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Income Tax Assessment Act 1936

  • - C2008C00698
  • In force - Superseded Version
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Act No. 27 of 1936 as amended, taking into account amendments up to Act No. 145 of 2008
An Act to consolidate and amend the law relating to the imposition assessment and collection of a tax upon incomes
Administered by: Treasury
General Comments: This compilation is affected by a retrospective amendment, please see Tax Laws Amendment (2011 Measures No. 9) Act 2012 [Act No. 12 of 2012], for details.
Registered 23 Dec 2008
Start Date 10 Dec 2008
End Date 17 Feb 2009
Table of contents.

 

Income Tax Assessment Act 1936

Act No. 27 of 1936 as amended

This compilation was prepared on 18 December 2008
taking into account amendments up to Act No. 145 of 2008

Volume 5 includes:     Table of Contents
                                    Schedules 2, 2C – 2H, 2J and 3 – 5

The text of any of those amendments not in force
on that date is appended in the Notes section

The operation of amendments that have been incorporated may be affected by application provisions that are set out in the Notes section

  

  

  


Contents

Schedule 2                                                                                                                                   1

Part I                                                                                                                                              1

Part II                                                                                                                                            2

Schedule 2C—Forgiveness of commercial debts                                                 5

Division 245—Forgiveness of commercial debts                                           5

Guide to Division 245                                                                                                5

245‑1..... What this Division is about................................................................. 5

245‑2..... Simplified outline of this Division...................................................... 5

245‑3..... Map of this Division........................................................................... 7

Subdivision 245‑A—Debts to which this Division applies                                8

Guide to Subdivision 245‑A                                                                                     8

245‑5..... What this Subdivision is about............................................................ 8

245‑6..... Map of this Subdivision...................................................................... 8

Operative provisions                                                                                                 9

245‑10... Application of this Division................................................................ 9

245‑15... What is a debt...................................................................................... 9

245‑20... Debt includes accrued interest............................................................. 9

245‑25... What constitutes a commercial debt.................................................. 10

245‑26... Application to trustees....................................................................... 11

Subdivision 245‑B—What constitutes forgiveness of a debt                         11

Guide to Subdivision 245‑B                                                                                   11

245‑30... What this Subdivision is about.......................................................... 11

245‑31... Map of this Subdivision.................................................................... 12

Operative provisions                                                                                               12

245‑35... What constitutes forgiveness of a debt.............................................. 12

245‑40... Forgivenesses to which this Division does not apply....................... 14

Subdivision 245‑C—Calculation of gross forgiven amount of a debt        15

Guide to Subdivision 245‑C                                                                                   15

245‑45... What this Subdivision is about.......................................................... 15

245‑46... Simplified outline of this Subdivision............................................... 15

245‑47... Map of this Subdivision.................................................................... 16

Operative provisions                                                                                               16

245‑50... What constitutes a forgiven debt if consideration is given in respect of the forgiveness           16

245‑55... Working out notional value of a debt other than a non‑recourse debt 17

245‑60... Special rule for working out notional value of a non‑recourse debt.. 18

245‑61... Special rule for working out notional value of parked debt............... 19

245‑65... The consideration in respect of forgiveness of a debt....................... 19

245‑70... Money or other property applied for benefit of creditor.................... 21

245‑75... Gross forgiven amount of a debt....................................................... 22

Subdivision 245‑D—Calculation of net forgiven amount of a debt            23

Guide to Subdivision 245‑D                                                                                   23

245‑80... What this Subdivision is about.......................................................... 23

245‑81... Map of this Subdivision.................................................................... 24

Operative provisions                                                                                               25

245‑85... Reduction of gross forgiven amount................................................. 25

245‑90... Agreement between companies under common ownership for creditor to forgo capital loss or revenue deduction 25

Subdivision 245‑E—Application of net forgiven amounts                            27

Guide to Subdivision 245‑E                                                                                   27

245‑95... What this Subdivision is about.......................................................... 27

245‑96... Map of this Subdivision.................................................................... 28

General operative provisions                                                                                29

245‑100. Subdivision not to apply to calculation of attributable income........... 29

245‑105. How total net forgiven amount is to be applied................................. 29

Operative provisions relating to reduction of revenue losses                       30

245‑110. Definitions applicable to provisions reducing revenue losses........... 30

245‑115. Total net forgiven amount to be applied in reduction of revenue losses 31

245‑120. Allocation of total net forgiven amount in respect of deductible revenue losses       31

Operative provisions relating to reduction of net capital losses                  31

245‑125. Definitions applicable to provisions reducing net capital losses........ 31

245‑130. Residual forgiven amount to be applied in reduction of net capital losses                32

245‑135. Allocation of residual forgiven amount in respect of deductible net capital losses    32

Operative provisions relating to reduction of deductible expenditure       32

245‑140. Definitions applicable to provisions reducing deductible expenditure 32

245‑145. Residual forgiven amount to be applied in reduction of deductible expenditures      34

245‑150. Allocation of residual forgiven amount in respect of deductible expenditures          34

245‑155. How a reduction of a deductible expenditure is to be effected........... 34

245‑160. Amount applied in reduction of deductible expenditure to be included in assessable income in certain circumstances.......................................................................................................... 36

Operative provisions relating to reduction of cost bases of assets              36

245‑165. Definitions applicable to provisions reducing cost bases.................. 36

245‑170. Excluded assets................................................................................. 36

245‑175. Residual forgiven amount to be applied in reduction of cost bases of assets            37

245‑180. Allocation of residual forgiven amount among relevant cost bases of assets            37

245‑185. Relevant cost bases of investments in associated entities to be reduced last             38

245‑190. How a reduction of the relevant cost bases of an asset is to be effected 38

Operative provision relating to unapplied total net forgiven amount       39

245‑195. No further consequences if there is any remaining unapplied total net forgiven amount          39

Subdivision 245‑F—Special rules relating to partnerships                           39

Guide to Subdivision 245‑F                                                                                    39

245‑200. What this Subdivision is about.......................................................... 39

245‑201. Map of this Subdivision.................................................................... 40

Operative provisions                                                                                               40

245‑205. This Subdivision does not apply to corporate limited partnerships... 40

245‑210. Subdivisions 245‑A to 245‑E to apply to partnerships..................... 41

245‑215. Unapplied total net forgiven amount of a partnership to be transferred to partners   41

Subdivision 245‑G—Special rules affecting related companies                  42

Guide to Subdivision 245‑G                                                                                   42

245‑220. What this Subdivision is about.......................................................... 42

245‑221. Map of this Subdivision.................................................................... 43

Operative provisions                                                                                               43

245‑225. Application of Subdivision............................................................... 43

245‑230. If any non‑debtor companies in a group of related companies have deductible revenue losses                45

245‑235. If any non‑debtor companies in a group of related companies have deductible net capital losses             46

245‑240. If neither section 245‑230 nor 245‑235 applies................................. 47

Subdivision 245‑H—General                                                                                47

245‑245. Definitions........................................................................................ 47

245‑250. Companies under common ownership.............................................. 48

245‑255. Controller of company...................................................................... 48

245‑260. Time of incurring debt....................................................................... 48

245‑265. Keeping and retention of records....................................................... 49

Schedule 2D—Tax exempt entities that become taxable [see Note 2]   52

Division 57—Tax exempt entities that become taxable                            52

Guide to Division 57                                                                                                53

57‑1....... What this Division is about............................................................... 53

Subdivision 57‑A—Key concepts                                                                          53

57‑5....... Entities to which this Division applies.............................................. 53

Subdivision 57‑B—Predecessors of the transition taxpayer                         53

57‑10..... Activities of transition taxpayer’s predecessor attributed to transition taxpayer        53

Subdivision 57‑C—Time when income derived                                                54

57‑15..... Time when income derived............................................................... 54

Subdivision 57‑D—Time when losses and outgoings incurred                     55

57‑20..... Time when losses and outgoings incurred........................................ 55

Subdivision 57‑E—Assets and liabilities                                                            55

57‑25..... Deemed disposal and re‑acquisition of assets................................... 55

57‑30..... Deemed cessation and re‑assumption of liabilities............................ 59

57‑35..... Interpretation..................................................................................... 60

Subdivision 57‑F—Superannuation deductions                                                61

57‑40..... Contributions under defined benefit superannuation schemes........... 61

57‑45..... Deduction for surplus to meet defined benefit superannuation scheme liabilities     62

57‑50..... Contributions generally..................................................................... 63

57‑52..... Section 57‑50 does not apply if there is a surplus at transition time.. 66

57‑55..... Deductions reduced under both sections 57‑40 and 57‑50................ 66

Subdivision 57‑G—Denial of certain deductions                                             67

57‑60..... Effect of pre‑transition time accrued leave entitlements..................... 67

57‑65..... Treatment of bad debts...................................................................... 69

57‑70..... Treatment of superannuation lump sums and employment termination payments    70

Subdivision 57‑H—Domestic losses                                                                     71

57‑75..... Domestic losses................................................................................ 71

Subdivision 57‑J—Capital allowances and certain other deductions         71

57‑85..... What are the modified deduction rules and corresponding deduction provisions?   71

57‑90..... Post‑transition deductions—assume that the transition taxpayer had never been exempt         72

57‑95..... Amount of deduction not allowable for transition year..................... 73

57‑100... No elections etc. before transition time.............................................. 73

57‑105... Special rules for mining and quarrying............................................. 74

Subdivision 57‑K—Balancing adjustments                                                       74

57‑110... Apportionment of balancing adjustments.......................................... 74

Subdivision 57‑L—Trading stock                                                                        76

57‑115... Modification of trading stock provisions.......................................... 76

Subdivision 57‑M—Imputation                                                                            76

57‑120... Cancellation of franking surplus, credit or debit................................ 76

57‑125... Subsidiary......................................................................................... 78

Subdivision 57‑N—Division not applicable in respect of certain plant      78

57‑130... Plant or depreciating assets covered by Subdivision 58‑B of the Income Tax Assessment Act 1997       78

Schedule 2E—Leases of luxury cars [see Note 2]                                             79

Division 42A—Leases of luxury cars                                                                 79

Guide to Division 42A                                                                                             79

42A‑1.... What this Division is about............................................................... 79

Subdivision 42A‑A—Notional sale of car, and notional loan, to lessee      80

Guide to Subdivision 42A‑A                                                                                   80

42A‑5.... What this Subdivision is about.......................................................... 80

Operative provisions                                                                                               80

42A‑10.. Application of this Division.............................................................. 80

42A‑15.. Notional sale of car by lessor and notional acquisition of car by lessee 81

42A‑20.. Consideration for notional sale, cost of notional acquisition, and depreciated value, of car      81

42A‑25.. Notional loan by lessor to lessee....................................................... 82

Subdivision 42A‑B—Amounts to be included in lessor’s assessable income 83

Guide to Subdivision 42A‑B                                                                                   83

42A‑30.. What this Subdivision is about.......................................................... 83

Operative provisions                                                                                               83

42A‑35.. Amounts to be included in lessor’s assessable income..................... 83

42A‑40.. Treatment of lease payments............................................................. 84

Subdivision 42A‑C—Deductions allowable to lessee                                       85

Guide to Subdivision 42A‑C                                                                                   85

42A‑45.. What this Subdivision is about.......................................................... 85

Operative provisions                                                                                               85

42A‑50.. Extent to which deductions are allowable to lessee........................... 85

42A‑55.. Lease payments not to be allowable deductions................................ 86

Subdivision 42A‑D—Adjustments if total amount assessed to lessor differs from amount of finance charge       86

Guide to Subdivision 42A‑D                                                                                   86

42A‑60.. What this Subdivision is about.......................................................... 86

Operative provisions                                                                                               86

42A‑65.. Adjustments for lessor...................................................................... 86

42A‑70.. Adjustments for lessee...................................................................... 87

Subdivision 42A‑E—What happens when the lease expires                          88

Guide to Subdivision 42A‑E                                                                                   88

42A‑75.. What this Subdivision is about.......................................................... 88

Operative provisions                                                                                               89

42A‑80.. What happens if the lease term is extended or the lease is renewed... 89

42A‑85.. What happens if an amount is paid by or on behalf of the lessee to acquire the car  90

42A‑90.. What happens if the lessee ceases to have the right to use the car..... 91

Subdivision 42A‑F—What happens if the lease is terminated before the end of the lease term 92

Guide to Subdivision 42A‑F                                                                                   92

42A‑95.. What this Subdivision is about.......................................................... 92

Operative provisions                                                                                               93

42A‑100 What happens if an amount is paid by or on behalf of the lessee to acquire the car  93

42A‑105 What happens if the lessee ceases to have the right to use the car..... 93

Subdivision 42A‑G—Interpretation                                                                    95

Guide to Subdivision 42A‑G                                                                                  95

42A‑110 What this Subdivision is about.......................................................... 95

Operative provisions                                                                                               95

42A‑115 General definitions............................................................................ 95

42A‑120 Luxury car......................................................................................... 98

42A‑125 Consecutive short‑term hiring agreements........................................ 98

42A‑130 Finance charge.................................................................................. 99

42A‑135 Lease payment periods...................................................................... 99

42A‑140 Accrual periods and accrual amounts.............................................. 100

42A‑145 Outstanding notional loan principal................................................. 100

42A‑150 Implicit interest rate......................................................................... 101

Schedule 2F—Trust losses and other deductions                                           102

Division 265—Overview of Schedule                                                               102

265‑5..... What this Schedule is about............................................................ 102

265‑10... Diagram giving overview of Schedule............................................ 103

Division 266—Income tax consequences for fixed trusts of abnormal trading or change in ownership                                                                                                                    104

Subdivision 266‑A—Overview of this Division                                              104

266‑5..... What this Division is about............................................................. 104

266‑10... Diagram giving overview of this Division...................................... 105

Subdivision 266‑B—Effect of change in ownership of fixed trust             106

266‑15... What this Subdivision is about........................................................ 106

266‑20... Diagram giving overview of this Subdivision................................. 107

266‑25... Fixed trust may be denied tax loss deduction.................................. 107

266‑30... Fixed trust may be required to work out its net income and tax loss in a special way              108

266‑35... Fixed trust may be denied debt deduction....................................... 108

266‑40... The trust must pass 50% stake test.................................................. 109

266‑45... The trust must meet non‑fixed trust stake test................................. 109

266‑50... Deducting part of a tax loss............................................................. 111

266‑55... Information about non‑fixed trusts with interests in fixed trust....... 111

266‑60... Notices where requirements of section 266‑55 are met................... 112

Subdivision 266‑C—Effect of change in ownership of unlisted widely held trust          113

266‑65... What this Subdivision is about........................................................ 113

266‑70... Diagram giving overview of this Subdivision................................. 114

266‑75... Unlisted widely held trust may be denied tax loss deduction.......... 114

266‑80... Unlisted widely held trust may be required to work out its net income and tax loss in a special way       115

266‑85... Unlisted widely held trust may be denied debt deduction................ 116

266‑90... If abnormal trading or end of income year, trust must pass the 50% stake test         117

266‑95... Deducting part of a tax loss............................................................. 118

Subdivision 266‑D—Effect of abnormal trading on listed widely held trust  118

266‑100. What this Subdivision is about........................................................ 118

266‑105. Diagram giving overview of this Subdivision................................. 119

266‑110. Listed widely held trust may be denied tax loss deduction.............. 119

266‑115. Listed widely held trust may be required to work out its net income and tax loss in a special way          120

266‑120. Listed widely held trust may be denied debt deduction................... 120

266‑125. There must be no abnormal trading (subject to 50% stake or same business exceptions)         121

266‑130. Deducting part of a tax loss............................................................. 122

266‑135. Listed widely held unit trust may be denied tax loss deduction otherwise allowable                122

Subdivision 266‑E—Effect of abnormal trading on unlisted very widely held trust or wholesale widely held trust                                                                                                       123

266‑140. What this Subdivision is about........................................................ 123

266‑145. Diagram giving overview of this Subdivision................................. 124

266‑150. Unlisted very widely held trust or wholesale widely held trust may be denied tax loss deduction           124

266‑155. Unlisted very widely held trust or wholesale widely held trust may be required to work out its net income and tax loss in a special way................................................................................... 125

266‑160. Unlisted very widely held trust or wholesale widely held trust may be denied debt deduction 126

266‑165. There must be no abnormal trading (subject to 50% stake exception) 127

266‑170. Deducting part of a tax loss............................................................. 127

Subdivision 266‑F—Information about family trusts with interests in other trusts      128

266‑175. What this Subdivision is about........................................................ 128

266‑180. Information about family trusts with interests in other trusts.......... 128

266‑185. Notices where requirements of section 266‑180 are met................. 129

Division 267—Income tax consequences for non‑fixed trusts of change in ownership or control          131

Subdivision 267‑A—Overview of this Division                                              131

267‑5..... What this Division is about............................................................. 131

267‑10... Diagram giving overview of this Division...................................... 131

Subdivision 267‑B—Deducting tax losses, and certain amounts in respect of debts, from earlier years 132

267‑15... What this Subdivision is about........................................................ 132

267‑20... Non‑fixed trust may be denied tax loss deduction........................... 132

267‑25... Non‑fixed trust may be denied debt deduction................................ 133

267‑30... If certain distributions are made, the trust must pass the pattern of distributions test                134

267‑35... The trust must not have previously failed to meet the condition in subsection 267‑30(2)         134

267‑40... If there are individuals with more than a 50% stake in income or capital, more than a 50% stake in income or capital must be maintained.................................................................................. 135

267‑45... Group must not begin to control the trust........................................ 135

267‑50... Deducting part of a tax loss............................................................. 136

Subdivision 267‑C—Current year net income and tax loss, and certain debts incurred in current year 136

267‑55... What this Subdivision is about........................................................ 136

267‑60... Trust may be required to work out its net income and tax loss in a special way       136

267‑65... Non‑fixed trust may be denied debt deduction................................ 137

267‑70... If there are individuals with more than a 50% stake in income or capital, more than a 50% stake in income or capital must be maintained.................................................................................. 138

267‑75... Group must not begin to control trust............................................. 138

Subdivision 267‑D—Information about family trusts with interests in other trusts      139

267‑80... What this Subdivision is about........................................................ 139

267‑85... Information about family trusts with interests in other trusts.......... 139

267‑90... Notices where requirements of section 267‑85 are met................... 140

Division 268—How to work out a trust’s net income and tax loss for the income year               142

Subdivision 268‑A—Overview of Division                                                      142

268‑5..... What this Division is about............................................................. 142

Subdivision 268‑B—Dividing the income year into periods                       142

268‑10... Income year of fixed trust to be divided into periods—first case.... 142

268‑15... Income year of fixed trust to be divided into periods—second case 143

268‑20... Income year of widely held unit trust to be divided into periods..... 144

268‑25... Income year of non‑fixed trust to be divided into periods............... 144

Subdivision 268‑C—Other steps in working out the net income and tax loss  145

268‑30... Calculate the notional loss or net income for each period................ 145

268‑35... How to attribute deductions to periods............................................ 145

268‑40... How to attribute assessable income to periods................................ 147

268‑45... How to calculate the trust’s net income for the income year............ 148

268‑60... How to work out the trust’s section 36‑10 tax loss for the income year.. 149

Subdivision 268‑D—Rules that supplement Subdivision 268‑C if the trust is in partnership      150

268‑70... How to calculate the trust’s notional loss or net income for a period when the trust was a partner          150

268‑75... How to calculate the trust’s share of a partnership’s notional loss or notional net income for a period if both entities have the same income year...................................................................... 150

268‑80... How to calculate the trust’s share of a partnership’s notional loss or notional net income for a period if the entities have different income years..................................................................... 151

268‑85... Trust’s full year deductions include a share of partnership’s full year deductions    152

Division 269—Concepts and tests applied in Divisions 266 and 267 153

Subdivision 269‑A—Overview of Division                                                      153

269‑5..... What this Division is about............................................................. 153

Subdivision 269‑B—Abnormal trading                                                            153

269‑10... Trading............................................................................................ 153

269‑15... Abnormal trading—general............................................................. 153

269‑20... Abnormal trading—suspected acquisition or merger...................... 154

269‑25... Abnormal trading—5% of units in a single transaction................... 154

269‑30... Abnormal trading—suspected 5% of units in a series of transactions 154

269‑35... Abnormal trading—20% of units traded, issued or redeemed over 60 day period   154

269‑40... Abnormal trading—50% stake not maintained................................ 155

269‑45... Time at which trustee to have knowledge or suspicion................... 155

269‑47... Abnormal trading where holding trust............................................ 155

269‑49... No abnormal trading where proportionate issue of units................. 156

Subdivision 269‑C—Passing the 50% stake test etc.                                      156

269‑50... More than a 50% stake in income or capital.................................... 156

269‑55... Passing the 50% stake test.............................................................. 156

Subdivision 269‑D—Pattern of distributions test                                           157

269‑60... Pattern of distributions test.............................................................. 157

269‑65... Test year distribution of income or capital....................................... 157

269‑70... When individual receives different percentages............................... 158

269‑75... Incomplete distributions.................................................................. 158

269‑80... Where individual’s death or breakdown of marriage or relationship 159

269‑85... Arrangements to pass pattern of distributions test........................... 160

Subdivision 269‑E—Control a non‑fixed trust                                               160

269‑95... Control a non‑fixed trust................................................................. 160

Subdivision 269‑F—Same business test                                                            163

269‑100. Passing the same business test........................................................ 163

Division 270—Schemes to take advantage of deductions                      165

270‑5..... What this Division is about............................................................. 165

270‑10... Schemes to take advantage of deductions........................................ 165

270‑15... Tax consequences of schemes......................................................... 166

270‑20... Benefit............................................................................................. 167

270‑25... Outsider to trust.............................................................................. 167

Division 271—Family trust distribution tax                                                 169

271‑5..... What this Division is about............................................................. 169

271‑10... Family trust distribution tax............................................................ 169

271‑15... Tax liability where family trust makes distribution etc. outside family group           169

271‑20... Tax liability where interposed trust makes distribution etc. outside family group     170

271‑25... Tax liability where interposed partnership makes distribution etc. outside family group          171

271‑30... Tax liability where interposed company makes distribution outside family group    172

271‑35... Avoidance of double‑counting........................................................ 172

271‑40... Exclusion of directors from liability to pay tax................................ 173

271‑45... Requirements for section 271‑55 notice to family trust................... 173

271‑50... Requirements for section 271‑55 notice to interposed entity........... 174

271‑55... Notice requiring information about non‑resident distributions etc... 176

271‑60... Tax liability where non‑resident family trust’s tax unpaid............... 178

271‑65... Tax liability where non‑resident interposed entity’s tax unpaid....... 180

271‑70... Reduction of liability where tax paid............................................... 183

271‑75... Payment of family trust distribution tax.......................................... 183

271‑80... Late payment of family trust distribution tax................................... 184

271‑90... Notice of liability............................................................................. 184

271‑95... Request for notice of liability.......................................................... 185

271‑100. Evidentiary effect of notice of liability............................................. 186

271‑105. Amounts subject to family trust distribution tax not assessable...... 187

Division 272—Interpretation                                                                               188

Subdivision 272‑A—Fixed entitlement to share of income or capital      188

272‑5..... Fixed entitlement to share of income or capital of a trust................. 188

272‑10... Fixed entitlement to share of income or capital of a company......... 189

272‑15... Fixed entitlement to share of income or capital of a partnership...... 189

272‑20... Fixed entitlement to share of income or capital held indirectly........ 190

272‑25... Special cases of fixed entitlements held directly or indirectly.......... 190

272‑30... Additional special cases of fixed entitlements held directly or indirectly  193

