Peter Oliver and Natalie Raju analyse the ATO's draft guidance on fixed trusts.
With the release of draft Practical Compliance Guideline 2016/D16, the Australian Taxation Office (ATO) has provided guidance in relation to when the Commissioner will exercise his discretion to treat a trust as fixed for the purposes of the trust loss provisions. The guidance seeks to address uncertainty that has existed since the Federal Court decision in Colonial First State Investments Ltd v. Commissioner of Taxation  FCA 16, which had the effect that many unit trusts are not fixed.
Guidance from the Commissioner is welcome, although the draft PCG highlights the divide between trusts that are attribution managed investment trusts (AMITs) and those which are not, AMITs receive deemed fixed trust treatment automatically if they are registered managed investment schemes (MIS) or otherwise if their members have clearly defined rights to all income and capital (to be ascertained against the example trustee powers in LCG 2015/4). Given the productive consultation between industry and the ATO that occurred in drafting LCG 2015/4, an alternate approach could have been to draft the PCG as an administrative safe harbour where the Commissioner will not focus compliance resources if a trust exhibits the same characteristics as the LCG (this type of administrative safe harbour is contemplated in PCG 2016/1).
The guidance is stated to apply before and after the date of issue. This raises a question for trustees that are currently adopting the AMIT regime, as in addition to considering AMIT qualification and system issues, the status of a trust also needs to be considered for pre-AMIT periods once the PCG is finalised.
Consultation on the draft guidance is open until 23 November 2016.
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