust resolutions to confer a present entitlement to discretionary trust income

An Australian tax resident beneficiary must be presently entitled to the income of a discretionary trust in the income year in which income has earned by the trust before the relevant share of that income can be included in the assessable income of the beneficiary: sub-section 97(1) of the Income Tax Assessment Act (ITAA) 1936. If it cannot be shown that:

"the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment."  

High Court in Harmer v. Commissioner of Taxation (1991) 173 CLR 264 at p. 271

then the beneficiary is not presently entitled to the relevant share of income with section 99A of the ITAA 1936 applying to tax the trustee on the income to which no beneficiary is presently entitled at the highest individual marginal income tax rate.

Ownership and present right to demand payment

“Vested in interest” and “vested in possession” are technical concepts which broadly equate to ownership, and the extent of ownership required for present entitlement is ownership of the share of income sufficient to bestow a present legal right to demand payment of the income. The legal right to demand and receive payment of an ascertainable entitlement to a share of income must be present and fully defined in the income year even if the entitlement cannot be numerically ascertained due to accounts not having been taken by the end of the relevant income year. In a discretionary trust the trustee is generally reliant on a valid year end trust resolution to distribute income of the trust to confer a sufficient present entitlement to the income of a discretionary trust on a beneficiary so that section 99A will not be attracted.

After Bamford

We have known, especially since 2011, when the Commissioner of Taxation came to take a harder and more sophisticated line on year end trust resolutions following the High Court decision in Commissioner of Taxation v Bamford [2010] HCA 10 and the Tax Laws Amendment (2011 Measures No. 5) Act 2011 introduced in response to the Bamford decision; that the form of the year end trust income distribution resolution is vital to the taxation of discretionary distributions to beneficiaries.

Construing the Lewski trust resolutions

In Lewski discretionary trust resolutions to distribute income were stress tested for present entitlement, meaning and validity to determine where liabilities to tax lay.

The Commissioner, in amended assessments issued to Ms. Lewski, and the Administrative Appeals Tribunal (“AAT”) at first instance, disallowed carry forward tax losses to discretionary trusts and assessed trust income of $10,108,621 and $3,143,199 to Ms. Lewski as a presently entitled beneficiary of each trust under sub-section 97(1). Ms. Lewski sought to reduce or deflect the tax liability on this income by claiming that, alternatively:

  • the carry forward trust losses should have been allowed as deductible to the trusts;
  • her entitlements to the income of the trusts had been disclaimed;
  • the trust distributions were ineffective as they were made in a manner beyond the power of the trustees; and
  • Ms. Lewski was not presently entitled to the trust distributions;

which the Commissioner disputed.

The strategy of Ms. Lewski was to reduce the liability to tax or to deflect liability to tax under the amended assessments elsewhere, whether to the trustees of the trusts on income to which no beneficiary was presently entitled under section 99A or to default beneficiaries of the trusts, companies ACUPL and AISPL respectively (abbreviated), claimed to be entitled to the adjusted income of the trusts under the amended assessments instead of Ms. Lewski. It is supposed that, in both income years, less tax was recoverable by the Commissioner in those cases than if Ms. Lewski was presently entitled as a beneficiary of the trusts to the adjusted income.

Ms. Lewski wins

Before the Full Court of the Federal Court Ms. Lewski successfully challenged the disallowance of the tax losses and thus won her appeal against the imposition of the tax liabilities.

Resolutions under scrutiny

The applicable year end trust resolution documents distributed the income of the trusts:

2006 year:

100% to Ms. Lewski

2007 year:

the first $3.5 million to AISPL and the balance to Ms. Lewski.

In each resolution document, there was also a ‘variation of income’ resolution to the effect that, should the Commissioner disallow any amount claimed as a deduction or include any amount of the deduction in the assessable income of the trust, there would be a “deemed” distribution to the default beneficiaries (in the 2006 year, 100% to ACUPL; in the 2007 year, 100% to AISPL).