272‑35... Arrangements to pass fixed entitlement tests................................... 194

272‑40... Continued holding of fixed entitlement where death occurs............ 195

Subdivision 272‑B—Distribution of income or capital                                195

272‑45... Trust distribution to beneficiary...................................................... 195

272‑50... Company distribution to shareholder.............................................. 195

272‑55... Partnership distribution to partner................................................... 196

272‑60... Other distributions of income and capital........................................ 196

272‑63... Distribute indirectly......................................................................... 197

Subdivision 272‑C—Fixed trusts and non‑fixed trusts                                  197

272‑65... Fixed trust....................................................................................... 197

272‑70... Non‑fixed trust................................................................................ 198

Subdivision 272‑D—Family trust etc.                                                               198

272‑75... Family trust..................................................................................... 198

272‑80... Family trust election........................................................................ 198

272‑85... Interposed entity election................................................................. 203

272‑87... Passing the family control test......................................................... 206

272‑90... Family group................................................................................... 208

272‑95... Family............................................................................................. 212

Subdivision 272‑E—Excepted trust                                                                   212

272‑100. Excepted trust.................................................................................. 212

Subdivision 272‑F—Widely held unit trust                                                      213

272‑105. Widely held unit trust...................................................................... 213

Subdivision 272‑G—Unlisted widely held trust and listed widely held trust 214

272‑110. Unlisted widely held trust............................................................... 214

272‑115. Listed widely held trust................................................................... 215

Subdivision 272‑H—Unlisted very widely held trust                                     215

272‑120. Unlisted very widely held trust....................................................... 215

Subdivision 272‑I—Wholesale widely held trust                                            216

272‑125. Wholesale widely held trust............................................................ 216

Subdivision 272‑J—Kind of trust can be affected by ownership by higher level trust 217

272‑127. Kind of trust can be affected by ownership by higher level trust..... 217

Subdivision 272‑K—Trusts beginning or ceasing to exist                           218

272‑130. Trusts beginning or ceasing to exist................................................ 218

Subdivision 272‑L—Listed public company                                                   218

272‑135. Listed public company.................................................................... 218

Subdivision 272‑M—Various definitions                                                         219

272‑140. Definitions...................................................................................... 219

Schedule 2G—Farm management deposits  [see Note 2]                           224

Division 393—Farm management deposits                                                   224

Guide to Division 393                                                                                            224

393‑1..... What this Division is about............................................................. 224

Subdivision 393‑A—Tax consequences of farm management deposits   225

Guide to Subdivision                                                                                              225

393‑5..... What this Subdivision is about........................................................ 225

393‑7..... Definitions of terms........................................................................ 225

Operative provisions                                                                                             225

393‑10... Deduction for making farm management deposit............................ 225

393‑15... Assessability on repayment of deposit............................................ 226

Subdivision 393‑B—Farm management deposit and related terms          228

Guide to Subdivision 393‑B                                                                                 228

393‑20... What this Subdivision is about........................................................ 228

Operative provisions                                                                                             229

393‑25... Various definitions.......................................................................... 229

393‑30... Requirements for a farm management deposit................................. 230

393‑35... Requirements whose contravention causes a loss of farm management deposit status             231

393‑37... Withdrawal of deposit within first 12 months................................. 233

393‑40... Other requirements of agreement.................................................... 235

393‑45... Contraventions that deprive a deposit of its status as a farm management deposit    236

393‑50... Making and repaying etc. deposits.................................................. 236

393‑52... Certain entities taken to be financial institutions for pre‑1 July 2003 deposits and transfers   238

Subdivision 393‑C—How to work out your taxable primary production income and your taxable non‑primary production income                                                                    240

Guide to Subdivision 393‑C                                                                                 240

393‑55... What this Subdivision is about........................................................ 240

Operative provisions                                                                                             241

393‑60... Working out your taxable primary production income.................... 241

393‑65... Working out your taxable non‑primary production income............. 242

Schedule 2H—Demutualisation of mutual entities other than insurance companies and health insurers [see Note 2]                                                                                                          245

Division 326—Demutualisation                                                                           245

Guide to Division 326                                                                                            246

326‑1..... What this Division is about............................................................. 246

Subdivision 326‑A—Application, key concepts and related expressions 246

326‑5..... Application...................................................................................... 246

326‑10... Mutual entity and demutualisation................................................... 248

326‑15... Provisions relating to listing on a stock exchange........................... 248

326‑20... Demutualisation resolutions etc....................................................... 249

326‑25... Demutualisation shares................................................................... 249

326‑30... Existing members and new members.............................................. 250

326‑35... Pre‑CGT members and post‑CGT members................................... 250

Subdivision 326‑B—How demutualisation is to be effected                        251

326‑40... Methods of demutualisation............................................................ 251

326‑45... Direct method.................................................................................. 251

326‑50... Holding company method............................................................... 252

326‑52... Combined direct and holding company method.............................. 253

326‑55... Distributing trust method................................................................ 254

326‑60... Continuity of beneficial interest test................................................ 256

Subdivision 326‑C—CGT consequences of extinguishment of membership rights in mutual entity        258

326‑65... Extinguishment of membership rights............................................. 258

Subdivision 326‑D—CGT consequences of disposal of demutualisation shares or an interest in such shares by a member of a mutual entity where the entity or a holding company of the entity becomes a listed public company                                                                         258

326‑70... Application of Subdivision............................................................. 259

326‑75... Capital losses made from certain disposals to be disregarded......... 259

326‑80... Disposal by pre‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share before demutualisation listing day where member did not acquire membership rights by disposing of membership rights in another mutual entity..................................... 260

326‑85... Disposal by pre‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share on or after demutualisation listing day where member did not acquire membership rights by disposing of membership rights in another mutual entity..................................... 260

326‑90... Disposal by pre‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share where member acquired membership rights by disposing of membership rights in another mutual entity........................................................................................................ 261

326‑95... Disposal by post‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share..................................................................................... 262

326‑100. Disposal by pre‑CGT member of a demutualisation original share or a non‑demutualisation bonus share, or an interest in such a share, before demutualisation listing day where member did not acquire membership rights by disposing of membership rights in another mutual entity..................................... 263

326‑105. Disposal by pre‑CGT member of a demutualisation original share or a non‑demutualisation bonus share, or an interest in such a share, on or after demutualisation listing day where member did not acquire membership rights by disposing of membership rights in another mutual entity..................................... 265

326‑110. Disposal by pre‑CGT member of a demutualisation original share or a non‑demutualisation bonus share, or an interest in such a share, where member acquired membership rights by disposing of membership rights in another mutual entity........................................................................................................ 266

326‑115. Disposal by post‑CGT member of a demutualisation original share or a non‑demutualisation bonus share or an interest in such a share..................................................................................... 267

326‑120. Adjusted market value..................................................................... 268

326‑125. Undeducted membership costs........................................................ 269

326‑130. Adjusted first day trading price of demutualisation shares.............. 270

Subdivision 326‑E—CGT consequences of disposal of demutualisation shares or interests in such shares by a member of a mutual entity where the entity or a holding company of the entity becomes a company that is not a listed public company                                       271

326‑135. Application of Subdivision............................................................. 271

326‑140. Disposal by pre‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share where a member did not acquire membership rights by disposing of membership rights in another mutual entity............................................................................................... 272

326‑145. Disposal by pre‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share where member acquired membership rights by disposing of membership rights in another mutual entity........................................................................................................ 273

326‑150. Disposal by post‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share..................................................................................... 274

326‑155. Disposal by pre‑CGT member of a demutualisation original share or a non‑demutualisation bonus share, or an interest in such a share, where member did not acquire membership rights by disposing of membership rights in another mutual entity............................................................................................... 275

326‑160. Disposal by pre‑CGT member of a demutualisation original share or a non‑demutualisation bonus share, or an interest in such a share, where member acquired membership rights by disposing of membership rights in another mutual entity........................................................................................................ 276

326‑165. Disposal by post‑CGT member of a demutualisation original share or a non‑demutualisation bonus share, or an interest in such a share................................................................................. 277

326‑170. Various adjusted market values....................................................... 278

326‑175. Undeducted membership costs........................................................ 279

Subdivision 326‑F—Variation of amount taken to be paid for shares or an interest in shares by a member of a mutual entity who made a capital gain or capital loss from disposal of membership rights in another mutual entity                                                                              281

326‑180. Amount taken to be paid for acquisition of shares or interest by member to be increased by capital gain or reduced by capital loss....................................................................................... 281

Subdivision 326‑G—CGT consequences of disposal of rights or interests resulting from extinguishment of membership rights                                                                    282

326‑185. Disposal of right to receive shares in demutualised entity............... 282

326‑190. Extinguishment of right to shares in demutualised entity by the issue of the shares 283

326‑195. Disposal of right to receive shares in holding company.................. 283

326‑200. Disposal of interest in trust that holds shares in demutualised entity 284

Subdivision 326‑H—CGT consequences of transfer of ordinary shares 286

326‑205. Transfer of share or distribution of proceeds of sale of share not to have any CGT consequences          286

Subdivision 326‑I—CGT consequences of disposal of demutualisation shares or an interest in such shares by a trustee on behalf of a member                                               286

326‑210. Disposal by a trustee....................................................................... 286

Subdivision 326‑J—CGT consequences of change in rights attaching to special shares or replacement of special shares by ordinary shares                                                      287

326‑215. Change of rights to, and replacement of, special shares.................. 287

Subdivision 326‑K—CGT consequences of disposal of shares or an interest in shares acquired under a roll‑over provision                                                                                     287

326‑220. Disposal of shares or interest in shares........................................... 287

Subdivision 326‑L—CGT consequences of payment to member of demutualised entity out of accumulated surplus of the entity                                                                                      288

326‑225. Payment out of assets of demutualised entity that is not included in assessable income is taken not to be a dividend........................................................................................................ 289

Subdivision 326‑M—Indexation                                                                         289

326‑230. Indexing of amounts....................................................................... 289

326‑235. Indexation factor............................................................................. 289

326‑240. Index number.................................................................................. 290

Subdivision 326‑N—Non‑CGT consequences of issue of demutualisation shares          290

326‑245. General taxation consequences of issue of demutualisation shares. 290

Schedule 2J—General insurance                                                                              291

Division 321—General insurance companies                                              291

Guide to Division 321                                                                                            291

321‑1..... What this Division is about............................................................. 291

Subdivision 321‑A—Provision for or payment of claims                            291

Guide to Subdivision 321‑A                                                                                 291

321‑5..... What this Subdivision is about........................................................ 291

Operative provisions                                                                                             292

321‑10... Amount to be included in assessable income for outstanding claims liability           292

321‑15... Deduction for outstanding claims liability....................................... 292

321‑20... How value of outstanding claims liability is worked out................. 292

321‑25... Deduction for claims paid during year of income............................ 293

321‑30... Application: insurance business other than reinsurance business.... 293

321‑35... Application: reinsurance business................................................... 293

Subdivision 321‑B—Premium income                                                              294

Guide to Subdivision 321‑B                                                                                 294

321‑40... What this Subdivision is about........................................................ 294

Operative provisions                                                                                             295

321‑45... Assessable income to include gross premiums............................... 295

321‑50... Amount to be included in assessable income for reduction in value of unearned premium reserve          295

321‑55... Deduction for increase in value of unearned premium reserve........ 295

321‑60... How value of unearned premium reserve is worked out................. 295

321‑65... Application...................................................................................... 297

Division 323—Companies that are not required by law to insure in respect of workers’ compensation liabilities                                                                                                 298

Guide to Division 323                                                                                            298

323‑1..... What this Division is about............................................................. 298

Operative provisions                                                                                             298

323‑5..... Amount to be included in assessable income for outstanding claims liability           298

323‑10... Deduction for outstanding claims liability....................................... 299

323‑15... How value of outstanding claims liability is worked out................. 299

323‑20... Deductions for claims paid during year of income.......................... 299

323‑25... Application...................................................................................... 299

Schedule 3—Approved stock exchanges for the purposes of Part XI 300

Schedule 4—Business activities that are not eligible activities for the purposes of Division 3 of Part XI                                                                                                                                    305

Schedule 5—Approved international sectoral classification systems for purposes of  Part XI  306


 

Schedule 2  

Section 79A

Part I  

  

Zone A

              1.  All that portion of the mainland of Australia lying north of a line commencing at the westernmost point at which the 26th parallel of south latitude intersects the western coastline thence east to the 141st meridian of east longitude thence north to the south‑eastern boundary of the Shire of Boulia thence generally north‑easterly by the boundaries dividing the Shires of Winton Flinders Dalrymple and Herberton from the Shires of Boulia Cloncurry McKinlay Richmond Etheridge and Mareeba to the 145th meridian of east longitude thence north to the northern boundary of the Shire of Mareeba thence by that boundary and the boundary dividing the Shires of Douglas and Cook to the eastern coastline.

              2.  All the islands forming part of Australia lying adjacent to the coastline of the portion of Australia described in paragraph 1.

              3.  Macquarie Island.

              4.  Norfolk Island.

              5.  The Territory of Heard Island and McDonald Islands.

              6.  The Australian Antarctic Territory.

              7.  The Territory of Cocos (Keeling) Islands.

              8.  The Territory of Christmas Island.

              9.  Lord Howe Island.


 

Part II  

Zone B

              1.  All that portion of the mainland of Australia lying south of the southern boundary of Zone A and north of a line commencing at the northeastern corner of the shire of Broadsound in the State of Queensland thence generally westerly and southerly by the boundaries dividing the Shires of Broadsound Belyando Jericho Bauhinia Booringa and Balonne from the Shires of Sarina Nebo Wangaratta Dalrymple Aramac Barcaldine Blackall Tambo Murweh and Paroo to the boundary dividing the States of Queensland and New South Wales thence east by that boundary to its junction with the Barwon River at the northeastern corner of the Western Division in the State of New South Wales thence generally southwesterly by part of the boundary dividing the Central and Western Divisions of the State of New South Wales to the northernmost corner of the County of Mouramba and by the boundaries dividing the Counties of Mouramba Mossgiel Waljeers Kilfera Taila Wentworth and Tara from the Counties of Robinson Booroondarra Woore Manara Perry and Windeyer to the boundary dividing the States of New South Wales and South Australia thence south by that boundary to the northeast corner of the County of Hamley in the State of South Australia thence by the north boundaries of the Counties of Hamley and Young part of the north boundary of the County of Burra part of the east boundary of the District Council District of Hallett the east and a north boundary of the District Council District of Peterborough east and north boundaries of the District Council District of Carrieton to the southeast corner of the District Council District of Hawker the eastern north and west boundaries of that District Council District a western boundary of the District Council District of Kanyaka to the north boundary of the County of Frome thence west by part of that boundary and its prolongation west to the west boundary of the County of Manchester thence by the boundaries dividing the Counties of Manchester York and Buxton from the County of Hore‑Ruthven part of the west boundary of the County of Buxton and part of the western boundary of the District Council District of Kimba to the easternmost corner of the District Council District of Le Hunte thence generally northwesterly by the east and north boundaries of the District Council Districts of Le Hunte and Streaky Bay and the east north and west boundaries of the District Council District of Murat Bay to the southern coastline thence by that coastline westerly to the southwestern corner of the Road District of Phillips River in the State of Western Australia thence generally northwesterly by the boundaries dividing the Road Districts of Gnowangerup Kent Lake Grace Kulin Kondinin Narembeen Merredin and Nungarin from the Road Districts of Phillips River Yilgarn and Westonia to the northeast corner of the Road District of Nungarin thence westerly and northwesterly by the boundaries dividing the Road Districts of Nungarin Kununoppin‑Trayning Wyalkatchem Dowerin and Wongan‑Ballidu from the Road Districts of Mukinbuding Mt Marshall Koorda and Dalwallinu to the No. 2 rabbit proof fence by that fence to the north boundary of the Road District of Perenjori and thence by the boundaries dividing the Road Districts of Perenjori Morawa Mingenew Irwin Greenough and Geraldton from the Road Districts of Yalgoo Mullewa and Upper Chapman to the western coastline.

              2.  All that portion of Tasmania lying south and west of a line commencing on the west coast at the southwest corner of the County of Wellington and thence generally easterly and southerly by the boundaries dividing the counties of Wellington Devon and Westmorland from the counties of Russell Lincoln and Cumberland to the point on the River Shannon where the hydro‑electric transmission line from Waddamana to Launceston crosses that river thence in a straight line in a general southwesterly direction to the trigonometrical station known as Fishers Sugar Loaf thence by a straight line in a general southwesterly direction to the point where the Lyell Highway crosses the Dee River thence by a straight line in a general southwesterly direction to the confluence of the Derwent and Florentine Rivers thence by a straight line in a general southerly direction passing through the trigonometrical station on South East Cape to the southern coastline.

              3.  All the islands forming part of Australia lying adjacent to the coastline of either of the portions of Australia described in paragraphs 1 and 2.

              4.  King Island, Tasmania.

              5.  All the islands in the group of islands known as the Furneaux Group, Tasmania.


 

Schedule 2CForgiveness of commercial debts

  

 

Division 245Forgiveness of commercial debts

Guide to Division 245

245‑1  What this Division is about

This Division applies if:

               (a)     a debt or part of a debt ceases to be payable because the obligation to pay the debt or part is released or waived, or is otherwise extinguished (this is referred to as the forgiveness of the debt or part); and

              (b)     there are amounts (reducible amounts) that would otherwise be taken into account in reducing the debtor’s taxable income of the year of income in which the debt is forgiven or a later year of income.

The forgiven amount of the debt is treated as having been used to generate the reducible amounts and is accordingly applied to reduce them in a particular order.

If the debtor is a company that is included in a group of related companies, the forgiven amount of the debt may be treated as having been used to generate reducible amounts of one or more of the other companies.

245‑2  Simplified outline of this Division

             (1)  This Division applies to the forgiveness of the whole or a part of a commercial debt.

             (2)  The forgiveness of a debt under an Act relating to bankruptcy, by will, or for reasons of natural love and affection, is not affected by the provisions of the Division.

             (3)  Provision is made for the calculation of the gross forgiven amount in respect of each debt.

             (4)  The gross forgiven amount may then be reduced by certain amounts that are taken into account in assessing the debtor’s taxable income apart from this Division.

             (5)  If the debt is owed between group companies, the gross forgiven amount may be further reduced in certain circumstances.

             (6)  The amount remaining after all reductions to the gross forgiven amount is the net forgiven amount in respect of the debt.

             (7)  The total net forgiven amount of all debts of a particular debtor that are forgiven in the same year of income (the forgiveness year of income) is to be applied in reduction of certain amounts that may otherwise be taken into account in assessing the debtor’s taxable income.

             (8)  The amounts to be reduced are certain revenue losses, net capital losses and other deductible amounts and the cost bases of certain assets.

             (9)  Special rules apply in respect of debts of partnerships other than corporate limited partnerships.

           (10)  Special rules apply in respect of debts of a company if the company is included in a group of related companies.

245‑3  Map of this Division


 

Subdivision 245‑ADebts to which this Division applies

Guide to Subdivision 245‑A

245‑5  What this Subdivision is about

The purpose of this Subdivision is to identify the debts to which this Division applies.

245‑6  Map of this Subdivision

Operative provisions

245‑10  Application of this Division

             (1)  Subject to subsection (2), this Division applies to a forgiveness of a commercial debt but so applies only if the forgiveness occurs after the commencement day.

             (2)  This Division does not apply to a forgiveness referred to in subsection (1) if the forgiveness occurs in accordance with the terms of an agreement or arrangement that:

                     (a)  was entered into on or before the commencement day; and

                     (b)  is evidenced in writing otherwise than by a document evidencing the agreement or transaction under which the debt arose.

245‑15  What is a debt

             (1)  Subject to this section, a debt is an enforceable obligation imposed by law on a person to pay an amount to another person.

             (2)  If such an obligation is waived and the waiver constitutes a fringe benefit, the debt constituted by the obligation is to be disregarded for the purposes of this Division.

             (3)  An amount that, apart from this subsection, would be an enforceable obligation referred to in subsection (1) is not to be regarded as a debt if the amount has been, or will be, included in the assessable income of any year of income of the person on whom the obligation is imposed.

245‑20  Debt includes accrued interest

                   If there is, in respect of a debt, any interest or amount in the nature of interest that has accrued but has not been paid, the obligation to pay that interest or amount is not a separate debt but the first‑mentioned debt includes the obligation to pay the interest or amount.

245‑25  What constitutes a commercial debt

             (1)  A debt is a commercial debt if subsection (2), (3) or (4) provides that the debt is a commercial debt.

Debt on which interest paid is an allowable deduction

             (2)  Subject to subsection (4A), a debt is a commercial debt if the whole or any part of interest, or of an amount in the nature of interest, paid or payable in respect of the debt:

                     (a)  is or would be allowable as a deduction to the debtor; or

                     (b)  would be so allowable apart from the operation of an exception provision.

Debt on which no interest is payable

             (3)  A debt is a commercial debt if interest, or an amount in the nature of interest, is not payable in respect of the debt but, had interest or such an amount been payable, the whole or any part of the interest or amount:

                     (a)  would have been allowable as a deduction to the debtor; or

                     (b)  would have been so allowable apart from the operation of an exception provision.

             (4)  A non‑equity share issued by a company is taken to be a commercial debt owed by the company to the shareholder.

Debt to Commonwealth not a commercial debt

          (4A)  A debt owed to the Commonwealth that arose under a law relating to taxation is not a commercial debt.

Meaning of exception provision

             (5)  In this section:

exception provision means a provision of this Act that has the effect of preventing a deduction that would otherwise be allowable, but does not include paragraphs 8‑1(2)(a), (b) and (c) of the Income Tax Assessment Act 1997 (which prevent deductions for capital, private or domestic outgoings and for outgoings relating to exempt income).

245‑26  Application to trustees

                   This Division applies to a person in the capacity of a trustee of a trust estate in respect of the trust estate’s debts, and references in this Division to a debtor include a reference to a person in the capacity of a trustee of a trust estate in respect of the trust estate’s debts.

Subdivision 245‑BWhat constitutes forgiveness of a debt

Guide to Subdivision 245‑B

245‑30  What this Subdivision is about

This Subdivision explains the circumstances in which a debt is taken to have been forgiven for the purposes of this Division.

245‑31  Map of this Subdivision

 

Operative provisions

245‑35  What constitutes forgiveness of a debt

Obligation to pay debt forgiven

             (1)  A debt is forgiven if the debtor’s obligation to pay the debt is released or waived, or is otherwise extinguished.

Right to sue for debt ceases because of statute of limitations

             (2)  A debt is forgiven if the period within which the creditor is entitled to sue for the recovery of the debt ends because of the operation of a statute of limitations without the debt having been paid.

Agreement to end obligation to pay debt with effect from a future time

             (3)  If:

                     (a)  the debtor and creditor in relation to a debt enter into an agreement or arrangement (whether or not enforceable by legal proceedings); and

                     (b)  under the agreement or arrangement the debtor’s obligation to pay the whole or a part of the debt is to cease at a particular future time; and

                     (c)  the cessation of the obligation is to occur without the debtor incurring any financial or other obligation (other than an obligation that, having regard to the debtor’s circumstances, is of a nominal or insignificant amount or kind);

the debt or the part of the debt is taken to be forgiven when the agreement or arrangement is entered into. If, after the agreement or arrangement is entered into, the debt or the part of the debt is forgiven, the last‑mentioned forgiveness is disregarded for the purposes of this Division.

