The AAT has held that an approved worker entitlement fund, which met the requirements of s58PB(2) of the FBTAA, was not a unit trust for the income year ended 30 June 2011. As a consequence, it found that the fund was not entitled to be taxed as a public trading trust.

The taxpayer is the trustee of an approved worker entitlement fund, which is common in the construction industry. Employers are required to make weekly payments into the fund for the ultimate benefit of employees who become redundant, leave the industry, or other similar eventualities. The fund was an “approved worker entitlement fund” as prescribed by s 58PB(2) of the FBTAA [and thus benefits from the fund are exempt under s58PA of the FBTAA].

The Commissioner determined in a private ruling decision the fund should be taxed at a rate of 46.5% by virtue of s 99A of the ITAA 1936 (ie there were no beneficiaries presently entitled to a share of the net income of the trust).

Broadly, the taxpayer argued that it should be treated as a public trading trust and taxed at a rate of 30%. To be a public trading trust under s 102P(1) of the ITAA 1936, the taxpayer first needed to be a unit trust. Therefore, it argued that the concept of a unit as described in s 102M of the ITAA 1936 is a broad definition which encompasses the beneficial interests that members of the fund have in the property of the fund.

The AAT did not accept the taxpayer’s argument that the statutory definition of a “unit” was broad. It said the definition of unit does not give an extended meaning in what may be comprehended as a unit trust. Having examined the trust deed of the fund, the AAT held that the taxpayer’s case failed because the beneficial interests in the fund were not divided into units. Rather, it said the interests of a member in the fund was personal and not capable of assignment and therefore affirmed the Commissioner’s decision.

(AAT Case [2013] AATA 584, Re B.E.R.T. Pty Ltd as Trustee for the B.E.R.T. Fund No 2, AAT, Ref No 2013/0092, Logan PM and Hack DP, 20 August 2013.)

[LTN 162, 22/8/13]