The Full Federal Court has provided some welcome clarification as to what constitutes a unit trust when it upheld an appeal by the Commissioner of Taxation, in the decision of CoT v ElecNet (Aust) Pty Ltd (Trustee). In the original decision (discussed in a previous Sladen Snippet) the Federal Court found that a trust established for the purpose of assisting workers when they are retrenched was a unit trust, on the basis of the expanded definition of “unit” in the public trading trust rules.
The Court declined to give an exhaustive definition of unit trusts. However, in overturning the decision, the Full Federal Court examined the history of unit trusts and concluded that an examination of what is a unit trust “will be assisted by consideration of the core concept of whether persons have (i) a beneficial interest in the income or property of the trust estate, which is (ii) capable of being functionally described as involving units. But even the absence of (i) will not necessarily be determinative.”
For the ElecNet trust, the Court found that certain discretions available to the trustee to vary the beneficiaries’ entitlements meant that the trust in question did not meet “the functional description of a 'unit trust'”. Consequently, the trust was not a public trading trust.
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