Debt parking

             (4)  If:

                     (a)  the creditor, in relation to a debt, assigns the right to receive payment of the debt to another person (the new creditor); and

                     (b)  either:

                              (i)  the new creditor is an associate of the debtor; or

                             (ii)  the assignment occurred under an agreement or arrangement to which the new creditor and the debtor were parties; and

                     (c)  the right to receive payment of the debt was not acquired by the new creditor in the ordinary course of trading on a securities market;

this Division has effect as if:

                     (d)  the debtor had, at the time of the assignment, been forgiven a debt (the notional debt) equal to the amount of the assigned debt; and

                     (e)  the net forgiven amount of the notional debt were equal to the amount that would have been the net forgiven amount of the assigned debt if that debt had been forgiven instead of being assigned.

Subscription for shares to enable debt to be paid

             (5)  If:

                     (a)  a person subscribes for shares in a company to enable the company to make a payment in or towards discharge of a debt owed by it to the person; and

                     (b)  the company applies all or any of the money subscribed in or towards payment of the debt;

then:

                     (c)  so much of the debt as is paid out of the money so applied is taken to be forgiven; and

                     (d)  the time of the forgiveness is taken to be the time when the money is so applied.

Definition

             (6)  In this section:

securities market means a market, exchange or other place on which, or a facility by means of which, offers to sell, buy or exchange securities (within the meaning of Division 16E of Part III) are made or accepted.

245‑40  Forgivenesses to which this Division does not apply

                   This Division does not apply to a forgiveness of a debt if:

                     (a)  the forgiveness is effected under an Act relating to bankruptcy; or

                     (b)  the forgiveness is effected by will; or

                     (c)  the debt is forgiven for reasons of natural love and affection.

Subdivision 245‑CCalculation of gross forgiven amount of a debt

Guide to Subdivision 245‑C

245‑45  What this Subdivision is about

If a debt is forgiven, this Subdivision sets out the steps to be followed in calculating the gross forgiven amount of the debt.

245‑46  Simplified outline of this Subdivision

                     (a)  The first step is to work out the notional value of a debt that has been forgiven

·         The notional value of the debt is calculated as at the time when the debt was forgiven on the basis that the debt was an asset of the creditor at that time.

·         The notional value of the debt is worked out for the purpose of calculating the gross forgiven amount of the debt.

·         A special rule applies for the purpose of working out the notional value of a non‑recourse debt.

·         Another special rule applies for the purpose of working out the notional value of a debt that has been parked.

                     (b)  The second step is to work out the consideration (if any) in respect of the forgiveness of the debt.

                     (c)  If no such consideration was paid or given, the gross forgiven amount of the debt is equal to the notional value of the debt.

                     (d)  If any such consideration was paid or given, the gross forgiven amount of the debt is obtained by deducting the consideration from the notional value of the debt.

245‑47  Map of this Subdivision

Operative provisions

245‑50  What constitutes a forgiven debt if consideration is given in respect of the forgiveness

                   If any consideration is paid or given in respect of the forgiveness of a debt, the debt that is forgiven is taken to be:

                     (a)  the obligation that existed before the forgiveness to pay so much of the debt as is expressed, or is taken, to be forgiven; and

                     (b)  the obligation that existed before the forgiveness to pay any part of the debt to which paragraph (a) does not apply but which ceases to be payable as a result of the payment or giving of the consideration.

245‑55  Working out notional value of a debt other than a non‑recourse debt

             (1)  Subject to sections 245‑60 and 245‑61, the notional value of a debt at the time when it was forgiven is the lesser of the amount worked out under subsection (2) (the first applicable amount) and the amount worked out under subsection (3) (the second applicable amount).

             (2)  The first applicable amount is the amount that would have been the value of the debt (considered as an asset of the creditor) at the time when it was forgiven if:

                     (a)  except where subsection (4) applies in relation to the debt, at the time when the debt was incurred the debtor was able to pay all the debtor’s debts (including the debt concerned) as and when they fell due; and

                     (b)  the debtor’s capacity to pay the debt at the time when it was forgiven was the same as the debtor’s capacity to pay the debt at the time when it was incurred.

             (3)  The second applicable amount is the sum of the following amounts:

                     (a)  the amount that would have been the value of the debt (considered as an asset of the creditor) at the time when it was forgiven if:

                              (i)  except where subsection (4) applies in relation to the debt, at the time when the debt was incurred the debtor was able to pay all the debtor’s debts (including the debt concerned) as and when they fell due; and

                             (ii)  the debtor’s capacity to pay the debt at the time when it was forgiven was the same as the debtor’s capacity to pay the debt at the time when it was incurred; and

                            (iii)  no changes occurred, between the time when the debt was incurred and the time when the debt was forgiven, in any market variables; and

                     (b)  the amount or the sum of the amounts of any deduction or deductions that:

                              (i)  have been allowed or are allowable to the debtor as a result of the forgiveness of the debt; and

                             (ii)  are attributable to changes in market variables that occurred between the time when the debt was incurred and the time when the debt was forgiven.

             (4)  Paragraph (2)(a) and subparagraph (3)(a)(i) do not apply in relation to a debt if:

                     (a)  either:

                              (i)  at the time when the debt was forgiven the creditor was a resident; or

                             (ii)  the forgiveness of the debt was a CGT event involving a CGT asset that was taxable Australian property; and

                     (b)  the debtor and the creditor were not dealing with each other at arm’s length in respect of the incurring of the debt; and

                     (c)  the debt was not a moneylending debt.

             (5)  In this section:

market variables, in relation to a debt, means changes in rates of interest, and changes in the rates of exchange between currencies, that affect the value of the debt.

245‑60  Special rule for working out notional value of a non‑recourse debt

             (1)  This section applies to a debt (the non‑recourse debt) if the debt was incurred directly in respect of the financing of the cost of the acquisition, construction or development of property (but not including the manufacture of goods) by the debtor and the rights of the creditor as against the debtor in the event of default in the payment of the debt or the payment of interest are limited to all or any of the following:

                     (a)  rights (including the right to moneys payable) in relation to all or any of the following:

                              (i)  the property or the use of the property;

                             (ii)  goods produced, supplied, carried, transmitted or delivered, or services provided, by means of the property;

                            (iii)  the loss or disposal of the whole or a part of the property or of the debtor’s interest in the property;

                     (b)  rights in respect of a mortgage or other security over the property;

                     (c)  rights arising out of any arrangement relating to the financial obligations, in relation to the property, of the end‑user of the property towards the debtor.

             (2)  The notional value of a non‑recourse debt at the time when it was forgiven is the lesser of the following:

                     (a)  the amount of the non‑recourse debt outstanding at that time;

                     (b)  the market value at that time of the creditor’s rights referred to in subsection (1) of this section.

             (3)  In this section:

end‑user, in relation to property, has the same meaning as in section 51AD.

245‑61  Special rule for working out notional value of parked debt

                   If a debt that has been assigned as mentioned in subsection 245‑35(4) is forgiven, the notional value of that debt is:

                     (a)  if the debt was not a moneylending debt and the creditor and the new creditor were not dealing with each other at arm’s length in connection with the assignment—the market value of the debt at the time of the assignment; or

                     (b)  in any other case—the sum of:

                              (i)  the amount or value of the consideration (if any) that the debtor has paid or given, or is required to pay or give, to the creditor in respect of the assignment; and

                             (ii)  the amount or value of the consideration (if any) paid or given by the new creditor in respect of the assignment.

245‑65  The consideration in respect of forgiveness of a debt

             (1)  Subject to subsection (2), the consideration in respect of the forgiveness of a debt (other than a debt to which subsection (3) or (4) applies) is:

                     (a)  if the debtor has paid, or is required to pay, an amount or amounts of money as a result of, or in respect of, the forgiveness of the debt:

                              (i)  if the debt is not a moneylending debt—that amount or the sum of those amounts; or

                             (ii)  if the debt is a moneylending debt—the sum of the amount or amounts (if any) that the debtor has paid and the market value, at the time of the forgiveness, of the debtor’s obligation to pay an amount or amounts; or

                     (b)  if the debtor has given, or is required to give, property other than money as a result of, or in respect of, the forgiveness of the debt—the market value of the property at the time of the forgiveness; or

                     (c)  if the debtor has paid or given, or is required to pay or give, both an amount or amounts of money and property other than money as a result of, or in respect of, the forgiveness of the debt:

                              (i)  if the debt is not a moneylending debt—the sum of that amount or those amounts and the market value of the property at the time of the forgiveness; or

                             (ii)  if the debt is a moneylending debt—the sum of the amount or amounts (if any) that the debtor has paid, the market value, at the time of the forgiveness, of the property (if any) that the debtor has given and the market value, at the time of the forgiveness, of the debtor’s obligation to pay any amount or amounts or to give any property.

             (2)  Subject to subsection (2A), if a debt (other than a moneylending debt) to which subsection (1) applies is forgiven and:

                     (a)  there is no consideration in respect of the forgiveness; or

                     (b)  the whole or a part of the consideration in respect of the forgiveness cannot be valued; or

                     (c)  the amount that, apart from this paragraph, would be taken to be the amount or value of the consideration in respect of the forgiveness is greater or less than the market value of the debt at the time of the forgiveness and the debtor and creditor were not dealing with each other at arm’s length in connection with the forgiveness;

the debtor is taken to have paid as consideration in respect of the forgiveness of the debt an amount equal to the market value of the debt at the time of the forgiveness.

          (2A)  Subsection (2) does not apply in relation to a debt unless:

                     (a)  at the time when the debt was forgiven the creditor was a resident; or

                     (b)  the forgiveness of the debt was a CGT event involving a CGT asset that was taxable Australian property.

             (3)  In calculating for the purposes of paragraph 245‑35(4)(e) the amount that would have been the net forgiven amount of an assigned debt referred to in that paragraph if that debt had been forgiven instead of being assigned:

                     (a)  if the debt is not a moneylending debt and the creditor and the new creditor were not dealing with each other at arm’s length in connection with the assignment—the consideration in respect of the forgiveness of the debt is taken to be the market value of the debt at the time of the assignment; or

                     (b)  in any other case—the consideration in the respect of the forgiveness of the debt is taken to be the sum of:

                              (i)  the amount or value of the consideration (if any) that the debtor has paid or given, or is required to pay or give, to the creditor in respect of the assignment; and

                             (ii)  the amount or value of the consideration (if any) paid or given by the new creditor in respect of the assignment.

             (4)  If a debt is forgiven by subscribing for shares in a company as mentioned in subsection 245‑35(5), the consideration in respect of the forgiveness of the debt is the amount worked out using the formula:

where:

amount applied means the amount applied by the company as mentioned in paragraph 245‑35(5)(b).

amount subscribed means the amount subscribed as mentioned in paragraph 245‑35(5)(a).

market value of shares subscribed for means the market value, of all the shares in the company that were subscribed for as mentioned in paragraph 245‑35(5)(a), immediately after those shares were issued.

245‑70  Money or other property applied for benefit of creditor

             (1)  For the purposes of section 245‑65:

                     (a)  money or property is taken to have been paid or given to a creditor if the money or property has been applied for the benefit, or in accordance with the directions, of the creditor; and

                     (b)  a debtor is taken to be required to pay money or give property to a creditor if the debtor is required to apply money or property for the benefit, or in accordance with the directions, of the creditor.

             (2)  For the purposes of section 245‑65, a reference in subsection (1) to the application of money or property for the benefit of a creditor includes, without limiting the generality of the expression, a reference to the application of money or property in the discharge, wholly or partly, of a debt due by the creditor.

245‑75  Gross forgiven amount of a debt

             (1)  Subject to subsection (3), if no consideration is paid or given, or taken to be paid or given, in respect of the forgiveness of the debt, the gross forgiven amount of the debt is an amount equal to the notional value of the debt at the time when the debt was forgiven.

             (2)  Subject to subsection (3), if any consideration is paid or given, or taken to be paid or given, in respect of the forgiveness of the debt:

                     (a)  where the notional value of the debt at the time when the debt was forgiven exceeds the consideration—the gross forgiven amount of the debt is an amount equal to the excess; or

                     (b)  where the notional value of the debt at the time when the debt was forgiven is equal to or less than the consideration—there is no forgiven amount in respect of the debt and Subdivisions 245‑D to 245‑G do not apply in respect of the debt.

             (3)  If 2 or more persons were liable (otherwise than as partners in a partnership) to pay a debt, whether their liability was joint or several, or joint and several, the gross forgiven amount of the debt in relation to the person, or each of the persons, in respect of whom the debt was a commercial debt is the amount worked out using the formula:

where:

overall gross forgiven amount means the amount that would be the gross forgiven amount of the debt if all the persons liable to pay the debt were treated as a single person and the debt was a commercial debt in respect of that person.

number of commercial debtors means the number of persons liable to pay the debt in respect of whom the debt was a commercial debt.

Subdivision 245‑DCalculation of net forgiven amount of a debt

Guide to Subdivision 245‑D

245‑80  What this Subdivision is about

This Subdivision provides for the gross forgiven amount of a debt to be reduced in certain circumstances.

If the gross forgiven amount is not reduced under this Subdivision, the gross forgiven amount is also the net forgiven amount of the debt.

If the gross forgiven amount is reduced under this Subdivision, the amount remaining after the reduction is the net forgiven amount of the debt.

245‑81  Map of this Subdivision

 

 

Operative provisions

245‑85  Reduction of gross forgiven amount

             (1)  The gross forgiven amount of a debt is reduced by the sum of any of the following amounts that apply in relation to the debtor:

                     (a)  any amount that, under a provision of this Act other than this Division, has been, or will be, included in the debtor’s assessable income of any year of income as a result of the forgiveness of the debt;

                     (b)  any amount by which, under a provision of this Act other than this Division, a deduction that would otherwise be allowable from the debtor’s assessable income of any year of income has been, or will be, reduced as a result of the forgiveness of the debt (except a reduction under Division 727 (indirect value shifting) of the Income Tax Assessment Act 1997);

                     (c)  any amount by which the cost base to the debtor of any asset for CGT purposes has been, or will be, reduced as a result of the forgiveness of the debt under Part 3‑1 or 3‑3 of the Income Tax Assessment Act 1997 (except a reduction under Division 139 of that Act).

Note:          Paragraph (1)(c) does not cover a reduction under Division 727 (indirect value shifting) of the Income Tax Assessment Act 1997 because that Division is not in Part 3‑1 or 3‑3 of that Act.

             (2)  The amount remaining after reducing the gross forgiven amount under subsection (1) is:

                     (a)  if section 245‑90 does not apply—the net forgiven amount of the debt; or

                     (b)  if section 245‑90 applies—the provisional net forgiven amount of the debt.

245‑90  Agreement between companies under common ownership for creditor to forgo capital loss or revenue deduction

             (1)  This section applies if:

                     (a)  a debt owed by a company to another company is forgiven; and

                     (b)  throughout the period from the time when the debt was incurred until the time when the debt is forgiven, the companies were under common ownership.

             (2)  If, apart from this subsection, the creditor would have incurred a capital loss as a result of the forgiveness of the debt:

                     (a)  the debtor and creditor may agree that the creditor is to forgo so much of the loss as is stated in the agreement and does not exceed the provisional net forgiven amount of the debt; and

                     (b)  if such an agreement is made:

                              (i)  the creditor’s capital loss is reduced by the agreed amount; and

                             (ii)  the provisional net forgiven amount of the debt is also reduced by the agreed amount; and

                            (iii)  the amount remaining after the reduction of the provisional net forgiven amount of the debt under subparagraph (ii) is the net forgiven amount of the debt.

             (3)  If, apart from this subsection, a deduction in respect of the debt would be allowable to the creditor under section 8‑1 (about general deductions) or section 25‑35 (about bad debts) of the Income Tax Assessment Act 1997 in the forgiveness year of income:

                     (a)  the debtor and creditor may agree that the creditor is to forgo so much of the deduction as is stated in the agreement and does not exceed the provisional net forgiven amount of the debt; and

                     (b)  if such an agreement is made:

                              (i)  the deduction otherwise allowable to the creditor is reduced by the agreed amount; and

                             (ii)  the provisional net forgiven amount of the debt is also reduced by the agreed amount; and

                            (iii)  the amount remaining after the reduction of the provisional net forgiven amount of the debt under subparagraph (ii) is the net forgiven amount of the debt.

             (4)  Neither subsection (2) nor (3) applies in relation to an agreement unless the agreement:

                     (a)  is in writing and signed by the public officer of the company that is the debtor and by the public officer of the company that is the creditor; and

                     (b)  is made before whichever is the earlier of the following:

                              (i)  the date of lodgment of the return of income for the forgiveness year of income of the company that is the creditor;

                             (ii)  the date of lodgment of the return of income for the forgiveness year of income of the company that is the debtor;

                            or before any later date that the Commissioner determines.

Subdivision 245‑EApplication of net forgiven amounts

Guide to Subdivision 245‑E

245‑95  What this Subdivision is about

This Subdivision provides for the total of the net forgiven amounts (the total net forgiven amount) of all debts of a particular debtor that are forgiven in the same year of income (the forgiveness year of income) to be applied in reduction of amounts that would otherwise be taken into account in assessing the debtor’s taxable income of the forgiveness year of income or any later year of income.

This Subdivision does not apply to the calculation of attributable income of a non‑resident trust estate or a controlled foreign company.

245‑96  Map of this Subdivision


 

General operative provisions

245‑100  Subdivision not to apply to calculation of attributable income

                   This Subdivision does not apply to the calculation of:

                     (a)  attributable income of a non‑resident trust estate for the purposes of Division 6AAA of Part III; or

                     (b)  attributable income of a controlled foreign company for the purposes of Part X.

245‑105  How total net forgiven amount is to be applied

             (1)  Subject to subsection (2), the total of the net forgiven amounts of all debts of a debtor that are forgiven in the same year of income (the forgiveness year of income) constitutes the total net forgiven amount in relation to the debtor in respect of the forgiveness year of income.

             (2)  Section 245‑215 has effect in calculating the total net forgiven amount of a partner in a partnership.

             (3)  Subdivision 245‑G has effect in calculating the total net forgiven amount of a company that is included in a group of related companies.

             (4)  The total net forgiven amount is to be applied in accordance with this section before the debtor’s return in respect of income of the forgiveness year of income is furnished to the Commissioner.

             (5)  The total net forgiven amount is to be applied first, in accordance with sections 245‑110 to 245‑120, in reduction of deductible revenue losses (if any) incurred by the debtor in years of income before the forgiveness year of income.

             (6)  To the extent to which the total net forgiven amount cannot be applied as mentioned in subsection (5), it is to be applied, in accordance with sections 245‑125 to 245‑135, in reduction of deductible net capital losses (if any) incurred by the debtor in respect of years of income before the forgiveness year of income.

             (7)  To the extent to which the total net forgiven amount cannot be applied as mentioned in subsections (5) and (6), it is to be applied, in accordance with sections 245‑140 to 245‑160, in reduction of deductible expenditures (if any) that are to be taken into account in the assessment of the debtor’s taxable income of the forgiveness year of income or any later year of income.

             (8)  To the extent to which the total net forgiven amount cannot be applied as mentioned in subsections (5), (6) and (7), it is to be applied, in accordance with sections 245‑165 to 245‑190, in reduction of the relevant cost bases of certain assets of the debtor at the beginning of the forgiveness year of income.

Operative provisions relating to reduction of revenue losses

245‑110  Definitions applicable to provisions reducing revenue losses

                   In sections 245‑110 to 245‑120:

deductible revenue loss means a loss:

                     (a)  that is of a kind described in the table of deductible revenue losses; and

                     (b)  in respect of which a deduction would, apart from this Subdivision, be allowable to the debtor in the forgiveness year of income or any later year of income if the debtor had derived sufficient assessable income in the year of income concerned (including sufficient assessable income from which the loss could be deducted).

table of deductible revenue losses means the following table:

 

Table of deductible revenue losses



Item

Column 1
General description
of losses

Column 2
Provision under which loss is deductible

1

Tax losses

Section 36‑15 or 36‑17 of the Income Tax Assessment Act 1997

245‑115  Total net forgiven amount to be applied in reduction of revenue losses

                   The total net forgiven amount is to be applied, to the maximum extent possible, in reduction, in accordance with section 245‑120, of deductible revenue losses (if any).

245‑120  Allocation of total net forgiven amount in respect of deductible revenue losses

             (1)  The debtor may choose:

                     (a)  the order in which the deductible revenue losses are to be reduced; and

                     (b)  the amount by which each of those losses is to be reduced;

provided that the total net forgiven amount is applied, to the maximum extent possible, in reduction of deductible revenue losses.

             (2)  If the debtor does not make a choice for the purposes of subsection (1), the Commissioner may make the choice on behalf of the debtor in a reasonable way.

Operative provisions relating to reduction of net capital losses

245‑125  Definitions applicable to provisions reducing net capital losses

                   In sections 245‑125 to 245‑135:

deductible net capital loss means a net capital loss that:

                     (a)  the debtor has for an income year earlier than the forgiveness year of income; and

                     (b)  apart from this Subdivision, could be applied in working out the debtor’s net capital gain for the forgiveness year of income (assuming the debtor had enough capital gains).

residual forgiven amount means the total net forgiven amount to the extent to which it has not been applied in making reductions of deductible revenue losses.

245‑130  Residual forgiven amount to be applied in reduction of net capital losses

                   The residual forgiven amount is to be applied, to the maximum extent possible, in reduction, in accordance with section 245‑135, of deductible net capital losses (if any).

245‑135  Allocation of residual forgiven amount in respect of deductible net capital losses

             (1)  The debtor may choose:

                     (a)  the order in which the deductible net capital losses are to be reduced; and

                     (b)  the amount by which each of those losses is to be reduced;

provided that the residual forgiven amount is applied, to the maximum extent possible, in reduction of deductible net capital losses.

             (2)  If the debtor does not make a choice for the purposes of subsection (1), the Commissioner may make the choice on behalf of the debtor in a reasonable way.

Operative provisions relating to reduction of deductible expenditure

245‑140  Definitions applicable to provisions reducing deductible expenditure

             (1)  In sections 245‑140 to 245‑160:

deductible expenditure means expenditure (other than excluded expenditure):

                     (a)  that is of a kind referred to in the table of deductible expenditure and was incurred before the forgiveness year of income; and

                     (b)  in respect of which a deduction would, apart from this Subdivision, be allowable to the debtor in respect of income of the forgiveness year of income or a later year of income if no event or circumstance (other than a recoupment of the expenditure in the forgiveness year of income) occurred that would affect the allowance of the deduction.

excluded expenditure has the meaning given by subsections (2), (3) and (4).

residual forgiven amount means the total net forgiven amount to the extent to which it has not been applied in making reductions of deductible revenue losses and deductible net capital losses.

table of deductible expenditure means the following table.

 

 

 

Table of deductible expenditure

 

Column 1

Column 2

Item

General description of expenditure

Provision under which a deduction is allowable in respect of the expenditure

2

Expenditure deductible under Division 40 (capital allowances) of the Income Tax Assessment Act 1997

Division 40 of that Act

4

Expenditure incurred in borrowing money to produce assessable income

Section 25‑25 of the Income Tax Assessment Act 1997

7

Expenditure on scientific research

Subsection 73A(2)

8

Expenditure on research and development activities

Sections 73B or 73BH, 73BA, 73BH, 73QA and 73QB

14

Advance revenue expenditure

Subdivision H of Division 3 of Part III

20

Expenditure on acquiring a unit of industrial property to produce assessable income

Subsection 124M(1)

22

Expenditure on Australian films

Section 124ZAF

23

Expenditure on assessable income producing buildings and other capital works

Section 43‑10 of the Income Tax Assessment Act 1997

 

             (2)  Expenditure is excluded expenditure if:

                     (a)  it was incurred in respect of an asset that has been disposed of by the debtor to a person who was dealing at arm’s length with the debtor in respect of the disposal; and

                     (b)  the disposal occurred during the forgiveness year of income before the forgiveness of any debt owed by the debtor, being a forgiveness that resulted in a net forgiven amount; and

                     (c)  no provision of this Act includes an amount in the debtor’s assessable income, or allows a deduction to the debtor, as a result of the disposal.

