ElecNet (Aust) Pty Ltd v Commissioner of Taxation

The High Court of Australia heard an appeal from the Full Court of the Federal Court of Australia concerning whether a trust established by ElecNet (Aust) Pty Ltd was a unit trust for the purposes of Division 6C of Part III of the *Income Tax Assessment Act 1936* (Cth). The dispute arose because ElecNet argued that the trust, known as the Electrical Industry Severance Scheme (EISS), qualified as a unit trust, which would have implications for how payments made to employees upon termination were taxed. The Commissioner of Taxation contended that the EISS did not meet the criteria for a unit trust under Division 6C.

The central legal issue before the High Court was to determine whether the beneficial interests of the employees (referred to as "Workers") in the EISS were divided into "units" in a manner that satisfied the requirements of Division 6C. This involved interpreting the meaning of "unit trust" and "unit" within the context of the Act, particularly in relation to the structure of the EISS where payments were credited to individual employee accounts and paid out upon termination. The court also considered the purpose and legislative history of Division 6C, which was designed to tax certain public trading trusts.

The High Court reasoned that the definition of a "unit" in section 102M of the Act, which is inclusive, relates to beneficial interests in a "prescribed trust estate." A prescribed trust estate, by definition, must be a public trading trust whose interests are held by unitholders. The court found that the trust deed for the EISS did not create discrete parcels of rights that could be dealt with as items of commerce, analogous to shares in a company. While individual workers had beneficial interests measured by the dollar amounts credited to their accounts, these interests were not described as "units" in the deed itself. The court concluded that the inclusive definition of "unit" did not expand the meaning of "unit trust" to encompass interests that would not otherwise be identifiable as units. The common understanding of a unit trust, supported by case law, requires the beneficial interest in the trust fund to be divided into units that are capable of being traded.

The High Court dismissed the appeal with costs, upholding the decision of the Full Court of the Federal Court. Consequently, the EISS was not considered a unit trust for the purposes of Division 6C of Part III of the *Income Tax Assessment Act 1936* (Cth). This meant that payments made to employees upon termination would be taxed under other provisions, such as Division 82 or 83 of the *Income Tax Assessment Act 1997* (Cth), which are generally more favourable to recipients than taxation as unit trust dividends.