Financial Services Alert August 2008

Release of draft legislation to reform Division 6C - Trading Trusts

• Clarifying the scope and meaning of investing in land for the purposes of deriving rent – investments in land will be taken to include investments in moveable property that is incidental to and relevant to the renting of land, and customarily supplied or provided in connection with the renting of land and ancillary to the ownership and use of land.  
• Providing an annual safe harbour allowance of 25% for non-rental income from investments in land – investments in land will be taken to be for the purpose, or primarily for the purpose, of deriving rent if:
• each of those investments is for non-trading purposes that include a purpose of deriving rent; and
• at least 75% of the gross revenue from those investments consists of rent, except “excluded rent” (being non arms-length turnover rent or rent worked out by reference to profits of an entity that uses the land under an arrangement that would result in those profits being transferred wholly or substantially to another party to the arrangement); and
• none of the remaining gross revenue from those investments is excluded rent or revenue “from the carrying on of a trading activity on a commercial basis on the land”.  
• Extending the scope of financial instruments covered by the eligible investment business rules to include financial instruments that arise under financial arrangements as defined in proposed Division 230 of the Income Tax Assessment Act 1997 (Taxation of Financial Arrangements) - however some kinds of financial arrangements will be excluded, such as certain leasing arrangements, interests in partnerships and trust estates, guarantees and retirement village arrangements.  
• Providing an additional annual safe harbour allowance of 2% - to reduce the scope for inadvertent minor breaches of Division 6C, which would otherwise trigger company taxation for the trust, a trust will be allowed to earn up to 2% of its revenue from activities other than eligible investment business that are not commercially based trading activities. 

What should you be doing?

Fund managers and trustees of real estate investment trusts should be reviewing the proposed changes and considering the implications of these changes for their trusts. 


If you would like more information, please contact one of our National Financial Services Reform Partners listed on the right hand side of the screen.

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