             (3)  Expenditure is excluded expenditure if the asset in respect of which the expenditure was incurred was disposed of by the debtor, or was lost or destroyed, on or before the commencement day.

             (4)  Expenditure is excluded expenditure to the extent (if any) to which the expenditure was recouped on or before the commencement day.

245‑145  Residual forgiven amount to be applied in reduction of deductible expenditures

                   The residual forgiven amount is to be applied, to the maximum extent possible, in reduction, in accordance with sections 245‑150 and 245‑155, of deductible expenditures (if any).

245‑150  Allocation of residual forgiven amount in respect of deductible expenditures

             (1)  The debtor may choose:

                     (a)  the order in which deductible expenditures are to be subject to reduction; and

                     (b)  the amount to be applied in reduction of each of those expenditures;

provided that the residual forgiven amount is applied, to the maximum extent possible, in reduction of deductible expenditures.

             (2)  If the debtor does not make a choice for the purposes of subsection (1), the Commissioner may make the choice on behalf of the debtor in a reasonable way.

245‑155  How a reduction of a deductible expenditure is to be effected

             (1)  The following paragraphs apply in respect of the reduction of any deductible expenditure if the deduction that would be allowable to the debtor, apart from this Subdivision, in respect of the deductible expenditure is a percentage, fraction or proportion of an amount (the base amount) that is worked out without regard to any amount or amounts previously allowed as a deduction or deductions in respect of the deductible expenditure:

                     (a)  any amount that is to be applied in reduction of the deductible expenditure is taken to reduce the base amount for the purpose of working out the deduction in respect of the forgiveness year of income and later years of income;

                     (b)  the amount of the reduction is taken to have been a deduction allowed to the debtor in respect of the deductible expenditure before the forgiveness year of income for the purposes of the operation of any provision of this Act that includes an amount in the debtor’s assessable income or allows a deduction to the debtor:

                              (i)  because of the disposal, loss or destruction of the asset in respect of which the deductible expenditure was incurred; or

                             (ii)  because of the recoupment of any of the expenditure; or

                            (iii)  because use of the asset for a particular purpose has been otherwise terminated;

                            (iv)  because a balancing adjustment event within the meaning of the former Division 42, or Division 40, of the Income Tax Assessment Act 1997 occurs for that asset;

                            as the case may be;

                     (c)  the total amount of the deductions allowed or allowable otherwise than under paragraph (b) in respect of the deductible expenditure for all years of income (including years of income before the forgiveness year of income) must not exceed the base amount as reduced under paragraph (a).

             (2)  If the deduction that would be allowable to the debtor, apart from this Subdivision, in respect of any deductible expenditure is a percentage, fraction or proportion of an amount that is worked out after taking into account any amount or amounts previously allowed as a deduction or deductions in respect of the deductible expenditure, any amount to be applied in reduction of the deductible expenditure is taken to have been a deduction allowed to the debtor in respect of the deductible expenditure before the forgiveness year of income.

245‑160  Amount applied in reduction of deductible expenditure to be included in assessable income in certain circumstances

                   If:

                     (a)  an amount of deductible expenditure is recouped after the forgiveness year of income; and

                     (b)  as a result of the recoupment, this Act applies to disallow any deduction previously allowed to the debtor in respect of the expenditure;

an amount equal to the amount, or the sum of the amounts, applied under this Subdivision in reduction of the deductible expenditure is included in the debtor’s assessable income of the year of income in which the expenditure is recouped.

Operative provisions relating to reduction of cost bases of assets

245‑165  Definitions applicable to provisions reducing cost bases

             (1)  In sections 245‑165 to 245‑190:

excluded asset has the meaning given by section 245‑170.

reducible asset means a CGT asset (other than an excluded asset) of the debtor at the beginning of the forgiveness year of income.

relevant cost base, in relation to a CGT asset, means the cost base or the reduced cost base, of the asset.

residual forgiven amount means the total net forgiven amount to the extent to which it has not been applied in making reductions of deductible revenue losses, deductible net capital losses and deductible expenditures.

245‑170  Excluded assets

                   The following CGT assets of a debtor are excluded assets:

                     (a)  a CGT asset acquired by the debtor before 20 September 1985;

                     (b)  a CGT asset that the debtor no longer owned at the end of the commencement day;

                     (c)  a personal use asset (within the meaning of the Income Tax Assessment Act 1997);

                     (d)  a dwelling (within the meaning of the Income Tax Assessment Act 1997) that was the debtor’s main residence at any time before the forgiveness year of income;

                     (e)  goodwill;

                      (f)  a right covered by section 118‑305 of the Income Tax Assessment Act 1997 (which exempts from CGT certain rights relating to a superannuation fund or approved deposit fund);

                     (g)  a CGT asset that, throughout the period before the forgiveness year when it was owned by the debtor, constituted trading stock of the debtor;

                     (h)  a CGT asset:

                              (i)  the cost of which is deductible expenditure in relation to the debtor under section 245‑140; and

                             (ii)  a CGT event in relation to which would result in an amount being included in the debtor’s assessable income, or in the debtor being able to deduct an amount; and

                      (i)  if the debtor is a non‑resident at the beginning of the forgiveness year of income—an asset that is not a taxable Australian asset.

245‑175  Residual forgiven amount to be applied in reduction of cost bases of assets

                   The residual forgiven amount is to be applied, to the maximum extent possible, in reduction, in accordance with sections 245‑180 to 245‑190, of the relevant cost bases of reducible assets (if any).

245‑180  Allocation of residual forgiven amount among relevant cost bases of assets

             (1)  Subject to section 245‑185, the debtor may choose:

                     (a)  the reducible assets whose relevant cost bases are to be subject to reduction; and

                     (b)  the amount to be applied in reduction of the relevant cost base of each of those assets;

provided that the residual forgiven amount is applied, to the maximum extent possible, in reduction of the relevant cost bases of reducible assets.

             (2)  If the debtor does not make a choice for the purposes of subsection (1), the Commissioner may make the choice on behalf of the debtor in a reasonable way.

245‑185  Relevant cost bases of investments in associated entities to be reduced last

             (1)  If a debtor’s reducible assets include investments in, or in relation to, entities that are associates of the debtor, the relevant cost bases of those investments are not subject to reduction under section 245‑175 until the residual forgiven amount has been applied, to the maximum extent possible, in reduction of the relevant cost bases of reducible assets other than such investments.

             (2)  In this section:

entity means a natural person, a partnership, a trustee of a trust or a company.

investment includes:

                     (a)  in respect of an entity that is a partnership—an interest as a partner in a partnership; and

                     (b)  in respect of an entity that is a trustee of a trust—a beneficial interest under the trust; and

                     (c)  in respect of an entity that is a company—a share in the company; and

                     (d)  in respect of any entity—a debt owed to the debtor by the entity.

245‑190  How a reduction of the relevant cost bases of an asset is to be effected

             (1)  Subject to subsection (3), if the debtor chooses to apply an amount in reduction of the relevant cost bases of a particular CGT asset, each relevant cost base of the asset, as at any time on or after the beginning of the forgiveness year of income, is taken to be reduced by that amount.

             (2)  The reduction by a particular amount of each of the relevant cost bases of a particular CGT asset is, for the purpose of working out the amount by which the residual forgiven amount is applied in making the reduction, taken to be a reduction in that residual forgiven amount by the particular amount (and not by the sum of the amounts by which those cost bases are reduced).

             (3)  The maximum amount by which each of the relevant cost bases of a CGT asset may be reduced is the amount that, apart from sections 245‑175 to 245‑185, would be the reduced cost base of the asset calculated as if a CGT event had happened to the asset:

                     (a)  subject to paragraph (b), on the first day of the forgiveness year of income; or

                     (b)  if, after the beginning of that year of income, an event occurred that would cause the reduced cost base of the asset to be reduced—on the day on which the event occurred;

and to have been so disposed of at its market value on the day concerned.

Operative provision relating to unapplied total net forgiven amount

245‑195  No further consequences if there is any remaining unapplied total net forgiven amount

             (1)  If any part of the total net forgiven amount remains after the application of that amount in making reductions under the preceding provisions of this Subdivision, the remaining part is disregarded.

             (2)  This section has effect subject to section 245‑215.

Subdivision 245‑FSpecial rules relating to partnerships

Guide to Subdivision 245‑F

245‑200  What this Subdivision is about

This Subdivision provides that the preceding Subdivisions apply to a partnership in relation to debts owed by the partnership that are forgiven.

However, if the total net forgiven amount in relation to a partnership is not able to be fully applied under those provisions as they apply to the partnership, the remainder is treated as being net forgiven amounts of debts of the partners in proportion to their respective shares in the net income, or the partnership loss, of the partnership of the forgiveness year of income.

245‑201  Map of this Subdivision

Operative provisions

245‑205  This Subdivision does not apply to corporate limited partnerships

             (1)  This Subdivision does not apply to a corporate limited partnership.

             (2)  This Division, other than this Subdivision, applies to a corporate limited partnership as if the partnership were a company.

             (3)  In this section:

corporate limited partnership has the meaning given by section 94D.

245‑210  Subdivisions 245‑A to 245‑E to apply to partnerships

             (1)  Subdivisions 245‑A to 245‑D apply to a partnership in respect of the partnership’s debts, and references in those Subdivisions to a debtor include a reference to a partnership in respect of the partnership’s debts.

             (2)  Subject to section 245‑215, Subdivision 245‑E applies to a partnership in respect of the total net forgiven amount calculated in relation to the partnership under Subdivisions 245‑A to 245‑D as they apply under subsection (1).

245‑215  Unapplied total net forgiven amount of a partnership to be transferred to partners

             (1)  This section has effect in relation to a partnership irrespective of any agreement between the partners as to the operation of this section.

             (2)  This section applies if any part (the residual amount) of the total net forgiven amount in relation to a partnership in respect of the forgiveness year of income remains after the total net forgiven amount has been applied in accordance with Subdivision 245‑E.

             (3)  If there is a net income in relation to the partnership in respect of the forgiveness year of income, each partner is taken to have had a debt forgiven during the forgiveness year of income and there is taken to be, in respect of the debt of each partner, a net forgiven amount worked out in accordance with the following formula:

             (4)  If there is a partnership loss in relation to the partnership in respect of the forgiveness year of income, each partner is taken to have had a debt forgiven during the forgiveness year of income and there is taken to be, in respect of the debt of each partner, a net forgiven amount worked out in accordance with the following formula:

             (5)  In the formulas in subsections (3) and (4):

partner’s share of net income means the part of the net income of the partnership of the forgiveness year of income that is included in the partner’s assessable income.

partner’s share of partnership loss means the part of the partnership loss that is allowable as a deduction to the partner.

net income means the net income of the partnership of the forgiveness year of income.

partnership loss means the partnership loss of the forgiveness year of income.

residual amount has the meaning given by subsection (2).

             (6)  The total net forgiven amount of a partner for the forgiveness year of income as worked out under subsection 245‑105(1) includes the net forgiven amount worked out in relation to the partner under this section.

Subdivision 245‑GSpecial rules affecting related companies

Guide to Subdivision 245‑G

245‑220  What this Subdivision is about

This Subdivision applies in certain circumstances if, at the time when a debt incurred by a company is forgiven, the company and another company or other companies constituted a group of related companies.

The forgiven amount of the debt is treated in those circumstances as having been used to generate amounts that would otherwise be taken into account in reducing the taxable incomes of the debtor company and other company or companies in the group.

245‑221  Map of this Subdivision

 


Operative provisions

245‑225  Application of Subdivision

             (1)  This Subdivision applies in respect of a debt (the relevant debt) incurred by a company (the debtor company) if, and only if:

                     (a)  the relevant debt has been forgiven; and

                     (b)  there is a net forgiven amount in respect of the relevant debt; and

                     (c)  the debtor company and another company or other companies constitute a group of related companies in respect of the relevant debt.

             (2)  The debtor company and another company or other companies constitute a group of related companies in respect of the relevant debt for the purposes of this section if the companies concerned were under common ownership:

                     (a)  at the time when the relevant debt was forgiven; and

                     (b)  at any time on the last day of the year of income that immediately preceded the forgiveness year of income in respect of the relevant debt.

             (3)  If:

                     (a)  the debtor company and another company were not under common ownership at the times mentioned in subsection (2); and

                     (b)  the 2 companies had been under common ownership at any time within:

                              (i)  the 2 years of income that immediately preceded the forgiveness year of income in respect of the relevant debt; or

                             (ii)  the part of the forgiveness year of income that occurred before the relevant debt was forgiven; and

the other company is taken to be included in the group of related companies referred to in subsection (2) in respect of the relevant debt if:

                     (c)  a taxpayer who was a controller of the other company immediately before, and immediately after, the 2 companies ceased to be under common ownership was also:

                              (i)  a controller of the other company at the time when the relevant debt was forgiven; and

                             (ii)  a controller of the debtor company at that time; or

                     (d)  immediately before, and immediately after, the 2 companies ceased to be under common ownership and at the time when the relevant debt was forgiven:

                              (i)  the debtor company was a controller of the other company; or

                             (ii)  the other company was a controller of the debtor company.

245‑230  If any non‑debtor companies in a group of related companies have deductible revenue losses

             (1)  This section applies in relation to the relevant debt if, and only if, any one or more of the non‑debtor companies in the group of related companies in respect of the relevant debt have deductible revenue losses for the purposes of the application of this Division in relation to the forgiveness year of income in respect of the relevant debt (the relevant year of income).

             (2)  The net forgiven amount of the relevant debt (the disregarded net forgiven amount) is disregarded for the purposes of this Division other than this Subdivision.

             (3)  However, each company in the group that has deductible revenue losses for the purposes mentioned in subsection (1) (including the debtor company if it has deductible revenue losses for those purposes) is taken to have had a debt forgiven during the relevant year of income and there is taken to be, in respect of each such debt, a net forgiven amount worked out in accordance with the following formula:

where:

company’s deductible revenue losses means the total of the company’s deductible revenue losses for the purposes of the application of this Division in relation to the relevant year of income.

total deductible revenue losses means the total of the deductible revenue losses of all the companies in the group of related companies for the purposes of the application of this Division in relation to the relevant year of income.

             (4)  In this section:

deductible revenue loss of a company does not include an amount of a tax loss transferred to the company by another company if the other company incurred the tax loss in the relevant year of income.

Note:          Subdivision 170‑A of the Income Tax Assessment Act 1997 provides for the transfer of tax losses within wholly‑owned groups of companies.

245‑235  If any non‑debtor companies in a group of related companies have deductible net capital losses

             (1)  This section applies in relation to the relevant debt if, and only if, for the purposes of the application of this Division in relation to the forgiveness year of income in respect of the relevant debt (the relevant year of income):

                     (a)  none of the companies in the group of related companies in respect of the relevant debt have deductible revenue losses; but

                     (b)  any one or more of the non‑debtor companies in the group of related companies in respect of the relevant debt have deductible net capital losses.

             (2)  The net forgiven amount of the relevant debt (the disregarded net forgiven amount) is disregarded for the purposes of this Division other than this Subdivision.

             (3)  However, each company in the group that has deductible net capital losses for the purposes mentioned in subsection (1) (including the debtor company if it has deductible net capital losses for those purposes) is taken to have had a debt forgiven during the relevant year of income and there is taken to be, in respect of each such debt, a net forgiven amount worked out in accordance with the following formula:

where:

company’s deductible net capital losses means the total of the company’s deductible net capital losses for the purposes of the application of this Division in relation to the relevant year of income.

total deductible net capital losses means the total of the deductible net capital losses of all the companies in the group of related companies for the purposes of the application of this Division in relation to the relevant year of income.

245‑240  If neither section 245‑230 nor 245‑235 applies

                   If neither section 245‑230 nor 245‑235 applies in respect of the relevant debt, this Subdivision does not affect the application of the preceding Subdivisions in relation to the net forgiven amount of the debt.

Subdivision 245‑HGeneral

245‑245  Definitions

             (1)  In this Division, unless the contrary intention appears:

associate has the meaning given by section 318.

commencement day means the day on which this Schedule commences.

debt includes a part of a debt.

debtor company, in relation to a group of companies that are related companies in respect of a debt incurred by one of those companies, means the company in the group that incurred the debt.

deductible net capital loss, subject to subsection (2), has the meaning given by section 245‑125.

deductible revenue loss, subject to subsection (2), has the meaning given by section 245‑110.

extinguished, in relation to a debt, does not include payment of the whole of the debt in cash.

forgive, in relation to a debt, has the meaning given by section 245‑35.

forgiveness year of income has the meaning given by subsection 245‑105(1).

moneylending debt means a debt resulting from a loan of money to the debtor made by the creditor in the ordinary course of a business of lending money carried on by the creditor.

net forgiven amount, in relation to a debt, has the meaning given by Subdivision 245‑D.

non‑debtor company, in relation to a group of companies that are related companies in respect of a debt incurred by one of those companies, means a company in the group other than the company that incurred the debt.

pay includes repay.

related group of companies has the meaning given by section 245‑225.

total net forgiven amount, in relation to a debtor in respect of a forgiveness year of income, has the meaning given by subsection 245‑105(1).

             (2)  In determining for the purposes of this Division whether a non‑debtor company in a group of companies that are related companies in respect of a debt has a deductible revenue loss or a deductible net capital loss, the relevant definitions of those expressions as set out in sections 245‑110 and 245‑125, respectively, are to be applied as if the company were the debtor company.

245‑250  Companies under common ownership

                   For the purposes of this Division, the question whether 2 companies were under common ownership at a particular time is to be determined in the same way as that question would be determined under the definition of under common ownership in subsection 995‑1(1) of the Income Tax Assessment Act 1997.

245‑255  Controller of company

                   For the purposes of this Division, the question whether a taxpayer was a controller of a company at a particular time is to be determined in the same way as the question whether an entity is a controller (for CGT purposes) of a company is determined under section 140‑20 of the Income Tax Assessment Act 1997.

245‑260  Time of incurring debt

             (1)  Subject to subsection (2), if a debt resulted from the debtor’s drawing from time to time on an established line of credit, the debt is taken, for the purposes of this Division, to have been incurred at the time when the debtor first drew on the line of credit.

             (2)  If, at any time after a debtor made a drawing or drawings on a line of credit, the debtor repaid the only previous drawing or all the previous drawings, as the case may be, the reference in subsection (1) to the time when the debtor first drew on the line of credit is taken to be a reference to the time of the first drawing after the repayment.

245‑265  Keeping and retention of records

             (1)  A person (the debtor) who incurs a commercial debt must keep any records that are necessary to enable the following matters to be readily found out:

                     (a)  the date on which the debt was incurred;

                     (b)  the identity of the creditor;

                     (c)  the amount of the debt;

                     (d)  the terms of repayment of the debt;

                     (e)  if the debt is not a moneylending debt and the debtor and the creditor were not dealing with each other at arm’s length in respect of the incurring of the debt—the debtor’s capacity at the time when the debt was incurred to pay the debt when it falls due;

                      (f)  if the debtor’s obligation to pay the debt is forgiven—the date of the forgiveness and the consideration (if any) in respect of the forgiveness.

Note:          There is an administrative penalty if you do not keep or retain records as required by this section: see section 288‑25 in Schedule 1 to the Taxation Administration Act 1953.

             (2)  If a company and another company that are under common ownership cease to be under common ownership, each company must keep any records that are necessary to enable the following matters to be readily found out:

                     (a)  the date on which the companies ceased to be under common ownership;

                     (b)  the identity of each person who was a controller of the company immediately before the companies ceased to be under common ownership;

                     (c)  the identity of each person who was a controller of the company immediately after the companies ceased to be under common ownership.

             (3)  A person who is required by subsection (1) or (2) to keep records must keep them in writing in the English language or so as to enable them to be readily accessible and convertible into writing in the English language.

             (4)  Subject to subsection (5), a person who keeps any records, relating to a debt incurred by the person, as required by subsection (1) must retain the records until:

                     (a)  if paragraph (b) does not apply—the end of 5 years after the debt was forgiven; or

                     (b)  if the period (the assessment period) within which the Commissioner may, under section 170, amend an assessment in respect of the person’s income of the year of income to which the records relate, or in which a transaction or act to which the records relate was completed, is extended under subsection 170(7):

                              (i)  the end of the period of 5 years referred to in paragraph (a); or

                             (ii)  the end of the assessment period as so extended;

                            whichever is the later.

             (5)  Subsection (4) does not require records in respect of a debt that has been wholly paid in cash to be retained after the debt was so paid.

             (6)  Subject to subsection (7), each company referred to in subsection (2) that keeps any records relating to the company as required by subsection (2) must retain the records until the end of the second year of income after the year of income in which the company and the other company referred to in subsection (2) ceased to be under common ownership.

             (7)  If a debt of one of the companies referred to in subsection (2) was forgiven at any time after the companies ceased to be under common ownership and before the end of the second year of income after the year of income in which the cessation occurred, each of the companies that keeps any records relating to the company as required by that subsection must retain the records until:

                     (a)  if paragraph (b) does not apply—the end of 5 years after the debt was forgiven; or

                     (b)  if the period (the assessment period) within which the Commissioner may, under section 170, amend an assessment in respect of the company’s income of the year of income to which the records relate, or in which a transaction or act to which the records relate was completed, is extended under subsection 170(7):

                              (i)  the end of the period of 5 years referred to in paragraph (a); or

                             (ii)  the end of the assessment period as so extended;

                            whichever is the later.

             (8)  A person who contravenes a provision of this section is guilty of an offence punishable on conviction by a penalty of not more than 30 penalty units.

          (8A)  Subsection (8) does not apply to the extent that the person has a reasonable excuse.

Note:          A defendant bears an evidential burden in relation to the matters in subsection (8A), see subsection 13.3(3) of the Criminal Code.

             (9)  This section does not limit the application of any other provision of this Act relating to the keeping or retention of records.


Schedule 2DTax exempt entities that become taxable [see Note 2]

  

Division 57Tax exempt entities that become taxable

Table of Subdivisions

Guide to Division 57

57‑A     Key concepts

57‑B      Predecessors of the transition taxpayer

57‑C      Time when income derived

57‑D     Time when losses and outgoings incurred

57‑E      Assets and liabilities

57‑F      Superannuation deductions

57‑G     Denial of certain deductions

57‑H     Domestic losses

57‑J       Capital allowances and certain other deductions

57‑K     Balancing adjustments

57‑L      Trading stock

57‑M     Imputation

57‑N     Division not applicable in respect of certain plant


Guide to Division 57

57‑1  What this Division is about

This Division is about the income tax treatment of a taxpayer whose income ceases to be wholly exempt. Broadly, income, outgoings, gains and losses are attributed to the periods before and after the loss of full exemption.

Subdivision 57‑AKey concepts

57‑5  Entities to which this Division applies

                   If:

                     (a)  at a particular time, all of the income of a taxpayer is wholly exempt from income tax; and

                     (b)  immediately after that time, the taxpayer’s income becomes to any extent assessable income;

then:

                     (c)  the taxpayer is a transition taxpayer; and

                     (d)  the time when the taxpayer’s income becomes to that extent assessable is the transition time; and

                     (e)  the year of income in which the transition time occurs is the transition year for the taxpayer.