The “variation of income” resolutions made the 2006 year and 2007 year distributions contingent on events that could occur after the end of those years of income respectively. The Commissioner contended that the variation of income resolutions, which were of doubtful validity, could be severed from the valid resolutions in the resolution documents distributing the income of the trusts. Applying the principles and authorities relating to the severance of provisions in contracts the court did not accept this approach. The distribution resolutions and the variation of income resolutions where found to be interdependent and so the variation of income resolutions could not be “severed” from the distribution resolutions with the effect that either:

  • each purported income distribution was subject to a live contingency in the variation of income resolutions after the end of the applicable income year – the court’s preferred view; or
  • the distributions failed as the interdependent variation of income resolution was invalid in each case – the court’s alternative view;

defeating the present entitlement of Ms. Lewski to the income of the trusts at the end of the year of income of each trust in either case.

The trust deeds of each of the trusts contained notably complicated clauses for the ascertainment and distribution of the income of the trusts. Ms. Lewski contended that the distribution of “income” in the trust resolutions, rather than “net income”, was beyond the power of the trustees and so failed as resolutions beyond the power of the trustees given in the trust deeds. The court rejected this contention after applying the contractual principle that where there are two open constructions of a provision, the construction of the provision that preserves validity is to be preferred. From that perspective “income” in the trust resolutions could be treated as meaning “net income”.

Construing income equalisation clauses

Two aspects of the Full Federal Court decision in Lewski are useful in construing income equalisation clauses in discretionary trust deeds.

Generally an income equalisation clause sets the net income of the trust to which sub-section 97(1) applies, being “trust income” or “distributable income” identified in Bamford, equal to the net income of the trust under section 95 of the ITAA 1936. Understanding that the Commissioner can amend the net income of the trust under section 95 by an amended assessment well after the end of the income year, can this contingency affect the “trust income” or “distributable income” by which the shares and proportions of income distributed to beneficiaries are ascertained?

The preferred construction, if available, of an income equalisation clause is that “trust income” is set to the net income of the trust under section 95 of the ITAA 1936 based on understandings that are ascertainable at the end of the year of income when the income distribution is made. In other words the taxable income of the trust that is ascertainable. That follows from Lewski where the court found, in the context of distributions asserted by Ms. Lewski to be beyond the power of the trustees, that where there are two open constructions of a trust distribution resolution, the construction which results in validity is to be preferred to the construction which results in invalidity.

“Trust income” needs to be closed at year end

To sustain a valid construction an income equalisation, effectuated by an income equalisation clause in a discretionary trust deed, needs to be a closed parameter at the end of a year of income. If the parameter is open, that is, if “trust income” or “distributable income” identified in Bamford is not fully ascertainable by the end of the applicable income year using the income equalisation mechanism in a trust deed, then a distribution based on trust income reliant on that mechanism will not confer a present entitlement and section 99A can apply to the income purportedly distributed as income to which no beneficiary is presently entitled.

Only a loan? Impugnable loans, proving them for tax and shams

Is a loan just a sum advanced to be repaid by a borrower to a lender? Accountants understand that a loan can be a nimble device to explain and show why money and value is elsewhere even when the relationship between the borrower and the lender is not arms length or clear.

Necessary elements of a loan

So a loan is recognised. It is clearly recorded in the books of account and appears as a liability in the financial statements of the “borrower”, the “lender” or frequently both. The individual, who is the controlling mind of the borrower, says yes, it is a loan, and the apparent lender, who has an established relationship with that individual, doesn’t say it is not. Will that apparent loan be accepted as a loan by all persons interested?

A number of recent tax cases in the aggressive tax planning space show that, in those kinds of cases, the Commissioner of Taxation is prepared to commit significant resource and effort into:

  1. disabusing courts that arrangements with the appearance of loans are loans in fact; and
  2. pursuing high profile tax scheme promoters and their clients using arrangements based on inpugnable loans.

A wide but demarcated construct

There is no doubt that a loan is a wide concept. In Taxation Ruling TR 2010/3 Income tax: Division 7A loans: trust entitlements, the Commissioner took a wide view of what amounts to a loan, or to what amounts to at least one or more of:

(a) an advance of money; and

(b) a provision of credit or any other form of financial accommodation; and(d) a transaction (whatever its terms or form) which in substance effects a loan of money.

