Page 2866 - Week 10 - Tuesday, 13 September 1994
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The initial two joint venture trusts, Calwell Park Unit Trust and Calwell Stage II Land Development Unit Trust, were established by the Commonwealth Government the HIA and MBA in 1989. The Commonwealths beneficial interest in the trusts transferred to the ACT on self-government. Two additional trusts, the Gordon 7 Unit Trust and the Banks Unit Trust, were established by the ACT Government, the MBA and HIA respectively in 1990 and 1991 respectively.
Unit trusts are generally not subject to tax, provided the income of a trust is fully distributed each year to the unit holders.. Unit holders are individually subject to tax on their share of taxable income. The ACT Government and the HIA are tax exempt bodies so that it was anticipated that no tax would be payable on their respective shares of trust income.
The initial trusts were established by the Commonwealth and the other parties in ignorance of the operation of Division 6C of the Income Tax Assessment Act. Division 6C specifies that where more than 20% of units are held by tax exempt bodies tax is payable by the trust as if it were a company. Tax exempt unit holders held more than 20% of units in all four trusts. The ACT replicated the trust infrastructure for the second two trusts.
(3) In November 1992 the ACT Government became aware of the implications of Division 6C and a voluntary disclosure was made immediately to the Commissioner for Taxation. In April 1994 the Australian Tax Office issued Statutory Demands for payment on each joint venture company as each trustee or the unit trust totalling $3.458m. This amount comprised $3.350m as taxation due and $0.107m as a late payment penalty. In June 1994 a full and final settlement was negotiated with the Tax Office for $0.95m. This liability for taxation does not arise from tax avoidance or the failure of joint venture partners.
An amount of $0.560m was available from the assets of the joint ventures. Additional contributions of $0.130m each towards the settlement are to be made by HIA Services (ACT) Pty Ltd and MBA Land Holdings Pty Ltd by way of reduced profit shares from the next joint ventures to be conducted in association with the Housing Industry Association of the ACT and the Master Builders Association of the ACT, respectively. The Government contribution is also $0.130m and it has agreed to expend an amount of approximately $0.213m to finalise minor uncompleted works on behalf of the trusts. The Governments total contribution towards the tax settlement is therefore approximately $0.343m. The Territory has received $3.379m from the trusts by way of profit share.
(4) There are no further potential tax liabilities for the Government in respect of joint venture arrangements. Subsequent joint ventures have been established on the basis of partnership agreements so that the Territorys tax exempt status is protected
(5) Not applicable. Refer to the answer to (4).
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