Subdivision 57‑BPredecessors of the transition taxpayer

57‑10  Activities of transition taxpayer’s predecessor attributed to transition taxpayer

             (1)  If:

                     (a)  at the transition time, the transition taxpayer performs particular functions or carries on particular activities; and

                     (b)  during any period before the transition taxpayer first began to perform the functions or carry on the activities, an exempt government entity performed those same functions or carried on those same activities; and

                     (c)  at the end of the period, responsibility for performing the functions or carrying on the activities was transferred, either directly or through one or more other exempt government entities, to the transition taxpayer;

this Division applies as if, during that period, anything done by or to the exempt government entity in performing those functions or carrying on those activities had instead been done by or to the transition taxpayer.

Note:          As a result of this provision, the transition taxpayer may for example be able to deduct after the transition time, under Division 40 of the Income Tax Assessment Act 1997 as modified by Subdivision 57‑J of this Schedule, a portion of allowable capital expenditure incurred before the transition time by an exempt government entity whose functions were transferred to the transition taxpayer.

             (2)  An exempt government entity is:

                     (a)  the Commonwealth, a State or a Territory; or

                     (b)  an STB, within the meaning of Division 1AB of Part III, that is exempt from tax under that Division.

Subdivision 57‑CTime when income derived

57‑15  Time when income derived

             (1)  To the extent that income derived by the transition taxpayer before the transition time is in respect of:

                     (a)  services rendered; or

                     (b)  goods provided; or

                     (c)  the doing of any other thing;

at or after the transition time, the income is treated for the purposes of this Act as having been derived at the time the services were rendered, the goods were provided or the thing was done, as the case requires.

             (2)  To the extent that income derived by the transition taxpayer at or after the transition time is in respect of:

                     (a)  services rendered; or

                     (b)  goods provided; or

                     (c)  the doing of any other thing;

before the transition time, the income is treated for the purposes of this Act as having been derived before that time.

Subdivision 57‑DTime when losses and outgoings incurred

57‑20  Time when losses and outgoings incurred

             (1)  To the extent that a loss or outgoing (within the meaning of section 51 of this Act or section 8‑1 of the Income Tax Assessment Act 1997, as appropriate) incurred by the transition taxpayer before the transition time is in respect of:

                     (a)  services rendered; or

                     (b)  goods provided; or

                     (c)  the doing of any other thing;

at or after the transition time, the loss or outgoing is treated for the purposes of this Act as having been incurred at the time the services were rendered, the goods were provided or the thing was done, as the case requires.

             (2)  To the extent that a loss or outgoing (within the meaning of section 51 of this Act or section 8‑1 of the Income Tax Assessment Act 1997, as appropriate) incurred by the transition taxpayer at or after the transition time is in respect of:

                     (a)  services rendered; or

                     (b)  goods provided; or

                     (c)  the doing of any other thing;

before the transition time, the loss or outgoing is treated for the purposes of this Act as having been incurred before that time.

Subdivision 57‑EAssets and liabilities

57‑25  Deemed disposal and re‑acquisition of assets

             (1)  This section applies to:

                     (a)  the disposal of an asset by the transition taxpayer after the transition time; and

                     (b)  a CGT event that happens after the transition time in relation to an asset owned by the transition taxpayer;

where the transition taxpayer owned the asset at all times from the transition time until the disposal or the CGT event.

Deemed disposal and re‑purchase

             (2)  Subject to subsection (5), in determining for the purposes of this Act (other than the excluded provisions mentioned in subsection (4)) whether an amount is included in, or allowable as a deduction from, the assessable income of the transition taxpayer in respect of the disposal, the transition taxpayer is taken:

                     (a)  to have sold, immediately before the transition time, each of its assets; and

                     (b)  to have purchased each of its assets again at the transition time for consideration equal to the asset’s adjusted market value at the transition time.

          (2A)  For the purposes of Parts 3‑1 and 3‑3 of the Income Tax Assessment Act 1997 (about CGT), in determining whether the transition taxpayer makes a capital gain or capital loss from a CGT event that happens after the transition time in relation to an asset referred to in subsection (1), the cost base and reduced cost base of the asset (at the transition time) is its adjusted market value at that time.

             (3)  An asset’s adjusted market value at the transition time is the asset’s market value at that time:

                     (a)  reduced by any amount of income received or receivable by the transition taxpayer in respect of the asset at or after the transition time that:

                              (i)  because of subsection 57‑15(2); or

                             (ii)  because all of the income of the transition taxpayer was wholly exempt from income tax before the transition time;

                            is not included in the transition taxpayer’s assessable income; and

                     (b)  increased by any amount of income received or receivable by the transition taxpayer in respect of the asset before the transition time that:

                              (i)  because of subsection 57‑15(1); or

                             (ii)  because the transition taxpayer’s income ceased to be exempt from income tax at the transition time;

                            is included in the transition taxpayer’s assessable income.

Excluded provisions

             (4)  For the purposes of subsection (2), the excluded provisions are:

                     (e)  Division 10B of Part III of this Act (about industrial property); and

                      (f)  Division 10BA of Part III of this Act (about Australian films); and

                    (ga)  Division 40 of the Income Tax Assessment Act 1997 (about capital allowances); and

                      (i)  Division 43 of the Income Tax Assessment Act 1997 (about deductions for capital works); and

                      (j)  section 70‑120 of the Income Tax Assessment Act 1997 (about deducting capital costs of acquiring trees);

                    (la)  Division 373 of the Income Tax Assessment Act 1997 (about intellectual property).

Listed provisions not affected

             (5)  If the transition taxpayer:

                     (a)  acquired an asset (whether before the transition time or otherwise) before the commencement of a provision listed in subsection (6); and

                     (b)  after acquiring the asset, owned the asset at all times before the transition time;

the deemed acquisition of the asset under subsection (2) does not affect the operation of the listed provision.

Listed provisions

             (6)  The provisions are listed in the table below. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

Listed provisions

Item

Provision

1

section 26BB

2

section 26C

3

section 70B

4

the former Division 3B of Part III

5

Division 16E of Part III

6

Subdivision 20‑A, so far as it applies to an amount that may be an assessable recoupment because a deduction has been allowed or is allowable under the former subsection 82Z(1).

7

Division 775

8

Subdivision 20‑A, so far as it applies to an amount that may be an assessable recoupment because a deduction has been allowed or is allowable under section 775‑30

          (6A)  For the purposes of the application of subsection (5) to the transition taxpayer, a provision covered by item 7 or 8 of the table in subsection (6) is taken to have commenced at the start of the taxpayer’s applicable commencement date (within the meaning of Division 775 of the Income Tax Assessment Act 1997).

Note:          For applicable commencement date, see section 775‑155 of the Income Tax Assessment Act 1997.

          (6B)  The rule in subsection (5) does not apply, and is taken never to have applied, to the transition taxpayer in relation to a provision covered by item 7 or 8 of the table in subsection (6) if the taxpayer makes an election under section 775‑150 of the Income Tax Assessment Act 1997.

Avoidance of doubt—debt write‑off

             (7)  To avoid doubt, an effect of subsection (2) is that the sum of all allowable deductions (if any) in respect of the writing off as bad of the whole or part of a debt to which that subsection applies will not exceed the market value of the debt at the transition time.

Avoidance of doubt—disposal need not involve an alienation

             (8)  To avoid doubt, an asset may be disposed of for the purposes of this section whether or not the disposal involves alienating the asset.

57‑30  Deemed cessation and re‑assumption of liabilities

             (1)  Subject to subsection (3), for the purposes of determining a deduction allowable to, or an amount included in the assessable income of, the transition taxpayer after the transition time in respect of the satisfaction of a liability owed by the transition taxpayer immediately before the transition time, the transition taxpayer is taken:

                     (a)  to have ceased immediately before the transition time to have any liabilities; and

                     (b)  to have assumed each of its liabilities again at the transition time in return for consideration equal to the adjusted market value (see subsection (2)) at that time of the right or other asset, corresponding to the liability, that was held by the person to whom the liability was owed.

             (2)  The adjusted market value of the corresponding right or other asset is the market value of that right or asset at the transition time:

                     (a)  reduced by any amount paid or that becomes payable by the transition taxpayer in respect of the liability at or after the transition time, where:

                              (i)  because of subsection 57‑20(2); or

                             (ii)  because all of the transition taxpayer’s income was wholly exempt from income tax before the transition time;

                            the amount is not an allowable deduction; and

                     (b)  increased by any amount paid or that became payable by the transition taxpayer in respect of the liability before the transition time, where:

                              (i)  because of subsection 57‑20(1); or

                             (ii)  because the transition taxpayer’s income ceased to be exempt from income tax at the transition time;

                            the amount is an allowable deduction.

             (3)  A provision listed in subsection (4) only applies to a liability of the transition taxpayer at the transition time if the liability first came into existence after the day on which Division 3B of Part III commenced.

             (4)  The provisions are listed in the table below. Provisions of the Income Tax Assessment Act 1997 are identified in normal text. The other provisions, in bold, are provisions of the Income Tax Assessment Act 1936.

 

Listed provisions

Item

Provision

1

the former Division 3B of Part III

2

Subdivision 20‑A, so far as it applies to an amount that may be an assessable recoupment because a deduction has been allowed or is allowable under the former subsection 82Z(1).

             (5)  A provision listed in subsection (6) only applies to a liability of the transition taxpayer at the transition time if the taxpayer first assumed the liability on or after the taxpayer’s applicable commencement date (within the meaning of Division 775 of the Income Tax Assessment Act 1997).

Note:          For applicable commencement date, see section 775‑155 of the Income Tax Assessment Act 1997.

             (6)  The provisions are listed in the table below. Provisions of the Income Tax Assessment Act 1997 are identified in normal text.

 

Listed provisions

Item

Provision

1

Division 775

2

Subdivision 20‑A, so far as it applies to an amount that may be an assessable recoupment because a deduction has been allowed or is allowable under section 775‑30.

             (7)  The rule in subsection (5) does not apply, and is taken never to have applied, to the transition taxpayer if the taxpayer makes an election under section 775‑150 of the Income Tax Assessment Act 1997.

57‑35  Interpretation

                   In this Subdivision:

asset means property, or a right, of any kind, and includes:

                     (a)  any legal or equitable estate or interest (whether present or future, vested or contingent, tangible or intangible, in real or personal property) of any kind; and

                     (b)  any chose in action; and

                     (c)  any right, interest or claim of any kind including rights, interests or claims in or in relation to property (whether arising under an instrument or otherwise, and whether liquidated or unliquidated, certain or contingent, accrued or accruing); and

                     (e)  a CGT asset;but does not include trading stock.

liability includes a duty or obligation of any kind (whether arising under an instrument or otherwise, and whether actual, contingent or prospective).

Subdivision 57‑FSuperannuation deductions

57‑40  Contributions under defined benefit superannuation schemes

             (1)  This section applies to a deduction allowable apart from this Subdivision to the transition taxpayer under section 290‑60 of the Income Tax Assessment Act 1997 for a contribution made to a fund in relation to a person if:

                     (a)  the person was an employee of the transition taxpayer at any time before or after the transition time; and

                     (b)  the contribution was made under a defined benefit superannuation scheme (within the meaning of section 6A of the Superannuation Guarantee (Administration) Act 1992).

Deduction allowable only if sum of all deductions exceeds defined benefit threshold amount

             (2)  The deduction is not allowable for a year of income if the sum of all deductions of the transition taxpayer to which this section applies for the year of income is less than or equal to the defined benefit threshold amount (see subsection (4)) for the year of income.

Amount of deduction not allowable

             (3)  If the sum is greater than that amount, so much of the deduction as is worked out using the following formula is not allowable:

Meaning of defined benefit threshold amount

             (4)  The defined benefit threshold amount for a year of income is:

                     (a)  if the year of income is the transition year—the unfunded liability amount (see subsection (5)); or

                     (b)  in any other case—that amount as reduced by the total amount of deductions to which this section applies, that, because of subsection (2) or (3), have not (disregarding section 57‑55) been allowable to the transition taxpayer for all previous years of income.

Meaning of unfunded liability amount

             (5)  The unfunded liability amount is the value, worked out as at the transition time in accordance with actuarial principles, of the liabilities of the transition taxpayer to provide superannuation benefits for, or for dependants of, employees of the transition taxpayer, where the liabilities:

                     (a)  had accrued as at the transition time; and

                     (b)  were, according to actuarial principles, unfunded at that time; and

                     (c)  were liabilities only under defined benefit superannuation schemes.

57‑45  Deduction for surplus to meet defined benefit superannuation scheme liabilities

                   If:

                     (a)  at the transition time, according to a particular defined benefit superannuation scheme’s accounts, an amount is available to meet liabilities of the transition taxpayer under the scheme to provide superannuation benefits for, or for dependants of, employees of the transition taxpayer; and

                     (b)  the amount exceeds the total value (as worked out according to actuarial principles) of the liabilities of that kind that have accrued as at the transition time; and

                     (c)  before the transition time, the transition taxpayer makes a written election that the excess is to be used solely to meet liabilities of that kind accruing after the transition time, and the excess is later used solely to meet such liabilities;

the excess is an allowable deduction of the transition taxpayer for the transition year.

57‑50  Contributions generally

             (1)  This section applies to a deduction allowable apart from this Subdivision to the transition taxpayer under section 290‑60 of the Income Tax Assessment Act 1997 for a contribution made to a fund in relation to a person if the person was an employee of the transition taxpayer at any time before or after the transition time.

Deduction allowable only if sum of all deductions exceeds general superannuation threshold amount

             (2)  The deduction is not allowable for a year of income if the sum of all deductions of the transition taxpayer to which this section applies for the year of income is less than or equal to the general superannuation threshold amount (see subsection (4)) for the year of income.

Amount of deduction not allowable

             (3)  If the sum is greater than the general superannuation threshold amount, so much of the deduction as is worked out using the following formula is not allowable:

Meaning of general superannuation threshold amount

             (4)  The general superannuation threshold amount for a year of income is:

                     (a)  if the year of income is the transition year—the undischarged superannuation liability amount (see subsection (5)); or

                     (b)  in any other case—the amount applicable under paragraph (a), reduced by the total amount of deductions to which this section applies that, because of subsection (2) or (3), have not (disregarding section 57‑55) been allowable to the transition taxpayer for all previous years of income.

Meaning of undischarged superannuation liability amount

             (5)  This is how to work out the transition taxpayer’s undischarged superannuation liability amount:

Step 1.   For each person who was an employee of the transition taxpayer at any time before the transition time, take the sum of:

               (a)     if the whole or any part of the person’s period of employment with the transition taxpayer took place before the beginning of the superannuation guarantee period (see subsection (6)) and there were one or more required award etc. contribution amounts (see subsection (7)) in respect of any of that whole or part—that amount or those amounts; and

              (b)     if, for the whole or any part or parts of the superannuation guarantee period, there were one or more required award etc. contribution amounts that were greater than the required superannuation guarantee contribution amount or amounts (see subsection (8))—that greater amount or those greater amounts; and

               (c)     if, for the whole or any part or parts of the superannuation guarantee period, either there was no required award etc. contribution amount or there was such an amount but it was not greater than the required superannuation guarantee contribution amount—the required superannuation guarantee contribution amount for the whole or the part of the period, or the sum of the required superannuation guarantee contribution amounts for the parts of the period, as the case may be.

Step 2.   Reduce the sum from Step 1 by the sum of amounts that the transition taxpayer actually contributed before the start of the transition year:

               (a)     in payment of required award etc. contribution amounts or required superannuation guarantee contribution amounts for the employee that are included in the sum in Step 1; or

              (b)     voluntarily to a superannuation fund for the purpose of providing superannuation benefits for the employee, or dependants of the employee;

              in respect of any period of employment of the employee with the transition taxpayer before the transition time.

Step 3.   If the result after applying Step 2 for a particular employee is less than nil, it is nil instead.

Step 4.   Add up the results for all of the employees. This final sum is the transition taxpayer’s undischarged superannuation liability amount.

Meaning of superannuation guarantee period

             (6)  The superannuation guarantee period is the period beginning on 1 July 1992 and ending at the transition time.

Meaning of required award etc. contribution amount

             (7)  A required award etc. contribution amount is an amount required to be contributed to a superannuation fund by an employer for the benefit of an employee:

                     (a)  by an industrial award; or

                     (b)  by an occupational superannuation arrangement; or

                     (c)  by a law of the Commonwealth, a State or a Territory; or

                     (d)  otherwise.

Meaning of required superannuation guarantee contribution amount

             (8)  A required superannuation guarantee contribution amount is an amount that an employer would need to contribute in respect of a period so as not to have a superannuation guarantee shortfall under the Superannuation Guarantee (Administration) Act 1992 in respect of that period.

Note:          The relevant periods for which shortfalls are or were calculated under that Act are quarters (from 1 July 1993 onwards) or half‑years (from 1 July 1992 to 30 June 1993).

57‑52  Section 57‑50 does not apply if there is a surplus at transition time

                   Section 57‑50 does not apply to a deduction of the kind mentioned in subsection 57‑50(1) if:

                     (a)  at the transition time, according to the accounts of the fund concerned, an amount is available to meet liabilities of the transition taxpayer in relation to the fund to provide superannuation benefits for, or for dependants of, employees of the transition taxpayer; and

                     (b)  the amount exceeds the value (as worked out according to actuarial principles) of the liabilities of that kind that have accrued as at the transition time.

57‑55  Deductions reduced under both sections 57‑40 and 57‑50

                   If the amount of a deduction otherwise allowable to the transition taxpayer in respect of a contribution to a fund is required to be reduced under both sections 57‑40 and 57‑50:

                     (a)  if the reduction is of a different amount—the amount is reduced only under that section that requires the greater reduction; or

                     (b)  if the reduction is of the same amount—the amount is reduced only under section 57‑40.

Subdivision 57‑GDenial of certain deductions

57‑60  Effect of pre‑transition time accrued leave entitlements

             (1)  This section applies to a deduction otherwise allowable to the transition taxpayer for a year of income under subsection 51(1) of this Act or section 8‑1 (about general deductions) of the Income Tax Assessment Act 1997 in respect of long service leave payments or annual leave payments to a person who was an employee of the transition taxpayer at any time before or after the transition time.

Note:          Subsection 51(3) of this Act or section 26‑10 of the Income Tax Assessment Act 1997 (as appropriate) contains additional requirements for certain leave payments to be deductible.

Deduction allowable only if sum of all deductions exceeds leave threshold amount

             (2)  The deduction is not allowable if the sum of all deductions of the transition taxpayer to which this section applies for the year of income is less than or equal to the leave threshold amount (see subsection (4)) for the year of income.

Amount of deduction not allowable

             (3)  If the sum is greater than the leave threshold amount, so much of the deduction as is worked out using the following formula is not allowable:

Meaning of leave threshold amount

             (4)  The leave threshold amount for a year of income is:

                     (a)  if the year of income is the transition year—the (pre‑transition time service) leave amount (see subsection (5)) of the transition taxpayer; or

                     (b)  in any other case—that amount as reduced by the total amount of deductions to which this section applies that, because of subsection (2) or (3), have not been allowable to the transition taxpayer for all previous years of income.

Meaning of (pre‑transition time service) leave amount

             (5)  The (pre‑transition time service) leave amount of the transition taxpayer is the sum of the following amounts:

                     (a)  the amount that would be payable by the transition taxpayer in respect of annual leave and long service leave if, at the transition time, all employees of the transition taxpayer began to take all leave of that kind that they were eligible to take; and

                     (b)  if the transition taxpayer elects, in accordance with subsection (6), that this paragraph applies—the amount that, according to actuarial principles, would need to be set aside at the transition time to meet all obligations of the transition taxpayer that might reasonably be expected to arise after that time to make annual leave payments and long service leave payments (other than in respect of leave taken into account under paragraph (a)) for periods of service of employees occurring before the transition time; and

                     (c)  if paragraph (b) does not apply—the present value, at the transition time, of all annual leave payments and long service leave payments (other than in respect of leave taken into account under paragraph (a)) that the transition taxpayer would become liable to make after that time in respect of periods of service of employees occurring before that time if all such leave became eligible to be taken.

Election

             (6)  The election mentioned in paragraph (5)(b) must be made in writing before:

                     (a)  the day by which the transition taxpayer’s return of income for the transition year is due to be lodged; or

                     (b)  such later day as the Commissioner allows.

57‑65  Treatment of bad debts

             (1)  This section applies to a deduction otherwise allowable to the transition taxpayer for a year of income under this Act for the writing off as bad of the whole or part of a debt owing to the transition taxpayer.

Deduction allowable only if sum of all deductions exceeds doubtful debt provision limit

             (2)  The deduction is not allowable if the sum of all deductions of the transition taxpayer to which this section applies for the year of income is less than or equal to the doubtful debt provision limit (see subsection (4)) for the year of income.

Amount of deduction not allowable

             (3)  If the sum is greater than that limit, so much of the deduction as is worked out using the following formula is not allowable:

Meaning of doubtful debt provision limit

             (4)  The doubtful debt provision limit for a year of income is:

                     (a)  if the year of income is the transition year—the pre‑transition doubtful debt limit (see subsection (5)); or

                     (b)  in any other case—that limit as reduced by the total amount of deductions to which this section applies that, because of subsection (2) or (3), have not been allowable to the transition taxpayer for all previous years of income.

Meaning of pre‑transition doubtful debt limit

             (5)  The pre‑transition doubtful debt limit is the total of the amounts that, under generally accepted accounting principles, would be the appropriate doubtful debt provisions in relation to all debts owed to the transition taxpayer as at the transition time.

Reduction of limit for excess recovery

             (6)  If:

                     (a)  at the transition time, a debt is owed to the transition taxpayer; and

                     (b)  the sum of:

                              (i)  the amount (if any) that, under generally accepted accounting principles, would be the appropriate doubtful debt provision in relation to the debt as at the transition time; and

                             (ii)  any amounts later recovered in respect of the debt;

                            exceeds the amount of the debt;

the pre‑transition doubtful debt limit is reduced by the amount of the excess.

Reduction of limit if debt later disposed of

             (7)  If:

                     (a)  at the transition time, a debt is owed to the transition taxpayer; and

                     (b)  there is an amount (the debt provision amount) greater than nil that, under generally accepted accounting principles, would be the appropriate doubtful debt provision in relation to the debt as at the transition time; and

                     (c)  after the transition time, the transition taxpayer disposes of the debt to another person;

the pre‑transition doubtful debt limit is reduced by:

                     (d)  if, after the transition time, the transition taxpayer wrote off part of the debt as bad—the excess (if any) of the debt provision amount over the amount or amounts so written off; or

                     (e)  in any other case—the debt provision amount.

57‑70  Treatment of superannuation lump sums and employment termination payments

             (1)  This section applies to a deduction otherwise allowable to the transition taxpayer for a year of income under section 8‑1 (about general deductions) or 25‑50 (about pensions, gratuities or retiring allowances) of the Income Tax Assessment Act 1997 for a superannuation lump sum or an employment termination payment for a person who was an employee of the transition taxpayer at any time before the transition time (regardless of whether the person was an employee at or after the transition time).

             (2)  So much (if any) of the deduction as relates to a period of service of the employee before the transition time is not allowable.

             (3)  This section does not apply to an early retirement scheme payment (within the meaning of the Income Tax Assessment Act 1997), or a genuine redundancy payment (within the meaning of that Act).

Subdivision 57‑HDomestic losses

57‑75  Domestic losses

                   In applying section 36‑15 or 36‑17 of the Income Tax Assessment Act 1997 (about how to deduct tax losses) to the transition taxpayer:

                     (a)  only exempt income derived at or after the transition time is taken into account as exempt income of the transition taxpayer; and

                     (b)  the transition taxpayer’s deductions are taken into account only so far as they are in respect of:

                              (i)  services rendered; or

                             (ii)  goods provided; or

                            (iii)  the doing of any other thing;

                            at or after the transition time.

