The ATO has issued a Decision Impact Statement in relation to the Full Federal Court decision in ConnectEast Management Ltd (as Trustee for the ConnectEast Investment Trust 2) v FCT  FCAFC 22; 2009 ATC 20-095. The case concerned how the words "each of one or more trusts of a higher level" in ss.272-127(1) of Schedule 2F to the ITAA 1936 are to be interpreted.
At first instance, the Federal Court (Heerey J) (2008) ATC 20-024 dismissed the taxpayer's appeal holding that the preconditions for s 272-127(1) to be engaged were not satisfied. The taxpayer appealed to the Full Federal Court. The Full Federal Court (Sundberg, Jessup and Middleton JJ) (2009) ATC 20-095 dismissed the taxpayer's appeal and unanimously agreed with the primary judge's construction of s 272-127. The taxpayer applied for special leave to appeal from the Full Federal Court to the High Court but leave was refused by Hayne and Crennan JJ on the basis that the taxpayer had insufficient prospects of success.
The Decision Impact Statement states that the decision confirms the Commissioner's view that for the operation of s 272-127(1) to be engaged it must be the case that there is at least one trust of a higher level which, in its own right, holds directly or indirectly fixed entitlements to all of the income and capital of the subsidiary trust seeking reclassification: see also ATO ID 2006/317.
For a copy of the Decision Impact Statement, go here