(c) a payment of an amount for, on account of, on behalf of or at the request of, an entity, if there is an express or implied obligation to repay the amount; and

(d) a transaction (whatever its terms or form) which in substance effects a loan of money.

included as a loan under sub-section 109D(3) of the Income Tax Assessment Act (“ITAA”) 1936

which triggers a deemed dividend to a shareholder or an associate under Division 7A of the ITAA 1936. The “loan” regime in Division 7A is an exception though. Generally, if a taxpayer can establish that a sum received is received as an advance of a loan, that receipt can explain why that money or value is not in the nature of income that may be assessable to the taxpayer. That is a vital capability when the schema of Australian income tax recovery is “asset betterment” allowing the Commissioner to assert that money or value received is income unless the taxpayer can prove that it is otherwise.

Hart v Commissioner of Taxation (No 4)

So it was in Hart v Commissioner of Taxation (No 4) [2017] FCA 572, a decision of Bromwich J. of the Federal Court, concerning the personal tax affairs of the senior tax partner of Brisbane-based law firm and tax planning and tax scheme services provider Cleary Hoare. Mr Hart asserted that the amount in dispute in that case was a loan to him by an associated trust clearly recorded as a credit loan in the books of the trust.

The firm of Cleary Hoare was operated by a practice trust (“the Practice Trust”) in which discretionary trusts of the partners owned units in the Practice Trust which, it transpired, was not structured in accord with Queensland legal professional practice rules. The discretionary trust of Mr Hart owning units in the Practice Trust was referred to in the decision as the Outlook Trust.

Loan or benefit or both to the taxpayer (“borrower”)?

During the 1997 income year, the Outlook Trust included $220,398 in its assessable income as a distribution to it as a unitholder in the Practice Trust under section 97 of the ITAA 1936. The distribution was routed by a series of on-distributions through a network of interposed trust entities associated with Cleary Hoare, or its associates, to a company carrying significant tax losses, Retail Technology Pty. Ltd. and by the making of gifts by way of promissory notes to and through entities that were associated with Cleary Hoare or its associates, including Mr Hart. The Commissioner took issue with the last flow of the money through the arrangement back to Mr Hart. The Commissioner viewed that last flow as a distribution to Mr Hart for the benefit of Mr Hart. For his part, Mr Hart contended that the payment was a loan to him from the Outlook Trust, or alternatively from the Practice Trust, and that the payment was so recorded in the books of account of the Outlook Trust.

The Commissioner also pressed a number of alternative cases including a case that, even if the payments were not trust distributions, the application of general anti-avoidance provision in Part IVA of the ITAA 1936 meant that, in the absence of the scheme, the money would still have been paid to Mr Hart and instead been taxable, to which Mr Hart, for his part, contended that such payments would not have taken place in the absence of the scheme.

Present entitlement by benefiting trust beneficiaries

One of the alternative cases run by the Commissioner was that payments benefiting Mr Hart of at least $84,615.52 of the $220,398 were assessable directly to Mr Hart who was also a special unitholder, as trust distributions to him by the Practice Trust. In the absence of a sustainable case that the $220,398 or any part of it was a loan, the court could find that sections 95A and 101 of the ITAA 1936, which have the effect of deeming payments to or for the benefit of a beneficiary to be payments to which the beneficiary is presently entitled, applied to bring the $84,615.52 into the special unitholder’s assessable income for the 1997 income year.

Although this finding did not directly inform the character of the remaining $135,782, this application of sections 97, 95A and 101 of the ITAA 1936 to at least $84,615.52 of the amount in dispute, which the court accepted, did not assist Mr Hart to prove that the assessment of the greater $220,398 was excessive.

How Mr Hart’s loan contention failed

The court deduced from the submissions of the parties that whether the 1997 assessments of Mr. Hart were excessive or not turned on whether Mr Hart received the $220,398 as a loan. Mr Hart’s counsel contended that the evidence of Mr Hart, including the accounts of the Outlook Trust which showed the borrowing to Mr Hart, was sufficient to show that the funds had been loaned to Mr Hart. However other evidence caused this contention to unravel, viz.:

  1. there was nothing in writing to record or otherwise evidence a loan;
  2. there was no interest paid or payable under the purported loan;
  3. there were no repayments required or made under the purported loan, despite more than 19 years having elapsed since the advance of money under the purported loan (and the “creditor” trust had not traded for 15 years); and
  4. there were records of contemporaneous bank statements showing “pay” or “sol[icitor] pay” which were made on a fortnightly basis to a bank account of Mr and Mrs Hart between at least 5 July 1996 and 23 April 1997.