Subdivision 57‑JCapital allowances and certain other deductions

57‑85  What are the modified deduction rules and corresponding deduction provisions?

             (1)  A modified deduction rule is a provision listed in column 3 of an item in the table in subsection (3). Provisions of the Income Tax Assessment Act 1997 are identified in normal text, while provisions of the Income Tax Assessment Act 1936 are in bold.

             (2)  The corresponding deduction provision (if any) for a modified deduction rule listed in column 3 of an item in the table in subsection (3) is the provision of the Income Tax Assessment Act 1936 listed in column 4 of the item.

             (3)  The table is as follows:

 

Modified deduction rules and corresponding deduction provisions

Column 1

Item

Column 2

Description

Column 3
Modified deduction rule

Column 4
Corresponding deduction provision

1

Borrowing expenses

Section 25‑25

Former section 67

5

Films, Australian

Division 10BA of Part III

 

7

Industrial property (copyright in Australian film)

Division 10B of Part III

 

9

Gifts

Section 25‑50 and Division 30

Former section 78

13

Research and development (“R&D”)

Sections 73B, 73BA, 73BH, 73QA and 73QB

 

14

Scientific research

Section 73A

 

18

Cost of acquiring trees

Section 70‑120

Former section 124J

19

Capital allowances

Division 40

 

57‑90  Post‑transition deductions—assume that the transition taxpayer had never been exempt

                   In working out the transition taxpayer’s allowable deductions under a modified deduction rule for the transition year or a later year of income, assume that the modified deduction rule had applied at all times before the transition time as if the transition taxpayer’s income had never been exempt from income tax.

57‑95  Amount of deduction not allowable for transition year

             (1)  If, apart from this section, an amount would be an allowable deduction under a modified deduction rule for the transition year in respect of expenditure incurred before the transition time (whether or not during the transition year), only so much of the amount as is worked out using the following formula is so allowable:

where:

post‑expenditure part means:

                     (a)  if the expenditure was incurred before the transition year—the number of days in the transition year; or

                     (b)  otherwise—the number of days in the period from the beginning of the day on which the expenditure is incurred until the end of the transition year.

             (2)  This section does not apply to an amount to which paragraph 57‑110(1)(b) (which deals with balancing adjustments) applies.

57‑100  No elections etc. before transition time

                   In working out the transition taxpayer’s allowable deductions under a modified deduction rule:

                     (a)  assume that the transition taxpayer did not, at any time, make any election or declaration, or give any notice, under the rule in relation to a year of income before the transition year; and

                     (b)  any election or declaration (other than one under subsection 124ZADA(1)) the transition taxpayer makes, or any notice the transition taxpayer gives, under the rule in relation to the transition year has no effect in so far as it relates to expenditure incurred before the transition time.

57‑105  Special rules for mining and quarrying

Exploration and prospecting—assume no expenditure

             (1)  In working out the transition taxpayer’s allowable deductions under the former Subdivision 330‑A or 330‑C or Division 40 of the Income Tax Assessment Act 1997, assume that the transition taxpayer incurred no expenditure on exploration and prospecting before the transition time.

Assume that no excess deductions available

             (2)  In working out the transition taxpayer’s allowable deductions under the former Subdivision 330‑A or 330‑C of the Income Tax Assessment Act 1997, assume that, for each year of income before the transition year, the transition taxpayer’s assessable income would have exceeded the total of the transition taxpayer’s deductions for the year.

Note:          This means that the transition taxpayer can have no excess deductions remaining from years of income before the transition year.

Subdivision 57‑KBalancing adjustments

57‑110  Apportionment of balancing adjustments

             (1)  If, apart from this subsection, a balancing adjustment provision (see subsection (2)) would:

                     (a)  require an amount to be included in the transition taxpayer’s assessable income for the transition year or a later year of income in respect of particular expenditure; or

                     (b)  allow an amount as a deduction from the transition taxpayer’s assessable income for the transition year or a later year of income in respect of particular expenditure;

then only so much of the amount as is worked out using the following formula is so included or allowable:

where:

actual deductions is the sum of all deductions actually allowed or allowable to the transition taxpayer for the expenditure under the deduction rule to which the balancing adjustment provision relates (see subsection (2)).

notional deductions is the sum of all deductions for the expenditure that would have been allowable to the transition taxpayer under the deduction rule to which the balancing adjustment provision relates, if the transition taxpayer had never been wholly exempt from income tax.

             (2)  Each balancing adjustment provision and its related deduction rule are shown in an item of the table. Provisions of the Income Tax Assessment Act 1997 are shown in ordinary text, and provisions of the Income Tax Assessment Act 1936 are shown in bold.

 

Balancing adjustment provisions and related deduction rules



Item



Topic

Balancing adjustment provision

Deduction rule to which the balancing adjustment provision relates

1

Capital works: buildings, structural improvements, environment protection earthworks and extensions, alterations or improvements

Section 43‑40

Division 43 and whichever of former Divisions 10C and 10D of Part III is appropriate

2A

Capital allowances

Section 40‑285

Division 40

5

Industrial property (copyright in Australian film)

Sections 124N and 124P

Division 10B of Part III

7

Research and development (“R&D”)

Subsections 73B(23), (24), (25), (26) and (27) and sections 73BF and 73BM

Section 73B, 73BA or 73BH

8

Scientific research

Subsection 73A(4)

Section 73A

Subdivision 57‑LTrading stock

57‑115  Modification of trading stock provisions

             (1)  For the purposes of applying Division 70 of the Income Tax Assessment Act 1997 in relation to the transition year, the only trading stock of the transition taxpayer that is to be taken into account under section 70‑35 of that Act as being on hand at the beginning of the transition year is such trading stock as was on hand at the transition time.

             (2)  For the purpose of working out the value at which the trading stock is to be taken into account, the year of income preceding the transition year is taken to have ended immediately before the transition time.

Note:          The value of trading stock on hand at the beginning of the transition year will, under section 70‑40 of the Income Tax Assessment Act 1997, be the same as at the end of the preceding year of income.

             (3)  If:

                     (a)  the basis of valuation of the trading stock at the end of the transition year is cost; and

                     (b)  the basis of valuation at the beginning of the transition year is different;

then, for the purposes of the valuation at the end of the transition year, the cost of the trading stock for the purposes of Division 70 of the Income Tax Assessment Act 1997 is taken to be equal to the value at which it was taken into account at the beginning of the transition year.

Subdivision 57‑M—Imputation

57‑120  Cancellation of franking surplus, credit or debit

Cancellation of surplus

             (1)  Subject to subsections (3) and (4), if, immediately before the transition time, the transition taxpayer or a subsidiary (see section 57‑125) of the transition taxpayer has a franking surplus, then the surplus is reduced to nil at the transition time.

Cancellation of credit/debit

             (2)  Subject to subsections (3) and (4), if:

                     (a)  at any time after the transition time, there arises a franking credit or a franking debit of the transition taxpayer or of a subsidiary of the transition taxpayer; and

                     (b)  the franking credit or franking debit is to any extent attributable to a period, or to an event taking place, before the transition time;

the franking credit or franking debit is to that extent taken not to have arisen.

Cases where subsections (1) and (2) do not apply to the transition taxpayer

             (3)  If:

                     (a)  one or more franking debits of the transition taxpayer arise after the transition time; and

                     (b)  any of the debits is to an extent (the amount of which is the pre‑transition time component of the debit) attributable to the period, or to an event taking place, before the transition time; and

                     (c)  immediately before the transition time:

                              (i)  there was a franking surplus of the transition taxpayer that was less than the total of the pre‑transition time components of all of the debits; or

                             (ii)  there was no franking surplus of the transition taxpayer;

then:

                     (d)  in a case covered by subparagraph (c)(i)—subsection (1) does not apply to the surplus; and

                     (e)  in any case—subsection (2) does not apply to the debits.

Cases where subsections (1) and (2) do not apply to a subsidiary

             (4)  If:

                     (a)  one or more franking debits of a subsidiary of the transition taxpayer arise after the transition time; and

                     (b)  any of the debits is to an extent (the amount of which is the pre‑transition time component of the debit) attributable to the period, or to an event taking place, before the transition time; and

                     (c)  immediately before the transition time:

                              (i)  there was a franking surplus of the subsidiary that was less than the total of the pre‑transition time components of all of the debits; or

                             (ii)  there was no franking surplus of the subsidiary;

then:

                     (d)  in a case covered by subparagraph (c)(i)—subsection (1) does not apply to the surplus; and

                     (e)  in any case—subsection (2) does not apply to the debits.

57‑125  Subsidiary

             (1)  A company (the subsidiary company) is a subsidiary of another company (the holding company) if all the shares in the subsidiary company are beneficially owned by:

                     (a)  the holding company; or

                     (b)  one or more subsidiaries of the holding company; or

                     (c)  the holding company and one or more subsidiaries of the holding company.

             (2)  A company (other than the subsidiary company) is a subsidiary of the holding company if, and only if:

                     (a)  it is a subsidiary of the holding company; or

                     (b)  it is a subsidiary of a subsidiary of the holding company;

because of any other application or applications of this section.

Subdivision 57‑NDivision not applicable in respect of certain plant

57‑130  Plant or depreciating assets covered by Subdivision 58‑B of the Income Tax Assessment Act 1997

             (1)  Subdivision 57‑J, and Subdivision 57‑K in so far as it applies to balancing adjustments for plant or depreciating assets, do not apply in respect of an asset to which Subdivision 58‑B of the Income Tax Assessment Act 1997 applies.

             (2)  Despite subsection (1), Subdivision 57‑J applies for the purposes of section 40‑35 of the Income Tax (Transitional Provisions) Act 1997 to capital expenditure incurred by a transition taxpayer before 1 July 2001 that relates to property that is not a depreciating asset.

Schedule 2ELeases of luxury cars [see Note 2]

  

 

Division 42ALeases of luxury cars

Table of Subdivisions

Guide to Division 42A

42A‑A   Notional sale of car, and notional loan, to lessee

42A‑B   Amounts to be included in lessor’s assessable income

42A‑C   Deductions allowable to lessee

42A‑D   Adjustments if total amount assessed to lessor differs from amount of finance charge

42A‑E   What happens when the lease expires

42A‑F   What happens if the lease is terminated before the end of the lease term

42A‑G   Interpretation

Guide to Division 42A

42A‑1  What this Division is about

This Division provides for leases of luxury cars to be treated as notional sale and loan transactions.

The lessor under such a lease is taken to have notionally sold the car to the lessee and made a loan to the lessee to finance the cost of the notional acquisition of the car.

The lessor’s assessable income of a year of income in which any part of the lease term falls is to include a proportion of the finance charge for the notional loan.

A proportion of the finance charge for the notional loan is allowable as a deduction to the lessee for a year of income to the extent that the lease payments made for the year of income would have been deductible.

As the lessee is taken to be the owner of the car, the lessee is the person entitled to any deductions for depreciation in accordance with the rules applying under this Act to the owners of luxury cars.

Subdivision 42A‑ANotional sale of car, and notional loan, to lessee

Guide to Subdivision 42A‑A

42A‑5  What this Subdivision is about

This Subdivision:

               (a)     sets out the circumstances in which a leased car that is a luxury car is taken to be sold by the lessor to the lessee; and

              (b)     provides that the lease is taken to constitute a loan by the lessor to the lessee to finance the cost of the acquisition of the car.

Table of sections

Operative provisions

42A‑10     Application of this Division

42A‑15     Notional sale of car by lessor and notional acquisition of car by lessee

42A‑20     Consideration for notional sale, cost of notional acquisition, and depreciated value, of car

42A‑25     Notional loan by lessor to lessee

Operative provisions

42A‑10  Application of this Division

             (1)  This Division applies to a motor car:

                     (a)  that is a leased car; and

                     (b)  that is a luxury car; and

                     (c)  that is not trading stock of the lessee; and

                     (d)  the lease of which was granted after 7.30 pm by legal time in the Australian Capital Territory on 20 August 1996.

             (2)  If:

                     (a)  a lease of a car was granted before the time referred to in paragraph (1)(d); and

                     (b)  an extension of the lease was granted after that time, whether the extension took effect before or after that time;

the extension is taken for the purposes of that paragraph to be a new lease granted after that time.

             (3)  This Division has effect for the purposes of this Act (including, to avoid doubt, the Income Tax Assessment Act 1997) other than Division 11A of Part III.

42A‑15  Notional sale of car by lessor and notional acquisition of car by lessee

             (1)  The car is taken to have been disposed of by the lessor by way of sale to the lessee, and to have been acquired by the lessee, at the start of the lease term.

             (2)  The lessee is taken to be the owner of the car until the lease term ends or the lease is terminated before that time, as the case may be.

             (3)  However, the lessee ceases to be taken to be the owner of the car if:

                     (a)  the lessee enters into, in respect of the car, an arrangement of a kind mentioned in paragraph (b) of the definition of lease in section 42A‑115; and

                     (b)  this Division applies to the car in respect of that arrangement.

42A‑20  Consideration for notional sale, cost of notional acquisition, and depreciated value, of car

             (1)  The consideration for the sale of the car by the lessor, and the cost of the acquisition of the car by the lessee, are each taken to have been:

                     (a)  if the lease states an amount as the cost or value of the car for the purposes of the lease and the lessor and the lessee were dealing with each other at arm’s length in connection with the lease—the amount so stated; or

                     (b)  otherwise—the amount that could reasonably have been expected to have been paid by the lessee for the purchase of the car if:

                              (i)  the lessor had actually sold the car to the lessee when the lease was granted; and

                             (ii)  the lessor and lessee were dealing with each other at arm’s length in connection with the sale.

             (2)  If:

                     (a)  the lease is an arrangement of a kind referred to in paragraph (b) of the definition of lease in section 42A‑115; and

                     (b)  the lessee is an associate of the lessor;

the cost of the car for the purpose of calculating its depreciated value at the time (the acquisition time) when it is taken to have been acquired by the lessee is taken, for the purposes of the application of this Act to the lessee, to be the sum of:

                     (c)  the amount that would have been the depreciated value of the car at the acquisition time for the purposes of the application of this Act to the lessor if the lessor were not taken under this Division to have disposed of the car; and

                     (d)  any amount that is included in the lessor’s assessable income under former subsection 59(2) because the lessor is taken to have disposed of the car.

42A‑25  Notional loan by lessor to lessee

             (1)  On the grant of the lease, the lessor is taken to have made a loan (the notional loan) to the lessee:

                     (a)  for a period equal to the lease term; and

                     (b)  of an amount (the notional loan principal) equal to the consideration for the sale of the car less any amount paid, or credited by the lessor as having been paid, by the lessee to the lessor, at or before the start of the lease term, for the cost of the car; and

                     (c)  subject to payment of a charge (the finance charge).

             (2)  The notional loan principal is taken to be repaid, and the finance charge is taken to be paid, by the making of the lease payments.

Subdivision 42A‑BAmounts to be included in lessor’s assessable income

Guide to Subdivision 42A‑B

42A‑30  What this Subdivision is about

This Subdivision provides for the inclusion in the lessor’s assessable income of:

(a)   amounts (accrual amounts) on account of the finance charge for the notional loan that the lessor is taken to have made to the lessee; and

(b)   any profit made by the lessor:

               (i)     on the notional sale of the car to the lessee; or

              (ii)     on a sale of the car after any notional re‑acquisition of the car by the lessor.

Table of sections

Operative provisions

42A‑35     Amounts to be included in lessor’s assessable income

42A‑40     Treatment of lease payments

Operative provisions

42A‑35  Amounts to be included in lessor’s assessable income

Accrual amounts

             (1)  The lessor’s assessable income of a year of income includes:

                     (a)  if an accrual period for the notional loan that the lessor is taken under this Division to have made to the lessee occurs wholly during that year of income—the accrual amount for that accrual period; and

                     (b)  if part of an accrual period for that notional loan occurs during that year of income—so much of the accrual amount for that accrual period as may appropriately be related to that year of income in accordance with generally accepted accounting principles.

Profit on notional sale

             (2)  If the consideration for the sale of the car by the lessor that is taken under this Division to have been made exceeds the cost of the acquisition of the car by the lessor, the excess is included in the lessor’s assessable income of the year of income in which the sale is taken to have occurred.

Profit on actual sale after notional re‑acquisition

             (3)  If:

                     (a)  the lessor is taken under this Division to have re‑acquired the car from the lessee; and

                     (b)  the lessor afterwards sells the car; and

                     (c)  the consideration for the sale exceeds the cost of the re‑acquisition;

the excess is included in the lessor’s assessable income of the year of income in which the sale occurred.

42A‑40  Treatment of lease payments

             (1)  The lease payments that the lessor receives, or is entitled to receive, under the lease:

                     (a)  are not to be included in the lessor’s assessable income of any year of income; but

                     (b)  are not taken to be exempt income of the lessor.

             (2)  However, those lease payments are taken into account in calculating accrual amounts that are included in the lessor’s assessable income under section 42A‑35.

             (3)  A loss or outgoing incurred by the lessor in deriving any such lease payments is not taken to be a loss or outgoing incurred by the lessor in relation to gaining or producing exempt income.

Subdivision 42A‑CDeductions allowable to lessee

Guide to Subdivision 42A‑C

42A‑45  What this Subdivision is about

This Subdivision provides that the lessee may, in certain circumstances, be entitled to deductions for the finance charge for the notional loan that the lessor is taken to have made to the lessee.

Table of sections

Operative provisions

42A‑50     Extent to which deductions are allowable to lessee

42A‑55     Lease payments not to be allowable deductions

Operative provisions

42A‑50  Extent to which deductions are allowable to lessee

             (1)  If an accrual period for the notional loan that the lessor is taken under this Division to have made to the lessee occurs wholly during a year of income of the lessee, the accrual amount for that accrual period is allowable as a deduction to the lessee for that year of income.

             (2)  If part of an accrual period for that notional loan occurs during a year of income of the lessee, so much of the accrual amount for that accrual period as may appropriately be related to that year of income in accordance with generally accepted accounting principles is allowable as a deduction to the lessee for that year of income.

             (3)  An accrual amount, or part of an accrual amount, for an accrual period is allowable as a deduction under subsection (1) or (2) to the lessee for a year of income of the lessee only to the extent that the lease payments made for that year of income would, apart from this Division, be allowable as deductions to the lessee for that year of income.

42A‑55  Lease payments not to be allowable deductions

                   The lease payments that the lessee makes under the lease are not allowable as deductions to the lessee for any year of income, but they are taken into account in calculating accrual amounts that are allowable as deductions under section 42A‑50.

Subdivision 42A‑DAdjustments if total amount assessed to lessor differs from amount of finance charge

Guide to Subdivision 42A‑D

42A‑60  What this Subdivision is about

This Subdivision provides for adjustments if the sum of the amounts included in the lessor’s assessable income are greater or less than the finance charge, worked out at the end of the lease term, for the notional loan.

Table of sections

Operative provisions

42A‑65     Adjustments for lessor

42A‑70     Adjustments for lessee

Operative provisions

42A‑65  Adjustments for lessor

             (1)  This section applies at the following times (adjustment times):

                     (a)  the end of the lease term;

                     (b)  if the lease is terminated before that time—when the termination takes place;

                     (c)  if the lease term is extended—when the extension takes effect;

                     (d)  if the lease is renewed—when the renewal takes effect.

             (2)  If the sum of all amounts (whether lease payments, a termination amount or any other payments) that were paid or payable to the lessor under the lease exceeds the amount worked out using the formula in subsection (4), the excess is included in the lessor’s assessable income of the year of income in which the relevant adjustment time occurs.

Note:          Subsection 42A‑80(9) deems the amount of a notional loan that is taken to be made by an extended or renewed lease to be a termination amount paid under the previous lease.

             (3)  If the amount worked out using the formula in subsection (4) exceeds the sum of all amounts (whether lease payments, a termination amount or any other payments) that were paid or payable to the lessor under the lease, the excess is allowable as a deduction to the lessor for the year of income in which the relevant adjustment time occurs.

Note:          Subsection 42A‑80(9) deems the amount of a notional loan that is taken to be made by an extended or renewed lease to be a termination amount paid under the previous lease.

             (4)  The formula for the purposes of subsections (2) and (3) is:

where:

notional loan principal means the notional loan principal for the notional loan that is taken under this Division to have been granted by the lessor to the lessee.

assessed accrual amounts means the sum of the accrual amounts that have been or are to be included in the lessor’s assessable income of any year of income.

42A‑70  Adjustments for lessee

             (1)  If:

                     (a)  an amount is included in the lessor’s assessable income of a year of income under subsection 42A‑65(2); or

                     (b)  an amount would have been so included if the lessor had been subject to tax on assessable income;

a corresponding amount is allowable as a deduction to the lessee for the lessee’s year of income.

             (2)  If:

                     (a)  an amount is allowable as a deduction to the lessor for a year of income under subsection 42A‑65(3); or

                     (b)  an amount would have been so allowable if the lessor had been subject to tax on assessable income;

a corresponding amount is included in the lessee’s assessable income of the lessee’s year of income.

             (3)  An amount is not to be allowed as a deduction to the lessee for any year of income under subsection (1), or to be included in the lessee’s assessable income of any year of income under subsection (2), except to the extent (if any) that the lease payments made would, apart from this Division, be allowable as deductions to the lessee.

Subdivision 42A‑EWhat happens when the lease expires

Guide to Subdivision 42A‑E

42A‑75  What this Subdivision is about

This Subdivision sets out what happens at the end of the lease term. The situations dealt with are:

               (a)     the lease is extended or renewed;

              (b)     the lessee buys the car;

               (c)     the lessee ceases to have the right to use the car.

Table of sections

Operative provisions

42A‑80     What happens if the lease term is extended or the lease is renewed

42A‑85     What happens if an amount is paid by or on behalf of the lessee to acquire the car

42A‑90     What happens if the lessee ceases to have the right to use the car

Operative provisions

42A‑80  What happens if the lease term is extended or the lease is renewed

             (1)  If, after the end of the lease term, the lessee continues to have the right to use the car because the term is extended or the lease is renewed, the following provisions have effect.

             (2)  The lessee is taken to continue to be the owner of the car until:

                     (a)  the end of the period of extension; or

                     (b)  the end of the lease term of the renewed lease;

as the case may be.

             (3)  However, the lessee ceases to be the owner of the car if:

                     (a)  the lessee enters into, in respect of the car, an arrangement of a kind mentioned in paragraph (b) of the definition of lease in section 42A‑115; and

                     (b)  this Division applies to the car in respect of that arrangement.

             (4)  The notional loan that is taken under this Division to have been made because of the grant of the previous lease is taken to have been repaid and Subdivision 42A‑D applies.

             (5)  The lessor is taken to have made a loan (the notional loan) to the lessee:

                     (a)  for the period of the extension of the lease term or the period of the renewed lease, as the case may be; and

                     (b)  of an amount (the notional loan principal) equal to the amount worked out under subsection (7); and

                     (c)  subject to the payment of a charge (the finance charge).

             (6)  The notional loan principal is taken to be repaid, and the finance charge is taken to be paid, by the making of the lease payments under the lease as extended or under the renewed lease, as the case may be.

             (7)  The notional loan principal is:

                     (a)  if the lease as extended or renewed states an amount as the cost or value of the car for the purposes of the extension or renewal and the lessor and the lessee were dealing with each other at arm’s length in connection with the extension or renewal—the amount so stated; or

                     (b)  otherwise—the amount that could reasonably have been expected to have been paid by the lessee for the purchase of the car if:

                              (i)  the lessor had actually sold the car to the lessee when the lease was extended or renewed; and

                             (ii)  the lessor and lessee were dealing with each other at arm’s length in connection with the sale.

