Análisis e interpretación de datos

5.2.1 Overview

Income tax in Australia is currently levied under two Acts – the

Income Tax Assessment Act 1936 (the 1936 Tax Act) and the

Income Tax Assessment Act 1997 (the 1997 Tax Act). The 1997 Tax Act is being progressively enacted and is essentially a rewrite of the 1936 Tax Act. The intention is that the provisions of the 1997 Tax Act express the same law as in the 1936 Tax Act but in a clearer style.

One of the key concerns during the structuring phase of a securitisation program is to ensure the tax neutrality of the securitisation vehicle (whether it is a corporation or a trust). 5.2.2 Taxation issues relating to corporations

General principles

Where a special purpose corporation is used as a securitisation vehicle, the corporation is subject to the normal tax rules applying to corporations.

Deductions for losses and bad debts

An issue which sometimes needs to be considered is the ability of a special purpose corporation to claim deductions for prior and/or current year losses and bad debts. This is particularly important where the tax neutrality of the corporation depends upon the availability of such deductions. Generally, the ability to claim such deductions depends upon the corporation passing a

“continuity of ownership test” or, in certain circumstances, a

“continuity of business test”. The “continuity of ownership test”

requires the tracing of controlling interests in the corporation

through interposed entities and the application of the test can become a particularly complex task if shares are held (directly or indirectly) in a corporation by discretionary or charitable trusts (which is often the case in securitisations).

5.2.3 Taxation issues relating to trusts

General principles

Tax will only be levied on the trustee of a trust where an Australian resident beneficiary is not presently entitled to the net income of the trust for tax purposes or where the trustee is taxed as a company for the purposes of Divisions 6B or 6C of the 1936 Tax Act. Securitisation trusts are usually structured so that a beneficiary is entitled to any income derived by the trust, with the intended effect that the trustee will not be personally liable for tax in respect of any income derived by the trust.

Where a securitised instrument is equity (ie. a unit in a unit trust), the taxation of any payments made will depend on whether these constitute redemptions of capital (which are not assessable) or distributions of income (which are assessable). Also, in certain circumstances, the trustee can be required to deduct tax from trust distributions to non-resident unit holders and remit this directly to the Commissioner of Taxation.

Taxation of trustees

Ordinarily, the accounting income of a securitisation trust will be the same as the net income of the trust for taxation purposes. However, in certain circumstances, it is possible that the“net income” of a trust for taxation purposes for an income year may exceed its accounting net income, for example, where the accounting income of a trust includes non-deductible

expenditure. There are, basically, two conflicting views as to how the excess over the accounting “net income” is assessed. Under the quantum approach, the beneficiary could only be entitled to such amount of income as he is entitled to receive and, if the net income of the trust exceeds the amount which he is entitled to receive, that excess is not income to which the beneficiary is presently entitled and is assessable to the trustee. The proportionate approach regards the beneficiary’s share of accounting income as only being relevant to determining that beneficiary’s share of the net income of the trust for tax

purposes. The operation of the proportionate method may require at least some income to have been derived by the trust in the year of income that is capable of being distributed to a beneficiary.

Despite the absence of an express approval by a Full Federal Court, the better view is that section 97 of the 1936 Tax Act should be interpreted using the proportionate approach. This is also generally the current position of the Australian Tax Office.

Taxation of trusts as companies

As indicated above, it is possible under Divisions 6B and 6C of the 1936 Tax Act for some trusts to be regarded as companies and for tax to be levied on the trustee (rather than the beneficiaries).

Division 6B is unlikely to be relevant for securitisation trusts (it usually only applies where, as part of a corporate reorganisation, the property of a company is transferred to a public unit trust and shareholders in the company become entitled to take up units in the trust).

On the other hand, Division 6C can, in some circumstances, apply to securitisation trusts. Under section 102S, the trustee of a public trading trust is taxable on the net income of the trust. Section 102N provides that a unit trust is a trading trust if (among other things), it “carries on a trading business or, in the year of income, it controlled or was able to control, the affairs or operations of another person in respect of the carrying on by that person of a trading business.”