In addition to this evidence, which the court found, of itself, compelling, was the coup de grâce of a credit approval request by Mr. Hart to Suncorp Bank for two loans in 1999 in which Mr Hart, as an applicant providing personal details, appeared to state he had income of precisely $220,398 in 1997. The court observed that stating this, if it was nothing more than antecedent indebtedness, was hardly going to assist in securing a further loan, so it didn’t make sense as a loan.

Was the loan a sham?

Mr Hart’s counsel asserted that, as the Commissioner had not demonstrated that the purported loan was a sham, the court was obliged to accept the evidence lead by Mr Hart viz. his testimony and the accounts of the Outlook Trust, that there had been a loan. The court observed that a sham requires there to be a purported transaction which is falsely presented as being genuine. The court agreed with the Commissioner that, in this case, there was thus no sham loan, but that no loan had been proven to exist with the burden of proving that there was a loan on the taxpayer.

Loan terms in writing?

In Hart v Commissioner of Taxation (No 4), the taxpayer relied on an undocumented related party loan recorded only in the accounts of a related trust which gave the Commissioner leeway to run a case based on there being no loan at all. That leeway is reduced, of course, if the loan is reduced to writing in a loan agreement. However if that writing does not present the real arrangement then the loan can still be impugned by the Commissioner and the issue of sham will more likely arise with that false presentation.

Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd

The taxpayer in Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180 faced that predicament.

Mr. Townsing was a client of Vanda Gould, a Sydney accountant and offshore tax scheme promoter. The taxpayer and two other companies were controlled by Mr Townsing. The taxpayer asserted that these companies were borrowers under loans from three companies controlled by Mr Gould recorded in written loan arrangements with those companies.

The Townsing controlled companies received substantial advances from the Gould controlled companies. The Commissioner asserted that payments to the Townsing controlled companies were sham borrowings used by Mr Townsing to bring assets held for his benefit into Australia and that they were thus assessable income of the companies.

The judges in this case noted the excessive length of the submissions of more than 1000 pages of submission material, ostensibly in support of oral argument at trial, to the primary judge by the taxpayer and the Commissioner.

Edmonds J. of the Federal Court, (Normandy Finance Pty Ltd v FCT [2015] FCA 1420) found for the taxpayer at first instance but did so on what was to prove a precarious basis. Edmonds J. found that the loans were not shams, even though the loan documents revealed disguises and pretences directed to demonstrating that the loans were at arms length, when the evidence was that the advances under the purported loans happened differently, and not at arm’s length. Still Edmonds J. found that, despite these irregularities, elements of the loans, including commitments to repay the loans, could be indentified in the evidence and so the loans were allowed to stand.

Appeals

The Commissioner appealed to the Full Federal Court. All three judges of the Full Federal Court closely considered the evidence that was before Edmonds J., and the majority, Jagot and Davies JJ., found that the basis on which Edmonds J. had recognised the loan arrangements as loans, distinct from the impugned purported written loan agreements, was expressly negated by the evidence of Mr Townsing under cross-examination by senior counsel for the Commissioner. The majority concluded that, in his evidence, Mr Townsing had rebuffed the facts upon which Edmonds J. had relied to find that there were loans not shams. Logan J., in the minority, disagreed with the majority and agreed with the trial judge’s approach to the evidence.

The taxpayer sought special leave to appeal from the Full Federal Court to the High Court but leave was refused by the High Court on the basis that the taxpayer did not have sufficient prospects of success of reversing the Full Federal Court majority’s findings.

Take-outs

Documenting a loan in writing reduces the scope of the Commissioner to assert there is no loan leaving the taxpayer, carrying the burden of the onus of proof, to prove the loan.