             (8)  In determining whether subsection (1) applies to the lessee, any period after the end of the lease term and before the extension or renewal is granted during which the lessee did not have the right to use the car is disregarded if the extension or renewal:

                     (a)  has effect from the time immediately after the end of that term; or

                     (b)  would otherwise result in substantial continuity of the leasing of the car to the lessee.

             (9)  The amount of the notional loan is taken, for the purposes of section 42A‑65, to be a termination amount paid to the lessor under the previous lease.

42A‑85  What happens if an amount is paid by or on behalf of the lessee to acquire the car

                   If, at the end of the lease term or any extension of that term, an amount is paid to the lessor by, or on behalf of, the lessee to acquire the car, the following provisions have effect:

                     (a)  the amount paid is not included in the lessor’s assessable income;

                     (b)  a deduction is not allowable to the lessee because of the payment;

                     (c)  the lessee is taken to continue to be the owner of the car until the lessee disposes of it;

                     (d)  the transfer to the lessee of legal title to the car is not taken to be a disposal of the car by the lessor.

42A‑90  What happens if the lessee ceases to have the right to use the car

             (1)  If, at the end of the lease term:

                     (a)  the lessee ceases to have the right to use the car because the term is not extended and the lease is not renewed; and

                     (b)  no amount is paid to the lessor by, or on behalf of, the lessee to acquire the car;

the following provisions have effect.

             (2)  The car is taken to have been disposed of by the lessee by way of sale to the lessor, and to have been acquired by the lessor, at the end of the lease term.

             (3)  The consideration for the sale of the car by the lessee, and the cost of the acquisition of the car by the lessor, are each taken to have been:

                     (a)  the amount worked out in accordance with subsection (6); or

                     (b)  if it is not practicable to work out an amount in accordance with that subsection—the market value of the car at the end of the lease term.

             (4)  If the car is afterwards acquired by an associate of the lessee, the cost of the car for the purpose of calculating its depreciated value at the time of the acquisition for the purposes of the application of this Act to the associate is taken to be whichever is the lesser of:

                     (a)  the sum of:

                              (i)  the amount that would have been the depreciated value of the car at that time for the purposes of the application of this Act to the lessee if the lessee were not taken under this Division to have disposed of the car; and

                             (ii)  any amount that is included in the lessee’s assessable income under former subsection 59(2) or under Subdivision 40‑D, or the former Subdivision 42F or 42G, of the Income Tax Assessment Act 1997 because the lessee is taken to have disposed of the car; or

                     (b)  the cost of the acquisition of the car by the associate.

             (5)  For the purposes of paragraph (1)(a), the lessee is not taken to have ceased to have the right to use the car if:

                     (a)  the lease term is extended, or the lease is renewed, at a time after, but not immediately after, the end of that term with effect from the time immediately after the end of that term; or

                     (b)  the extension or renewal would otherwise result in substantial continuity of the leasing of the car to the lessee.

             (6)  For the purposes of paragraph (3)(a), the amount of the consideration for the sale, and of the cost of the acquisition, is the amount worked out using the formula:

where:

balance of notional loan means the sum of:

                     (a)  the outstanding notional loan principal at the end of the lease term; and

                     (b)  any amounts payable by the lessee for the notional loan that were not paid at or before that time; and

                     (c)  any amounts (other than the payable amount) payable by the lessee because of the expiry of the lease.

payable amount means the amount (if any) payable to the lessor by the lessee because the value of the car at the end of the lease term was less than the balance of notional loan.

refundable amount means the amount (if any) payable to the lessee by the lessor because the value of the car at the end of the lease term was more than the balance of notional loan.

Subdivision 42A‑FWhat happens if the lease is terminated before the end of the lease term

Guide to Subdivision 42A‑F

42A‑95  What this Subdivision is about

This Subdivision sets out what happens if the lease is terminated before the end of the lease term.

The situations covered are:

               (a)     the lessee buys the car;

              (b)     the lessee ceases to have the right to use the car.

Table of sections

Operative provisions

42A‑100   What happens if an amount is paid by or on behalf of the lessee to acquire the car

42A‑105   What happens if the lessee ceases to have the right to use the car

Operative provisions

42A‑100  What happens if an amount is paid by or on behalf of the lessee to acquire the car

                   If, on the termination of the lease before the end of the lease term, an amount is paid to the lessor by, or on behalf of, the lessee to acquire the car, the following provisions have effect:

                     (a)  the amount paid is not included in the lessor’s assessable income;

                     (b)  a deduction is not allowable to the lessee because of the payment;

                     (c)  the lessee is taken to continue to be the owner of the car until the lessee disposes of it;

                     (d)  the transfer to the lessee of legal title to the car is not taken to be a disposal of the car by the lessor.

42A‑105  What happens if the lessee ceases to have the right to use the car

             (1)  If, on the termination of the lease before the end of the lease term, no amount is paid to the lessor by, or on behalf of, the lessee to acquire the car, the following provisions have effect.

             (2)  The car is taken to have been disposed of by the lessee by way of sale to the lessor, and to have been acquired by the lessor, on the termination of the lease.

             (3)  The consideration for the sale of the car by the lessee, and the cost of the acquisition of the car by the lessor, are each taken to have been:

                     (a)  the amount worked out in accordance with subsection (5); or

                     (b)  if it is not practicable to work out an amount in accordance with that subsection—the market value of the car on the termination of the lease.

             (4)  If the car is afterwards acquired by an associate of the lessee, the cost of the car for the purpose of calculating its adjustable value, within the meaning of Division 40 of the Income Tax Assessment Act 1997, at the time of the acquisition for the purposes of the application of this Act to the associate is taken to be whichever is the lesser of:

                     (a)  the sum of:

                              (i)  the amount that would have been the adjustable value of the car (within the meaning of the Income Tax Assessment Act 1997) at that time for the purposes of the application of this Act to the lessee if the lessee were not taken under this Division to have disposed of the car; and

                             (ii)  any amount that is included in the lessee’s assessable income under former subsection 59(2), under the former Subdivision 42F or 42G of the Income Tax Assessment Act 1997 or under Subdivision 40‑D of that Act because the lessee is taken under this Division to have disposed of the car; or

                     (b)  the cost of the acquisition of the car by the associate.

             (5)  For the purposes of paragraph (3)(a), the amount of the consideration for the sale, and of the cost of the acquisition, is the amount worked out using the formula:

where:

balance of notional loan means the sum of:

                     (a)  the outstanding notional loan principal at the termination of the lease; and

                     (b)  any amounts payable by the lessee for the notional loan that were not paid at or before that time; and

                     (c)  any amounts (other than the payable amount) payable by the lessee because of the termination of the lease.

payable amount means the amount (if any) payable to the lessor by the lessee because the value of the car at the termination of the lease was less than the balance of notional loan at that time.

refundable amount means the amount (if any) payable to the lessee by the lessor because the value of the car at the termination of the lease was more than the balance of notional loan at that time.

Subdivision 42A‑GInterpretation

Guide to Subdivision 42A‑G

42A‑110  What this Subdivision is about

This Subdivision explains the meanings of various expressions used in this Division.

Table of sections

Operative provisions

42A‑115   General definitions

42A‑120   Luxury car

42A‑125   Consecutive short‑term hiring agreements

42A‑130   Finance charge

42A‑135   Lease payment periods

42A‑140   Accrual periods and accrual amounts

42A‑145   Outstanding notional loan principal

42A‑150   Implicit interest rate

Operative provisions

42A‑115  General definitions

                   In this Division, unless the contrary intention appears:

accrual amount has the meaning given by section 42A‑140.

accrual period has the meaning given by section 42A‑140.

associate has the meaning given by section 318 but, in addition:

                     (a)  a person and any employer of the person are taken to be associates; and

                     (b)  a person and any employee of the person are taken to be associates.

extension of the lease term of a lease means (except in subsection 42A‑10(2)) extension of the term on the same terms and conditions as applied under the lease before the extension.

finance charge means the finance charge referred to in section 42A‑25 or 42A‑80, as the case may be, as worked out under section 42A‑130.

hire purchase agreement means:

                     (a)  an agreement for letting property on hire under which the hirer has an option to buy the property where:

                              (i)  title in the property does not pass to the hirer until the option is exercised; and

                             (ii)  amounts paid under the agreement are taken into account in working out the amount payable on the exercise of the option; or

                     (b)  an agreement to buy property by instalments, where title in the property does not pass to the hirer until the final instalment is paid.

implicit interest rate has the meaning given by section 42A‑150.

lease of a motor car means:

                     (a)  any arrangement to let the car on hire under which a right to use the car is granted by the owner to another person for a monetary or other consideration; and

                     (b)  any arrangement to let the car on hire under which a right to use the car, being a right derived directly or indirectly from a right referred to in paragraph (a), is granted by a person to another person for a monetary or other consideration;

and includes a renewal of such an arrangement, but does not include a short‑term hiring agreement or a hire purchase agreement.

leased car means a motor car of which a lease has been granted.

lease payment means an amount that the lessee under a lease of a motor car is required to pay for the rental or hire of the car but does not include:

                     (a)  an amount in the nature of a penalty payable for failure to make a payment for rental or hire on time; or

                     (b)  a termination amount.

lease payment period has the meaning given by section 42A‑135.

lease term of a lease means the period:

                     (a)  starting on the day as from which the lease has effect; and

                     (b)  ending on the day on which the lease is to cease to have effect or, if the lease is of indefinite duration, on the day on which it would be reasonable to conclude, having regard to the terms and conditions of the lease, that the lease will cease to have effect.

lessee of a leased car means the person to whom the right to use the car was granted under the arrangement constituting the lease.

lessor of a leased car means the person by whom the right to use the car was granted under the arrangement constituting the lease.

luxury car has the meaning given by section 42A‑120.

motor car or car means a car within the meaning of subsection 995‑1(1) of the Income Tax Assessment Act 1997, other than one mentioned in subsection 40‑230(2) of that Act (about cars modified to carry disabled people).

notional loan has the meaning given by section 42A‑25 or subsection 42A‑80(5), as the case may be.

notional loan principal of a notional loan means the amount that was the notional loan principal under section 42A‑25 or subsection 42A‑80(5), as the case may be, of the notional loan at the time as at which that loan is taken under this Division to have been granted.

outstanding notional loan principal has the meaning given by section 42A‑145.

right to use a car includes the right to possess the car.

short‑term hiring agreement means, subject to section 42A‑125, an agreement for taking a unit of property on hire where the agreement is of a kind ordinarily entered into by persons taking property on hire intermittently as the occasion requires on an hourly, daily, weekly, monthly or other short‑term basis.

termination amount means an amount payable on the expiry, or termination before expiry, of a lease of a motor car and includes:

                     (a)  if, on the expiry or termination, the lessee acquires the car from the lessor—an amount payable to the lessor for the acquisition; or

                     (b)  otherwise—the value of the car at the time of the expiry or termination.

42A‑120  Luxury car

                   A leased car is a luxury car for the purposes of this Division if, had the car:

                     (a)  been bought from the owner, at the first time when the owner granted a lease of the car, by the person who is the lessee for a price equal to the amount applying under paragraph 42A‑20(1)(a) or (b), as the case may be; and

                     (b)  been first used by that person for any purpose in the financial year in which that time occurred;

the cost of the car, for the purpose of calculating the deductions allowable to that person for the decline in value of the car, would have been reduced because of the operation of former section 57AF, the former section 42‑80 of the Income Tax Assessment Act 1997 or section 40‑230 of that Act.

42A‑125  Consecutive short‑term hiring agreements

             (1)  If:

                     (a)  2 or more consecutive agreements have been or are entered into for the hiring of the same motor car; and

                     (b)  the total of the periods for which the car was hired under the agreements exceeds 6 months; and

                     (c)  the car was or is let on hire under the agreements by the same person or by persons who were associates of each other; and

                     (d)  the car was or is taken on hire under the agreements by the same person or by persons who were associates of each other; and

                     (e)  each agreement would, apart from this section, be a short‑term hiring agreement;

each agreement is taken to have been or to be a lease of the car.

             (2)  For the purposes of paragraph (1)(a), if an agreement takes effect after, but not immediately after, a previous agreement ceased to have effect, the agreements are taken to be consecutive if the effect of the agreements is to result in substantial continuity of the hiring of the car by the same person or by persons who were associates of each other.

42A‑130  Finance charge

                   For the purposes of this Division, the finance charge for a notional loan that the lessor, under a lease of a motor car, is taken to have made to the lessee is the amount worked out using the formula:

where:

total lease payments means the sum of the lease payments under the lease.

other payments means the sum of the amounts (other than lease payments) that are required under the lease to be paid and includes any termination amount, less any of those amounts that are refunded by the lessor to the lessee.

notional loan principal means the notional loan principal of the notional loan that the lessor is taken under this Division to have made to the lessee.

42A‑135  Lease payment periods

             (1)  A lease payment period for a lease of a motor car, is a period for which a lease payment, under the lease, is allocated or expressed to be payable.

             (2)  However, if a period (the excessive period) referred to in subsection (1) exceeds 6 months, the excessive period is not a lease payment period but each of the following parts of the excessive period is a separate lease payment period:

                     (a)  the part of the excessive period beginning at the start of that period and ending 6 months later;

                     (b)  each part (a later part) of the excessive period:

                              (i)  beginning immediately after a part of the excessive period that is a lease payment period under paragraph (a) or under a previous application of this paragraph; and

                             (ii)  ending 6 months after the start of that later part or at the end of the excessive period, whichever first occurs.

42A‑140  Accrual periods and accrual amounts

             (1)  The accrual periods for a notional loan that the lessor, under a lease of a motor car, is taken under this Division to have made to the lessee are the lease payment periods under the lease.

             (2)  The accrual amount for an accrual period for such a notional loan is the part of the finance charge that relates to the accrual period and is worked out using the formula:

where:

outstanding notional loan principal means the outstanding notional loan principal at the start of the accrual period.

implicit interest rate means the implicit interest rate under the lease for the accrual period.

42A‑145  Outstanding notional loan principal

                   The outstanding notional loan principal at a particular time (the relevant time) of a notional loan that the lessor, under a lease of a motor car, is taken under this Division to have made to the lessee is the amount worked out using the formula:

where:

notional loan principal means the notional loan principal of the notional loan.

previous accrual amounts means the sum of the accrual amounts for accrual periods that occurred before the relevant time.

previous lease payments means the sum of the lease payments that the lessee paid or was required to pay under the lease at or before the relevant time.

42A‑150  Implicit interest rate

             (1)  The implicit interest rate, under a lease of a motor car, for an accrual period for the notional loan that the lessor is taken under this Division to have made to the lessee, is the rate of compound interest for the accrual period at which the sum of:

                     (a)  the present value of the lease payments; and

                     (b)  the present values of any other amounts that are required under the lease to be paid by the lessee; and

                     (c)  the present values of any termination amounts;

equals the notional loan principal.

             (2)  However, if an amount referred to in paragraph (1)(a), (b) or (c) is not known at the start of the term of the lease:

                     (a)  if a reasonable estimate of the amount can be made at that time—such an estimate is to be made and is to be used for the purposes of the application of subsection (1) for each year of income of the lessor; or

                     (b)  otherwise—an estimate of the amount is to be made at the end of each year of income of the lessor for the purposes of the application of subsection (1) to the lessor for that year of income.


 

Schedule 2FTrust losses and other deductions

  

 

Division 265Overview of Schedule

265‑5  What this Schedule is about

If there is a change in ownership or control of a trust or an abnormal trading in its units, it:

     may be prevented from deducting its tax losses of earlier income years; and

     may have to work out in a special way its net income and tax loss for the income year; and

     may be prevented from deducting certain amounts in respect of debts incurred in the income year or earlier income years.

This will not be the case if the trust is an excepted trust. However, if it became one by making a family trust election, a special tax may be payable on certain distributions and other amounts.

If a trust is involved in a scheme to take advantage of deductions, it may be prevented from making full use of them.

265‑10  Diagram giving overview of Schedule


 

Division 266Income tax consequences for fixed trusts of abnormal trading or change in ownership

Subdivision 266‑AOverview of this Division

266‑5  What this Division is about

This Division is about the income tax consequences, for various kinds of fixed trusts, of certain events:

     for an ordinary fixed trust, the event is a change in ownership (subject to a non‑fixed trust exception);

     for an unlisted widely held trust, the event is an abnormal trading in its units, or the end of an income year, together with a change in ownership;

     for a listed widely held trust, the event is an abnormal trading in its units, together with a change in ownership and business;

     for an unlisted very widely held trust or a wholesale widely held trust, the event is an abnormal trading in its units, together with a change in ownership.

266‑10  Diagram giving overview of this Division

Subdivision 266‑BEffect of change in ownership of fixed trust

266‑15  What this Subdivision is about

An ordinary fixed trust:

     cannot deduct a tax loss from an earlier income year; or

     has to work out its net income and tax loss for the income year in a special way; or

     cannot deduct certain amounts in respect of debts incurred in the income year or an earlier income year;

unless there has been continuity of ownership throughout a particular period or an exception relating to holdings by non‑fixed trusts applies.

266‑20  Diagram giving overview of this Subdivision

266‑25  Fixed trust may be denied tax loss deduction

Type of trust to which this section applies

             (1)  This section applies to a trust that:

                     (a)  can deduct in the income year a tax loss from a loss year; and

                     (b)  was a fixed trust at all times in the period (the test period) from the beginning of the loss year until the end of the income year; and

                     (c)  was not a widely held unit trust at all times in the test period; and

                     (d)  was not an excepted trust at all times in the test period.

To find out the meaning of fixed trust: see section 272‑65.

To find out the meaning of widely held unit trust: see section 272‑105.

To find out the meaning of excepted trust: see section 272‑100.

Condition for deducting tax loss

             (2)  The trust cannot deduct the tax loss unless it meets either:

•    the condition in section 266‑40; or

•    the conditions in section 266‑45.

266‑30  Fixed trust may be required to work out its net income and tax loss in a special way

                   A trust that:

                     (a)  was a fixed trust at all times in the income year (the test period); and

                     (b)  was not a widely held unit trust at all times in the test period; and

                     (c)  was not an excepted trust at all times in the test period;

must work out its net income and tax loss for the income year under Division 268 (How to work out a trust’s net income and tax loss for the income year), unless it meets either:

•    the condition in section 266‑40; or

•    the conditions in section 266‑45.

266‑35  Fixed trust may be denied debt deduction

Type of trust to which this section applies

             (1)  This section applies to a trust that:

                     (a)  can deduct in the income year an amount:

                              (i)  under section 51 or 63, or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997, in respect of the writing off of the whole or part of a debt as bad; or

                             (ii)  under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt; and

                     (b)  was a fixed trust at all times in the period (the test period):

                              (i)  if the debt was incurred in an earlier income year—beginning on the day the debt was incurred and ending at the end of the income year; or

                             (ii)  if the debt was incurred in the income year—consisting of the income year; and

                     (c)  was not a widely held unit trust at all times in the test period; and

                     (d)  was not an excepted trust at all times in the test period.

Note:          Subdivisions 709‑D and 719‑I of the Income Tax Assessment Act 1997 also affect when a trust that used to be a member of a consolidated group or MEC group may deduct a debt that used to be owed to a member of the group and that the trust writes off as bad.

Condition for deducting amount

             (2)  The trust cannot deduct the amount unless it meets either:

   the condition in section 266‑40; or

   the conditions in section 266‑45.

266‑40  The trust must pass 50% stake test

                   The fixed trust must pass the 50% stake test for the test period.

To find out whether the trust passes the 50% stake test for the period: see Subdivision 269‑C.

266‑45  The trust must meet non‑fixed trust stake test

             (1)  If the condition in section 266‑40 is not met, the trust must satisfy the conditions in this section.

First condition

             (2)  At all times during the test period:

                     (a)  non‑fixed trusts (other than family trusts) must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the trust; or

                     (b)  both:

                              (i)  a fixed trust or a company (which trust or company is the holding entity) must have held, directly or indirectly, all of the fixed entitlements to income and capital of the trust; and

                             (ii)  non‑fixed trusts (other than family trusts) must have held fixed entitlements to a 50% or greater share of the income or a 50% or greater share of the capital of the holding entity.

Second condition

             (3)  The persons holding fixed entitlements to shares of the income, and the persons holding fixed entitlements to shares of the capital, of:

                     (a)  in a paragraph (2)(a) case—the trust; or

                     (b)  in a paragraph (2)(b) case—the holding entity;

at the beginning of the test period must have held those entitlements to those shares at all times during the test period.

Third condition

             (4)  At the beginning of the test period:

                     (a)  individuals must not have had more than a 50% stake in the income of the trust; or

                     (b)  individuals must not have had more than a 50% stake in the capital of the trust.

Fourth condition

             (5)  It must be the case that, for each non‑fixed trust (other than an excepted trust) that, at any time in the test period, held directly or indirectly a fixed entitlement to a share of the income or capital of the trust:

                     (a)  if this section is being applied for the purposes of section 266‑25—section 267‑20 would not have prevented the non‑fixed trust from deducting the tax loss concerned if it, rather than the fixed trust, had incurred the loss; or

                     (b)  if this section is being applied for the purposes of section 266‑30—section 267‑60 does not require the non‑fixed trust to work out its net income and tax loss for the income year under Division 268; or

                     (c)  if this section is being applied for the purposes of section 266‑35—section 267‑25, or section 267‑65, as the case requires, would not have prevented the non‑fixed trust from deducting the amount concerned if it, rather than the fixed trust, would otherwise be entitled to deduct the amount.

266‑50  Deducting part of a tax loss

             (1)  If section 266‑25 prevents the fixed trust from deducting a tax loss, it can deduct the part of the tax loss that is attributable to a part of the loss year.

             (2)  However, the trust can do this only if, assuming that that part of the loss year had been treated as the whole of the loss year for the purposes of sections 266‑40 and 266‑45, the trust would have been entitled to deduct the tax loss.

266‑55  Information about non‑fixed trusts with interests in fixed trust

Notice about non‑resident non‑fixed trust

             (1)  The Commissioner may give the trustee of a fixed trust a notice in accordance with section 266‑60 if the requirements of subsections (2) to (5) of this section are met.

First requirement

             (2)  In its return of income for an income year, the fixed trust:

                     (a)  must have deducted a tax loss from an earlier income year; or

                     (b)  must not have worked out its net income and tax loss for the income year under Division 268; or

                     (c)  must have deducted an amount in relation to a debt;

where it would not be allowed to deduct the tax loss or amount in respect of the debt, or would be required to work out its net income and tax loss under that Division, unless it met the conditions in section 266‑45.

Second requirement

             (3)  In order to determine whether it meets the conditions in section 266‑45, the Commissioner must need information about a non‑fixed trust mentioned in subsection 266‑45(5).

Third requirement

             (4)  When the Commissioner gives the notice:

                     (a)  a trustee of the non‑fixed trust must be a non‑resident; or

                     (b)  the central management and control of the non‑fixed trust must be outside Australia.

Fourth requirement

             (5)  The Commissioner must give the notice before the later of:

                     (a)  5 years after the end of the income year mentioned in subsection (2); and

                     (b)  the end of the period during which the trustee of the fixed trust is required by section 262A to retain records in relation to that income year.

