bamford decis'n, afr article, ?effect on divvy, page-6

projectx,

My (wholely unqualified) view, based on very limited legal understanding is that this is NOT good news for ANY unit-holder of any trust, CER or otherwise. I'm holding BJT and from what I understand, the most important factor is this issue of "present entitlement".

If you read BJT's announcement what they are CLEARLY saying (to paraphrase) is bugger the taxable income that needs to be paid out (because based on Bamford it does nothave to be paid out any more), you are the ultimate beneficiary and will need to pay the tax on "presently entitled income" whether you ACTUALLY RECEIVE IT OR NOT. We'll just pay you what we can from the funds we have available. Now available cash does not equal "CASH AT BANK".

The ruling essentially confirms in my mind that Trusts are merely conduits for income (i.e. not entities under Common Law). So for instance if there is say 1 unit holder of a particular trust and say $100 of taxable income. If the trust does not distribute the income and pours the funds back into debt repayments for example, they no longer have to pay the ATO 46.5% tax. The unit-holder does. That's you....and me. Unfortunately, this makes logical sense. You are preently entitled to the income and therefore the corresponding tax bill. If the investment vehicle chooses not to pay you one single dime well then it's your tough luck.

Now that said, I don't think Management of these vehicles (CER and BJT included hopefully) would wantonly screw everony over monumentally, but one never knows.

The CGT aspect of that ruling, in my view, was the least most important aspect.

What has happened is that the way Trusts are taxed has (or will be) fundamentally changed.

From my readings, it also appears that the ATO actually funded this action with their Test Case Funding Program. So perhaps the ATO will not be the villain I hope it will be and take this all the way if it actually disagrees with the Judement.

I am not doomsaying on bahlf of all REIT's here. They still do exist to pay income and to offer relative security of investment (or did). Also, I believe that since Management and Insitutional investors generally have the most at stake in terms of issued units they would not withhold the lions share of income within the trust merely to fund growth and pay down debt while unitholders become insolvent due to tax bills on presently entitled income that they never receive.