However documenting the loan may be a two-edged sword in contentious situations. Forcing the Commissioner to assert a sham will not necessarily give a taxpayer, who must disprove a sham in Part IVC of the Taxation Administration Act 1953 tax appeal proceedings, an advantage. Costs in litigation with the Commissioner to redress the consequences of a loan inadequately documented, can be significant. Poor documenting may have the adverse effect of revealing aspects of the arrangement that are not real or genuine. In other words, the pretences in the document and later compromising admissions by a taxpayer asserting the loan may irretrievably taint the believable in an asserted loan document and cause a loan to fail as a construct for a payment.

Loans not at arms length are the most likely to be challenged by the Commissioner. Trust beneficiary loan accounts may be held up to particular scrutiny. If a purported trust beneficiary loan is impugned sections 95A and 101 can trigger present entitlement to payments/advances to the beneficiary under the “loan” as assessable income.

These cases and the earlier Full Federal Court case of Millar v FCT [2016] FCAFC 94:

  1. which again involved an impugned loan devised by the Sydney accountant Vanda Gould for other clients; and
  2. where the taxpayers opted not to admit evidence from Mr Gould but relied on evidence of the relevant loan only from the lay taxpayer parties to the purported loan;

show that the Federal Court will not readily allow an appeal based on such restricted evidence as sufficient to prove the existence of a loan or to disprove a sham in the process of determining whether an assessment is excessive and that the High Court is reluctant to allow appeals to disturb these Federal Court decisions.

ATO in house facilitation – alternative dispute resolution with them?

Following a pilot program and formative adoption of the in house facilitation process, the ATO has introduced specific guidelines including:

  • a precise IHF process template; and
  • a statement of expectations from the IHF;

for in house facilitation (IHF) of tax disputes with the ATO. The ATO offers IHF as a general means of mediation of tax disputes where the facilitator (mediator) is an ATO officer.

ATO in house facilitation video

ATO in house facilitation video

Getting serious about dispute resolution with in house facilitation

IHF can be a valuable alternative to a taxpayer with a dispute with the ATO. So the move to entrench a correct structure of the facilitation process is to be welcomed. This should overcome the reluctance and non-adherence by some ATO officers who have come less than well prepared and committed to altenative dispute resolution in the formative IHF processes experienced by some taxpayers so far.

Honing the facts and issues in a dispute and saving costs

Indeed one significant benefit to a taxpayer of using IHF should be to normalize how an ATO case officer is dealing with their problem. A case officer may be fixated on a matter or series of matters which are divergent with a taxpayer’s understandings or divergent with the facts understood to be relevant to the taxpayer. IHF can be a real opportunity to engage with and even press the case officer and maybe his or her leadership. That engagement is with the aid of a somewhat detached ATO facilitator in an effort to reach a common or improved understanding of the relevant facts and issues. Even if that facilitation doesn’t result in a final determination of the dispute, it can, at least, lead to a narrowing of issues in dispute. A big reduction in the ultimate cost and effort of resolving the dispute can follow.

Contrast with position paper exchange

IHF is aimed at, and available only to, individual and small business taxpayers. Not all disputes are complex enough, or have tax at stake, which justify the ATO committing resources to preparing a paper setting out their position. With IHF generally available the opportunity is there for both sides to put their positions without going through a time-consuming sequence of preparing and exchanging position papers and responses. If a taxpayer and the ATO observe the entrenched IHF process and the statement of expectations, and are both well prepared at an IHF session, both parties should leave the IHF with a better understanding and honing of the matters in dispute, if not a resolution.

IHF – an open-ended offering

That is not to say that a taxpayer should not pursue IHF and exchange position papers with the ATO too. The ATO offers IHF during and following audit, after audit and after an assessment is raised, before and after an objection is lodged and before or and after an appeal to a tribunal or court is sought. In the latter cases a facilitation may have limited use to a taxpayer because of its interaction with time limits for objections and appeals and the availability of mediation facilities outside of the ATO offered once the matter reaches a tribunal or a court.

Like with a position paper, the best time to pursue IHF will usually be before an assessment is raised, if that is possible. That is the best chance of being before the ATO has a view it wishes to entrench and defend.

Timing of engagement

IHF thus offers a taxpayer some opportunity to control the timing of engagement with ATO case officers. The ATO understands that this can afford both taxpayers and the ATO with opportunities to reach common ground and to resolve tax disputes sooner. That is in everybody’s interests. Even where little progress is made in an IHF due to the nature of dispute, objection and appeal rights are preserved and the IHF process can still be of strategic value to a taxpayer on the long haul to resolving a protracted tax dispute with the ATO.

