The Full Federal Court decision in Aussiegolfa Pty Ltd (Trustee) v Commissioner of Taxation  FCAFC 122 (Aussiegolfa) highlights the importance of statements in offer documents to the interpretation of underlying legal documents - here a trust deed, and the borderline as to when distinct trusts will be created through the use of separate classes of units.
The decision concerns the investment by the taxpayer, the trustee of a self-managed superannuation fund, into a class of units issued by the DomaCom Fund (DomaCom), a registered managed investment scheme. Mr Benson, the sole member of DomaCom, was also the general manager of Victorian division of DomaCom Australia Ltd, DomaCom's investment manager. Having decided to invest in real estate in Burwood, Victoria through DomaCom, the taxpayer completed the application for units in DomaCom contained in a PDS issued by DomaCom in March 2015, agreeing to acquire units subject to the terms and conditions of the constitution and PDS. Following this, in June 2015 DomaCom issued another PDS and then in July 2015, a supplementary PDS specifically dealing with a proposed sub-fund that planned to invest in the Burwood Property. Upon entry into the acquisition contract for the Burwood property in July 2015 and payment of the deposit, without a resolution to amend the constitution, a new class of units was created in DomaCom's "system" and issued to the taxpayer.
One of the Court’s questions in the case was whether the class of units issued to the taxpayer constituted a separate trust. The relevance of this was, while DomaCom as a registered fund had many investors of whom the taxpayer was a minority, if the class constituted a separate trust, that would be considered held by the few unitholders of that class. This would make the Fund “closely held” for the purpose of the SIS Act, and as this is not permitted by that Act, it would make the taxpayer a non-complying superannuation fund, disentitling it to tax concessions only available to complying superannuation funds.
The Court acknowledged that a number of the provisions of the Constitution suggested DomaCom was established as a single trust (refer, for instance paragraph 146), including a single perpetuity period, single responsible entity, investment manager and custodian. However, it also found that the DomaCom's Constitution permitted, and the PDS provided that investors of the particular class issued to acquire the Burwood property would be entitled to the income and capital from the Burwood property, would not be indemnified from the assets of the broader DomaCom Trust nor would the broader trust be indemnified from the assets of that class. Further, it noted the supplementary PDS said that a sub-fund would be a separate trust (refer paragraph 147). Having regard to these factors, the Court concluded that the sub-fund should be regarded as a separate trust for tax purposes.
While a SIS case (and the Court notes the importance of statutory context), Aussiegolfa highlights the relevance of an offer document to the interpretation of underlying legal documents. Further, in a funds management context, it becomes particularly relevant to fund managers considering establishing multiclass funds and those investing into such funds. Multiclass funds have the obvious advantage of creating efficiencies in reducing the costs otherwise associated with creating separate trusts, including potentially the ongoing licensing, registration and administration fees. While historically, the potential intermingling of tax attributes (such as tax losses) among classes has been a deterrent to the establishment of multiclass funds, the AMIT regime has overcome this by permitting multiclass funds to elect to treat distinct classes as separate AMITs with segregated attributes. The regime also permits these fund to lodge one AMIT tax return (albeit with separate schedules for each class), rather than multiple tax returns as separate trusts would.
However in order to be eligible for this election, there has to be a single trust in which rights to income and capital of a particular class are same for members of that class, while distinct from other classes. The Court's findings in Aussiegolfa demonstrate that to maintain this distinction within a single trust, fund managers and investors will have to proceed with care.