Commissioner’s operational position on unit trusts - When a unit trust can have a single unit holder

The Commissioner of Inland Revenue has released Interpretation Statement IS 16/02 "Unit Trust - when a unit trust can have a single unit holder."

The view taken in this statement differs from the Commissioner's current published position set out in the commentary to BR Pub 95/5A: "Relationship between the 'unit trust' and 'qualifying trust' definitions" (which stated that to be a "unit trust" for income tax purposes requires more than one unit holder).

The Commissioner's view in Interpretation Statement IS 16/02 is:

• A unit does not need to have multiple unit holders. Instead, a unit trust only needs to have facilities for multiple unit holders.
• Whether a trust provides facilities for multiple unit holders to invest should be determined by considering the legal relationships governing the trust - most importantly, the trust deed. Under this interpretation, the essential feature of a "unit trust" is the provision of the facilities for subscribers to participate, and that is not altered by there being only one subscriber.

The Commissioner's view has changed from the previous view expressed in the commentary to BR Pub 95/5A where it stated that trusts who had only one unit holder did not meet the definition of "unit trust" for income tax purposes. The Commissioner will apply the following transitional operational position for those taxpayers that have been affected by the change in the Commissioner's position:

1. Trusts that have only one unit holder, but still have facilities in the trust deed for multiple unit holders and that have been applying the trust rules will have until 31 March 2018 to either:
   • Transition to applying the "unit trust" provisions; or
   • If they wish to continue being treated as a trust, amend their trust deed/documents to ensure they are not a "unit trust" (according to the principles set out in Interpretation Statement IS 16/02).
2. Trust that have taken the view that there was a "unit trust" because the trust deed provided facilities for multiple unit holders, even though there was only a single unit holder are now in line with the Commissioner's view.

Trusts mentioned in [1] are still able to transition to the new position and/or amend their trust deed/documents to continue being treated as a trust for the year ended 31/03/2017 if they choose to do so.

Any taxpayers that have been adversely affected by relying on the Commissioner's previous position expressed in the commentary to BR Pub 95/5A, can contact Inland Revenue on 0800 443 773 to discuss the implementation of any changes in relation to Interpretation Statement IS 16/02.

Any new trusts however should apply the new position from the date of the publication of Interpretation Statement IS 16/02.