Perils lodging a really late objection against a tax assessment

As mentioned in an earlier post – Is there a time limit for putting in a tax objection?

time limits for lodging objections have been based on sixty days but, for most of the significant federal taxes such as income tax, goods and services tax and fringe benefits tax, among others, extended four year and two year limits apply based on the issue of original assessments. Limits for amended assessments are based on the longer of:

  1. sixty days from the issue of the amended assessment; and
  2. the remaining limit on the original assessment.

Link between limits on time to object and on time to amend assessments

The extended four year and two year limits on lodging objections for these taxes are congruous with limits on the amendment of assessments which restrain both the Commissioner and the taxpayer.

Limit on time to amend an assessment doesn’t apply to an amendment following an objection

The taxpayer has a rare advantage over the Commissioner in the context of income tax because section 170 of the Income Tax Assessment Act (ITAA) 1936 provides an exception from these limits on the amendment of assessments for an amendment at any time as a result of an objection made by the taxpayer or pending a review or appeal.

Usually the Commissioner must assert fraud or evasion, or obtain the consent of the taxpayer prior to expiry of the limit, to extend the limit for the amendment of assessments under section 170.

Extension of time when outside limit on time to object

To take that rare advantage that taxpayer must be allowed to object either by right within the time to object or with an extension of time to object after that. If a taxpayer does not lodge an objection within the designated time under section 14ZW of the Taxation Administration Act 1953, then the taxpayer must seek the extension of time from the Commissioner under section 14ZX.

When will the Commissioner give an extension of time to object?

Generally speaking, the Commissioner is systematically open to granting an extension of time to object however the taxpayer must apply for a section 14ZX extension giving a plausible and acceptable explanation of the reasons and circumstances why the objection is to be lodged late.

In deciding whether to give an extension of time to object the Commissioner will preliminarily consider the merits of the case made out in the objection and whether there may be prejudice to the Commissioner, or to the taxpayer, including due to reliance on views of the professional advisors of the taxpayer, or of the Commissioner, by the taxpayer belatedly found to be incorrect.

Big dollars involved in really late objections

The recent case of Primary Health Care Limited v. Commissioner of Taxation [2017] AATA 393 involved an appeal by an ASX-listed company against a decision of the Commissioner to refuse extensions of time to the company to lodge out of time objections against its income tax assessments. The case is notable because it involved:

  1. total net reduction in taxable income of the taxpayer over five years of income of $155,459,566 at stake in the refused objections; and
  2. extensions of time sought on 23 June 2015 for objections dealing with assessments for five years of income being the years ending 30 June 2003 to 30 June 2007 inclusive. That is, the extensions were sought for objections which were up to seven years late on the time limits to object.

Following an earlier successful tax appeal by the company in relation to the 2010 income year, it had become apparent that significant business activities of the company group, who operated many medical centres, were on income account and not on capital account and so the company group was entitled to significant deductions under section 8-1 of the ITAA 1997 contrary to advice and understandings in earlier tax opinions received by the company from counsel. Importantly the Commissioner had held and communicated corresponding views about the availability of the deductions to the company. In the 2010 case these views proved to be incorrect.

Long delay explainable and no prejudice

The Administrative Appeals Tribunal (AAT) identified that the company had been misled by these incorrect stances, which explained the long delay in lodging the objections, and that the Commissioner suffered no prejudice due to the delay in lodging the objections. The AAT thus found for the company and allowed the extensions of time to the company to lodge its objections.

The long delay of the company beyond the designated time limits for lodging these objections raised the possibility of prejudice to the Commissioner and the tax system should the company be allowed to contest its case in those long past years of income. The sheer length of the delay contributed to the decision of the Commissioner to refuse the extensions of time.

It was only because:

  1. the company was able to fully explain its delay, as the company justifiably understood that it had no case on which to object based on the law as it then stood, which was a misunderstanding to which the Commissioner had contributed; and
  2. because prejudice to the Commissioner from allowing the extensions of time to the company could not be identified;

that the AAT found in the favour of the company.