A “trading business” is defined in section 102M to mean a business “that does not consist wholly of eligible investment business”, which in turn includes:

“(a) investing or trading in any or all of the following: (i) secured and unsecured loans (including deposits with a

bank, building society or other financial institution); (ii) bonds, debentures, stock or other securities ...”

As can be seen, an eligible investment business specifically refers to the making of both secured and unsecured loans. 5.2.4 Trust loss provisions

Background

In some circumstances a securitisation vehicle may incur losses or bad debts which it wishes to claim as a deduction. In ascertaining whether a trust can claim a deduction for losses or bad debts, different tests apply depending upon whether the trust is a fixed trust (where all the income and capital of the trust are the subject of fixed entitlements) or a non-fixed trust (all trusts other than fixed trusts).

The tests which must be passed by a non-fixed trust in order to claim deductions for prior and current year losses and bad debts

are generally more difficult to pass than those applicable to fixed trusts. For that reason, and because of the issues discussed above relating to the taxation of the trustees, it is usual, so far as possible, that trust securitisation vehicles are structured as fixed trusts.

Different types of trusts

For fixed trusts, deductions will be denied for tax losses and bad debts if there is no longer a continuity of the majority (ie. more than 50 percent) of the beneficial ownership of the trust (the 50 percent stake test). Ordinary fixed trusts have to apply the 50 percent stake test whenever they wish to claim deductions for tax losses and/or bad debts.

Different rules apply in respect of certain unit trusts. Widely held unit trusts have to test ownership when there is any abnormal trading in the units of the trust or, in some cases, at the end of an income year. Listed widely held unit trusts can avoid the

consequences of failing the ownership test if they pass the same business test.

In respect of non-fixed trusts, deductions for losses and/or bad debts will be denied if the 50 percent stake test is failed or if control (broadly defined) of the non-fixed trust changes or, in some circumstances, if there is a 50 percent or greater change in the pattern of distributions of the income or capital of the trust. The trust loss provisions do not apply to “excepted trusts” which are defined to include fixed unit trusts where the beneficiaries are all persons whose income is exempt from tax under section 23 of the 1936 Tax Act or Division 50 of the 1997 Tax Act.

Fixed trusts with non-fixed trust beneficiaries

The relevant tests are more stringent for fixed trusts where the beneficiaries who are entitled to more than 50 percent of the trust income or capital are, in turn, non-fixed trusts (such as charitable trusts or discretionary trusts). In these circumstances, the non-fixed trust beneficiaries must have held fixed

entitlements to a 50 percent or greater share of the income or capital of the fixed trust during the whole of the relevant test period and must pass a “pattern of distributions test “ and a

“control test”.

Briefly, the “pattern of distributions test “requires that 50 percent or more of the distributions made by the non-fixed trust have been to the same individuals (meaning natural persons) for their own benefit during the six year period prior to the year of income in question.

The “control test “ is a very broad test. It generally applies where a group (meaning a person and/or his or her associates) either alone or together “begins to control “ the trust directly or indirectly.

This means that changes in the ownership or control of the trustees of a non-fixed trust could cause the non-fixed trust to fail the “control test” and hence the underlying fixed trust will be unable to claim deductions for losses and bad debts. This issue is particularly important where it is intended that a securitisation trust will have a charitable or discretionary trust as its

beneficiary. Changes of control of the beneficiary, and the trustee of the beneficiary, can affect the tax treatment of the

securitisation trust itself.

Taxation of trusts: Ultimate beneficiary non-disclosure tax

Division 6D of Part III of the 1936 Tax Act contains the provisions on ultimate beneficiary non-disclosure tax. The object of these provisions is to enable the Commissioner to check whether the assessable income of the ultimate beneficiaries correctly includes any required share of the relevant net trust income, and whether the net assets of the ultimate beneficiaries reflect the receipt of certain tax-preferred amounts. Where the provisions apply, and the trustee fails to correctly identify the ultimate beneficiaries, the trustee incurs a tax liability at the rate of 48.5 percent and may commit an offence under the Taxation Administration Act

1953.