SMSFs getting practical to invest in land with others

The force of the superannuation law is that investment in land by a SMSF needs to be prudent. An investment needs to be considered in a business-like way.

Limited recourse borrowing is one way to fund investment in real estate. SMSF principals may prefer to arrange equity investment from private connections outside of the SMSF.

Investment as a tenant-in-common?

I am frequently asked about SMSFs participating in land investments as a tenant-in-common with related and unrelated entities of the principals of the SMSF. It is apparent from the NTLG Superannuation sub-committee technical minutes of June 2011, released by the Australian Taxation Office, that tenants in common arrangements for SMSFs are not going to be prudent for the SMSF without careful and restrictive implementation. Wherever other tenants in common could borrow, or use or risk their interest as security, the SMSF tenant-in-common is exposed to uncontrolled risks which would bring into question, for instance, whether the SMSF:

1.    has acted prudently pursuing the investment for members for whom it is bound to provide;

2.    has breached regulations which prevent charges, or the potential for them, being taken over SMSF property; or

3.    has satisfied the sole purpose test.

Investment through a trust?

The tenant-in-common option is frequently turned to because of the restrictive regime that has applied in relation to the investment by SMSFs in related trusts since 1999. Shortly stated, a post 1999 investment by a SMSF in a trust, which is related to the principals of the SMSF, a “related trust”, is treated as an “in-house asset” and more than 5% of the assets of a SMSF in in-house assets can leave the SMSF non-complying.

Non-geared unit trust – expressly relieved from being a related trust

The SIS Regulations provide an express exception. A superannuation fund can invest in a non-geared unit trust (NGUT) to which Regulation 13.22C applies without the NGUT being taken to be a “related trust” and thus the investment isn’t taken to be an investment in an “in-house asset”.

This express exception is especially limited and, aside from relief from “related trust” treatment causing in-house asset difficulty, offers no expansion in the kind of investment that can be pursued with superannuation money. In other words, the investment still needs to address 1 to 3 above, for instance.

The Regulation 13.22C and 13.22D requirements and restrictions on NGUTs essentially mirror the restrictions on regulated superannuation funds. NGUTs cannot borrow and they can only “lend” to operate a bank account. They cannot secure or charge their assets. (A non-SMSF unit holder in a NGUT could give a security over his, her or its units but security could not be given over the assets of the NGUT.) A NGUT cannot run a business – unlike with superannuation funds, this is a direct requirement. Loss of NGUT status, so that the NGUT becomes a related trust triggering in-house asset difficulties follows the merest breach under Regulation 13.22D which can put complying status of a SMSF investor at the mercy of the ATO.

Practicalities

1.    Nevertheless a carefully implemented NGUT can be the most practical way to pursue unitised investment in land by related parties and unrelated parties of a SMSF with the SMSF.

2.    Compliance with the regulations needs to be closely monitored as stated. Any debtor or creditor, aside from a bank for the (credit only) trust bank account, potentially causes loss of protection from related trust status. Funding of, and money flow to and from, the NGUT without breaching the rules is thus practically challenging. The trustee needs to raise equity (unit) funding whenever any extra funding is required. From a practical and paperwork burden perspective, using partly-paid units is a strategy that might be considered wherever the trust needs a flexible equity facility.

3.    The activity of the NGUT that invests in land also needs to be monitored and carefully planned and structured. It is possible for real estate activity by trustees to be considered the carrying on of a business under tax rules. As stated a NGUT cannot carry on a business under the NGUT regulations nor, if it has a trust deed to suit, under its trust deed.

4.    Under the special trust rules in NSW, a special trust pays land tax at the highest land tax rate without a threshold. A SMSF can attract a better land tax rate. A NGUT will not automatically qualify for the rate for a SMSF to the extent a SMSF invests in it. However if the NGUT is a “fixed trust” under the land tax rules then a better rate than the special trust rate can be achieved. Hence there can be advantage to structuring a NGUT with a trust deed so that the NGUT can be treated as a fixed trust under the land tax rules.

5.    A carefully crafted trust deed can be very useful to assist the trustees of a SMSF and a NGUT to keep within the express requirements and restrictions on NGUTs.