The Commissioner has released Practice Statement PS 2001/12 with effect from 5 September 2001 dealing with the

requirements of trustees to provide ultimate beneficiary statements in specified circumstances. Practice Statements are not legally binding on the Commissioner, however they are treated as “administratively binding”.

5.2.5 Timing of interest receipts from underlying asset Interest paid to a securitisation vehicle on its underlying assets will normally be assessable when received. However, if its activities can be characterised as akin to that of a “financial institution”, then interest income may be recognised on a full accruals basis for tax accounting purposes. Taxation Ruling TR 93/27 outlines the Commissioner’s views as to what is meant by a financial institution. Broadly, the Commissioner believes that a “financial institution” is “any institution, one of whose principal activities is to take deposits and borrow, with the object of lending and investing”.

The Commissioner accepts that most securitisation vehicles are akin to financial institutions and can recognise interest income on

5.2.6 Timing of interest expenses

The decision in FC of T v Australian Guarantee Corporation 84 ATC 4642 confirms that interest deductions for a taxpayer accrue from day to day and thus are deductible on that basis, even where interest is not payable until the end of the relevant calculation period. This rule extends to all payments of interest by business taxpayers, and, therefore, applies generally to all securitisation vehicles.

5.2.7 Timing of swap transaction payments and receipts The tax treatment of any swap transaction entered into by a securitisation vehicle will be determined in accordance with Income Tax Ruling IT 2682 (as modified by the Draft Taxation Ruling TR 1999/D13). This provides that for bona fide swaps, payments in arrears in respect of defined periods are to be accounted for on an accruals basis, whilst payments in advance are to be deducted on a paid basis. A consistent approach is also to be adopted for receipts under swaps.

5.2.8 Timing of gains and losses in respect of underlying assets

Different types of investments and assets held by a securitisation vehicle may give rise to the recognition of assessable income and deductions at different times. For example, gains in respect of some securities with deferred yields must be recognised on a full accruals basis, whereas gains and losses in respect of securities which qualify as traditional securities are not recognised until the year of income in which such securities are disposed of or redeemed. Accordingly, investments and assets held by a securitisation vehicle should be selected and managed carefully in order to ensure that tax symmetry arises where possible. 5.2.9 The taxation treatment of management fees

If the management fees payable by a securitisation vehicle have been calculated on an arm’s length basis, they should be deductible according to ordinary principles under section 8-1. However, if they are commercially unrealistic or can be construed as being a payment designed to represent a distribution of profit rather than an expense incurred in deriving income, there is a risk that the fees will not be deductible. This in turn could affect the tax neutrality of the securitisation vehicle.

Of particular interest in this regard is the decision in United Energy Limited v FC of T 97 ATC 4796. The Full Federal Court considered that franchise fees payable by certain companies that were calculated by reference to a reasonable estimation of the amount by which the income of those companies was likely to exceed a particular level were, in reality, akin to payments of a

share of the profits of the companies, rather than costs incurred by the companies in the process of deriving assessable income and were not, therefore, deductible. The decision is similar in this respect to the recent Full Federal Court decision of City Link Melbourne Limited v Federal Commissioner of Taxation [2004] FCAFC 27; taken together,the decisions highlight the potential income tax difficulties where a management fee could be construed as being used to remove potential profit (or excess income) from a securitisation structure.

5.2.10 New collection procedures

Under collection procedures introduced from 1 July 2000, a special withholding tax is imposed where a supply is provided by a business (including the lending of money) that fails to quote an Australian Business Number (ABN). If no ABN is provided, the party paying for the services is required to withhold 48.5 percent of the payment.