266‑60  Notices where requirements of section 266‑55 are met

Information required

             (1)  The notice that the Commissioner may give if the requirements of subsections 266‑55(2) to (5) are met must require the trustee to give the Commissioner specified information that is relevant to determining whether the requirements of subsection 266‑45(5) are satisfied in relation to the non‑fixed trust mentioned in subsections 266‑55(3) and (4).

Trustee knowledge

             (2)  The information need not be within the knowledge of the trustee at the time the notice is given.

Period for giving information

             (3)  The notice must specify a period within which the trustee is to give the information. The period must not end earlier than 21 days after the day on which the Commissioner gives the notice.

Consequence of not giving the information

             (4)  If the trustee does not give the information within the period or within such further period as the Commissioner allows, the fixed trust is taken not to meet, and never to have met, the conditions in section 266‑45.

Application of Division 268

             (5)  If, because of subsection (4), the fixed trust is required to work out under Division 268 its net income and tax loss for the income year mentioned in subsection 266‑55(2), that Division is to be applied as if Subdivision 268‑B required the income year to be divided into such periods as would result in the highest possible net income for the income year.

No offences or penalties

             (6)  To avoid doubt, subsections (4) and (5) do not cause the trustee of the fixed trust to commit any offence or be liable to any penalty under Part 4‑25 in Schedule 1 to the Taxation Administration Act 1953 for deducting the amount concerned, or for not working out the trust’s net income and tax loss under Division 268, in its return.

Subdivision 266‑CEffect of change in ownership of unlisted widely held trust

266‑65  What this Subdivision is about

An unlisted widely held trust:

     cannot deduct a tax loss from an earlier income year; or

     has to work out its net income and tax loss for the income year in a special way; or

     cannot deduct certain amounts in respect of debts;

unless its ownership has been the same after any abnormal trading in its units and at the end of income years, during a certain period.

266‑70  Diagram giving overview of this Subdivision

266‑75  Unlisted widely held trust may be denied tax loss deduction

Type of trust to which this section applies—case 1

             (1)  This section applies to a trust that:

                     (a)  can in the income year deduct a tax loss from a loss year; and

                     (b)  was an unlisted widely held trust at all times in the period (the test period) from the beginning of the loss year until the end of the income year; and

                     (c)  was not a wholesale widely held trust at all times in the test period; and

                     (d)  was not an unlisted very widely held trust at all times in the test period; and

                     (e)  was not an excepted trust at all times in the test period.

To find out the meaning of unlisted widely held trust: see section 272‑110.

To find out the meaning of wholesale widely held trust: see section 272‑125.

To find out the meaning of unlisted very widely held trust: see section 272‑120.

To find out the meaning of excepted trust: see section 272‑100.

Type of trust to which this section applies—case 2

             (2)  This section also applies to a trust that:

                     (a)  can in the income year deduct a tax loss from a loss year; and

                     (b)  was an unlisted widely held trust, other than an unlisted very widely held trust or a wholesale widely held trust, at some time in the period (the test period) from the beginning of the loss year until the end of the income year; and

                     (c)  was a listed widely held trust at all other times in the test period; and

                     (d)  was not an excepted trust at all times in the test period.

To find out the meaning of listed widely held trust: see section 272‑115.

Condition for deducting tax loss

             (3)  The trust cannot deduct the tax loss unless it meets the condition in section 266‑90.

266‑80  Unlisted widely held trust may be required to work out its net income and tax loss in a special way

Type of trust to which this section applies—case 1

             (1)  A trust that:

                     (a)  was an unlisted widely held trust at all times in the income year (the test period); and

                     (b)  was not a wholesale widely held trust at all times in the test period; and

                     (c)  was not an unlisted very widely held trust at all times in the test period; and

                     (d)  was not an excepted trust at all times in the test period;

must work out its net income and tax loss for the income year under Division 268 (How to work out a trust’s net income and tax loss for the income year), unless it meets the condition in section 266‑90.

Type of trust to which this section applies—case 2

             (2)  A trust that:

                     (a)  was an unlisted widely held trust, other than an unlisted very widely held trust or a wholesale widely held trust, at some time in the income year (the test period); and

                     (b)  was a listed widely held trust at all other times in the test period; and

                     (c)  was not an excepted trust at all times in the test period;

must work out its net income and tax loss for the income year under Division 268 (How to work out a trust’s net income and tax loss for the income year), unless it meets the condition in section 266‑90.

266‑85  Unlisted widely held trust may be denied debt deduction

Type of trust to which this section applies—case 1

             (1)  This section applies to a trust that:

                     (a)  can deduct in the income year an amount:

                              (i)  under section 51 or 63, or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997, in respect of the writing off of the whole or part of a debt as bad; or

                             (ii)  under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt; and

                     (b)  was an unlisted widely held trust at all times in the period (the test period):

                              (i)  if the debt was incurred in an earlier income year—beginning on the day the debt was incurred and ending at the end of the income year; or

                             (ii)  if the debt was incurred in the income year—consisting of the income year; and

                     (c)  was not a wholesale widely held trust at all times in the test period; and

                     (d)  was not an unlisted very widely held unit trust at all times in the test period; and

                     (e)  was not an excepted trust at all times in the test period.

Type of trust to which this section applies—case 2

             (2)  This section also applies to a trust that:

                     (a)  can deduct in the income year an amount:

                              (i)  under section 51 or 63, or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997, in respect of the writing off of the whole or part of a debt as bad; or

                             (ii)  under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt; and

                     (b)  was an unlisted widely held trust, other than an unlisted very widely held trust or a wholesale widely held trust, at some time in the period (the test period):

                              (i)  if the debt was incurred in an earlier income year—beginning on the day the debt was incurred and ending at the end of the income year; or

                             (ii)  if the debt was incurred in the income year—consisting of the income year; and

                     (c)  was a listed widely held trust at all other times in the test period; and

                     (d)  was not an excepted trust at all times in the test period.

Condition for deducting amount

             (3)  The trust cannot deduct the amount unless it meets the condition in section 266‑90.

Note:          Subdivisions 709‑D and 719‑I of the Income Tax Assessment Act 1997 also affect when a trust that used to be a member of a consolidated group or MEC group may deduct a debt that used to be owed to a member of the group and that the trust writes off as bad.

266‑90  If abnormal trading or end of income year, trust must pass the 50% stake test

             (1)  If this section is being applied for the purposes of section 266‑75 or 266‑85, on each occasion when either of the following events occurs:

                     (a)  an abnormal trading in the trust’s units occurs during the test period;

                     (b)  an income year of the trust ends during the test period (including at the end of the test period);

the trust must pass the 50% stake test in respect of the following times:

                     (c)  the beginning of the test period;

                     (d)  immediately after the event occurs.

To find out whether the trust passes the 50% stake test: see Subdivision 269‑C.

             (2)  If this section is being applied for the purposes of section 266‑80, on each occasion when an abnormal trading in the trust’s units occurs during the test period, the trust must pass the 50% stake test in respect of the following times:

                     (a)  the beginning of the test period; and

                     (b)  immediately after the abnormal trading occurs.

266‑95  Deducting part of a tax loss

             (1)  If section 266‑75 prevents the trust from deducting a tax loss, it can deduct the part of the tax loss that is attributable to a part of the loss year.

             (2)  However, the trust can do this only if, assuming that that part of the loss year had been treated as the whole of the loss year for the purposes of section 266‑90, the trust would have been entitled to deduct the tax loss.

Subdivision 266‑DEffect of abnormal trading on listed widely held trust

266‑100  What this Subdivision is about

A listed widely held trust:

     cannot deduct a tax loss from an earlier income year; or

     has to work out its net income and tax loss for the income year in a special way; or

     cannot deduct certain amounts in respect of debts incurred in the same year or earlier income years;

unless either:

     there was no abnormal trading; or

     there was abnormal trading, but the trust’s ownership and business did not change.

Also, it may still be prevented from deducting the tax loss to the extent that it is attributable to certain debt deductions.

266‑105  Diagram giving overview of this Subdivision

266‑110  Listed widely held trust may be denied tax loss deduction

Type of trust to which this section applies

             (1)  This section applies to a trust that:

                     (a)  can in the income year deduct a tax loss from a loss year; and

                     (b)  was a listed widely held trust at all times in the period (the test period) from the beginning of the loss year until the end of the income year; and

                     (c)  was not an excepted trust at all times in the test period.

To find out the meaning of listed widely held trust: see section 272‑115.

To find out the meaning of excepted trust: see section 272‑100.

Condition for deducting tax loss

             (2)  The trust cannot deduct the tax loss unless it meets either:

•    the condition in subsection 266‑125(1); or

•    the condition in subsection 266‑125(2).

Additional restriction on deducting tax loss

             (3)  Even if it meets either of the conditions, it still cannot deduct the tax loss, or part of the tax loss, if section 266‑135 (which deals with certain debt deductions) prevents it from doing so.

266‑115  Listed widely held trust may be required to work out its net income and tax loss in a special way

                   A trust that:

                     (a)  was a listed widely held trust at all times in the income year (the test period); and

                     (b)  was not an excepted trust at all times in the test period;

must work out its net income and tax loss for the income year under Division 268 (How to work out a trust’s net income and tax loss for the income year), unless it meets either:

•  the condition in subsection 266‑125(1); or

   the condition in subsection 266‑125(2).

266‑120  Listed widely held trust may be denied debt deduction

Type of trust to which this section applies

             (1)  This section applies to a trust that:

                     (a)  can deduct in the income year an amount:

                              (i)  under section 51 or 63, or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997, in respect of the writing off of the whole or part of a debt as bad; or

                             (ii)  under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt; and

                     (b)  was a listed widely held trust at all times in the period (the test period):

                              (i)  if the debt was incurred in an earlier income year—beginning on the day the debt was incurred and ending at the end of the income year; or

                             (ii)  if the debt was incurred in the income year—consisting of the income year; and

                     (c)  was not an excepted trust at all times in the test period.

Note:          Subdivisions 709‑D and 719‑I of the Income Tax Assessment Act 1997 also affect when a trust that used to be a member of a consolidated group or MEC group may deduct a debt that used to be owed to a member of the group and that the trust writes off as bad.

Condition for deducting amount

             (2)  The trust cannot deduct the amount unless it meets either:

•    the condition in subsection 266‑125(1); or

•    the condition in subsection 266‑125(2).

266‑125  There must be no abnormal trading (subject to 50% stake or same business exceptions)

             (1)  There must be no abnormal trading in the trust’s units during the test period.

To find out the meaning of abnormal trading: see Subdivision 269‑B.

             (2)  If there is abnormal trading on one or more occasions, then either:

                     (a)  for each abnormal trading, the trust must pass the 50% stake test in respect of the following times:

                              (i)  the beginning of the test period;

                             (ii)  immediately after the abnormal trading; or

                     (b)  if it does not, at all times after the first or only abnormal trading in respect of which the requirement in paragraph (a) is not satisfied and before the end of the test period, the trust must pass the same business test in relation to the time immediately before that abnormal trading.

To find out whether the trust passes the 50% stake test: see Subdivision 269‑C.

To find out whether the trust passes the same business test: see Subdivision 269‑F.

266‑130  Deducting part of a tax loss

             (1)  If section 266‑110 prevents the trust from deducting a tax loss, it can deduct the part of the tax loss that is attributable to a part of the loss year.

             (2)  However, the trust can do this only if, assuming that that part of the loss year had been treated as the whole of the loss year for the purposes of section 266‑125, the trust would have been entitled to deduct the tax loss.

             (3)  Also, the trust cannot deduct the part of the tax loss, or some of it, if section 266‑135 (which deals with certain debt deductions) prevents it from doing so.

266‑135  Listed widely held unit trust may be denied tax loss deduction otherwise allowable

Section applies after sections 266‑110 and 266‑130

             (1)  This section applies if, after applying sections 266‑110 and 266‑130, a trust can deduct in the income year the whole or part (the otherwise‑deductible loss) of a tax loss from a loss year.

Trust must satisfy condition if debt deduction etc.

             (2)  If:

                     (a)  there would have been no otherwise‑deductible loss, or its amount would have been smaller, if the trust had not (after applying section 266‑120) been able to deduct in the loss year an amount:

                              (i)  under section 51 or 63, or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997, in respect of the writing off of the whole or part of a debt as bad; or

                             (ii)  under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt; and

                     (b)  the trust could only deduct the amount in respect of the debt because it passed the same business test as mentioned in paragraph 266‑125(2)(b); and

                     (c)  the Commissioner considers that the trust passed the same business test as mentioned in that paragraph for the purpose, or for purposes including the purpose, of being able to deduct the amount because of that paragraph;

the trust cannot deduct the otherwise‑deductible loss, or can only deduct the smaller amount mentioned in paragraph (a) of this section, unless it meets the condition in subsection (3).

Condition

             (3)  The condition is that, at all times after the abnormal trading mentioned in paragraph 266‑125(2)(b) and before the end of the income year, the trust must pass the same business test in relation to the time immediately before the abnormal trading.

Subdivision 266‑EEffect of abnormal trading on unlisted very widely held trust or wholesale widely held trust

266‑140  What this Subdivision is about

An unlisted very widely held trust or a wholesale widely held trust:

     cannot deduct a tax loss from an earlier income year; or

     has to work out its net income and tax loss for the income year in a special way; or

     cannot deduct certain amounts in respect of debts incurred in the income year or earlier income years;

unless either:

     there was no abnormal trading; or

     there was abnormal trading, but the trust’s ownership did not change.

266‑145  Diagram giving overview of this Subdivision

266‑150  Unlisted very widely held trust or wholesale widely held trust may be denied tax loss deduction

             (1)  If a trust is covered by subsection (2), it cannot deduct in the income year a tax loss from a loss year unless it meets either:

   the condition in subsection 266‑165(1); or

   the condition in subsection 266‑165(2).

             (2)  A trust is covered by this subsection if:

                     (a)  in the period (the test period) from the later of:

                              (i)  the beginning of the loss year; and

                             (ii)  the end of any start‑up period (within the meaning of subsection 272‑120(3));

                            until the end of the income year, the trust:

                            (iii)  was at all times an unlisted very widely held trust; or

                            (iv)  was at all times a wholesale widely held trust; or

                             (v)  was at some time an unlisted very widely held trust and, at any time when it was not, was a wholesale widely held trust or a listed widely held trust; or

                            (vi)  was at some time a wholesale widely held trust and, at any time when it was not, was an unlisted very widely held trust or a listed widely held trust; and

                     (b)  in the test period, the trust was not at all times an excepted trust.

To find out the meaning of unlisted very widely held trust: see section 272‑120.

To find out the meaning of wholesale widely held trust: see section 272‑125.

To find out the meaning of excepted trust: see section 272‑100.

To find out the meaning of listed widely held trust: see section 272‑115.

266‑155  Unlisted very widely held trust or wholesale widely held trust may be required to work out its net income and tax loss in a special way

             (1)  If a trust is covered by subsection (2), it must work out its net income and tax loss for the income year under Division 268 (How to work out a trust’s net income and tax loss for the income year), unless it meets either:

•    the condition in subsection 266‑165(1); or

•    the condition in subsection 266‑165(2).

             (2)  A trust is covered by this subsection if:

                     (a)  in the period (the test period) consisting of so much of the income year as occurs after the end of any start‑up period (within the meaning of subsection 272‑120(3)), the trust:

                              (i)  was at all times an unlisted very widely held trust; or

                             (ii)  was at all times a wholesale widely held trust; or

                            (iii)  was at some time an unlisted very widely held trust and, at any time when it was not, was a wholesale widely held trust or a listed widely held trust; or

                            (iv)  was at some time a wholesale widely held trust and, at any time when it was not, was an unlisted very widely held trust or a listed widely held trust; and

                     (b)  in the test period, the trust was not at all times an excepted trust.

266‑160  Unlisted very widely held trust or wholesale widely held trust may be denied debt deduction

             (1)  If a trust is covered by subsection (2), it cannot deduct in the income year an amount:

                     (a)  under section 51 or 63, or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997, in respect of the writing off of the whole or part of a debt as bad; or

                     (b)  under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt;

unless it meets either:

•    the condition in subsection 266‑165(1); or

•    the condition in subsection 266‑165(2).

             (2)  A trust is covered by this subsection if:

                     (a)  in the period (the test period) from the later of the end of any start‑up period (within the meaning of subsection 272‑120(3)) and the beginning of:

                              (i)  if the debt was incurred in an earlier income year—the day on which the debt was incurred; or

                             (ii)  if the debt was incurred in the income year—the income year;

                            until the end of the income year, the trust:

                            (iii)  was at all times an unlisted very widely held trust; or

                            (iv)  was at all times a wholesale widely held trust; or

                             (v)  was at some time an unlisted very widely held trust and, at any time when it was not, was a wholesale widely held trust or a listed widely held trust; or

                            (vi)  was at some time a wholesale widely held trust and, at any time when it was not, was an unlisted very widely held trust or a listed widely held trust; and

                     (b)  in the test period, the trust was not at all times an excepted trust.

Note:          Subdivisions 709‑D and 719‑I of the Income Tax Assessment Act 1997 also affect when a trust that used to be a member of a consolidated group or MEC group may deduct a debt that used to be owed to a member of the group and that the trust writes off as bad.

266‑165  There must be no abnormal trading (subject to 50% stake exception)

             (1)  There must be no abnormal trading in the units of the trust during the test period.

To find out the meaning of abnormal trading: see Subdivision 269‑B.

             (2)  If there is abnormal trading on one or more occasions, then for each abnormal trading the trust must pass the 50% stake test in respect of the following times:

                     (a)  the beginning of the test period;

                     (b)  immediately after the abnormal trading.

To find out whether the trust passes the 50% stake test: see Subdivision 269‑C.

266‑170  Deducting part of a tax loss

             (1)  If section 266‑150 prevents the trust from deducting a tax loss, it can deduct the part of the tax loss that is attributable to a part of the loss year.

             (2)  However, the trust can do this only if, assuming that that part of the loss year had been treated as the whole of the loss year for the purposes of section 266‑165, the trust would have been entitled to deduct the tax loss.

Subdivision 266‑FInformation about family trusts with interests in other trusts

266‑175  What this Subdivision is about

If a trust would only avoid the tax consequences of this Division because of interests held by a non‑resident family trust, the Commissioner may require the trust to give certain information about the non‑resident family trust. If it is not given, the trust does not avoid the tax consequences of this Division.

266‑180  Information about family trusts with interests in other trusts

Notice about family trust

             (1)  The Commissioner may give the trustee of a trust (the primary trust) a notice in accordance with section 266‑185 if the requirements of subsections (2) to (5) of this section are met.

First requirement

             (2)  In its return of income for an income year, the primary trust:

                     (a)  must have deducted a tax loss from an earlier income year; or

                     (b)  must not have worked out its net income and tax loss for the income year under Division 268; or

                     (c)  must have deducted an amount in relation to a debt;

where it would not be allowed to deduct the tax loss or amount in respect of the debt, or would be required to work out its net income and tax loss under that Division, if it did not meet a condition or conditions as mentioned in section 266‑40, 266‑45, 266‑90, 266‑125 or 266‑165 (the conditions provision).

Second requirement

             (3)  The Commissioner must be satisfied that the primary trust would not meet the condition or conditions if one or more trusts were not family trusts.

Third requirement

             (4)  When the Commissioner gives the notice, for at least one of the family trusts:

                     (a)  a trustee of the trust must be a non‑resident; or

                     (b)  the central management and control of the trust must be outside Australia.

Fourth requirement

             (5)  The Commissioner must give the notice before the later of:

                     (a)  5 years after the end of the income year to which the return relates; and

                     (b)  the end of the period during which the trustee of the primary trust is required by section 262A to retain records in relation to that income year.

266‑185  Notices where requirements of section 266‑180 are met

Information required

             (1)  The notice that the Commissioner may give if the requirements of subsections 266‑180(2) to (5) are met must require the trustee of the primary trust to give the Commissioner specified information about conferrals of present entitlements to, and distributions of, income and capital, since the start of the test period mentioned in the conditions provision, by all of the family trusts meeting the requirements of paragraph 266‑180(4)(a) or (b).

Trustee knowledge

             (2)  The information need not be within the knowledge of the trustee at the time the notice is given.

Period for giving information

             (3)  The notice must specify a period within which the trustee is to give the information. The period must not end earlier than 21 days after the day on which the Commissioner gives the notice.

Consequence of not giving the information

             (4)  If the trustee does not give the information within the period or within such further period as the Commissioner allows, the primary trust is taken not to meet, and never to have met, the condition or conditions in the conditions provision.

             (5)  If, because of subsection (4), the fixed trust is required to work out under Division 268 its net income and tax loss for the income year mentioned in subsection 266‑180(2), that Division is to be applied as if Subdivision 268‑B required the income year to be divided into such periods as would result in the highest possible net income for the income year.

No offences or penalties

             (6)  To avoid doubt, subsections (4) and (5) do not cause the trustee of the primary trust to commit any offence or be liable to any penalty under Part 4‑25 in Schedule 1 to the Taxation Administration Act 1953 for deducting the amount concerned, or for not working out the trust’s net income and tax loss under Division 268, in the trust’s return.


 

Division 267Income tax consequences for non‑fixed trusts of change in ownership or control

Subdivision 267‑AOverview of this Division

267‑5  What this Division is about

This Division is about the income tax consequences for a non‑fixed trust if its ownership or control changes.

267‑10  Diagram giving overview of this Division


 

Subdivision 267‑BDeducting tax losses, and certain amounts in respect of debts, from earlier years

267‑15  What this Subdivision is about

A non‑fixed trust cannot deduct:

     a tax loss from a loss year; or

     certain amounts in respect of debts incurred in earlier income years;

unless:

     if applicable, it meets an ownership test based on income and capital distributions; and

     it did not fail that test in a previous year; and

     if applicable, it meets an ownership test based on fixed entitlements to income and capital; and

     its control has stayed the same.

267‑20  Non‑fixed trust may be denied tax loss deduction

Type of trust to which this Subdivision applies

             (1)  This section applies to a trust that:

                     (a)  can deduct in the income year a tax loss from a loss year; and

                     (b)  was a non‑fixed trust at any time in the period (the test period) from the beginning of the loss year until the end of the income year; and

                     (c)  was not an excepted trust at all times in the test period.

To find out the meaning of non‑fixed trust: see section 272‑70.

To find out the meaning of excepted trust: see section 272‑100.

Conditions for deducting tax loss

             (2)  The trust cannot deduct the tax loss unless it meets:

•    the condition in subsection 267‑30(2) (if applicable); and

•    the condition in section 267‑35; and

•    the condition in subsection 267‑40(2) (if applicable); and

•    the condition in section 267‑45.

267‑25  Non‑fixed trust may be denied debt deduction

Type of trust to which this section applies

             (1)  This section applies to a trust that:

                     (a)  can deduct in the income year an amount:

                              (i)  under section 51 or 63, or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997, in respect of the writing off of the whole or part of a debt, incurred in an earlier income year, as bad; or

                             (ii)  under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt incurred in an earlier income year; and

                     (b)  was a non‑fixed trust at any time in the period (the test period) beginning on the day the debt was incurred and ending at the end of the income year; and

                     (c)  was not an excepted trust at all times in the test period.

Note:          Subdivisions 709‑D and 719‑I of the Income Tax Assessment Act 1997 also affect when a trust that used to be a member of a consolidated group or MEC group may deduct a debt that used to be owed to a member of the group and that the trust writes off as bad.

Condition for deducting amount

             (2)  The trust cannot deduct the amount unless it meets:

•    the condition in subsection 267‑30(2) (if applicable); and

•    the condition in section 267‑35; and

•    the condition in subsection 267‑40(2) (if applicable); and

•    the condition in section 267‑45.

267‑30  If certain distributions are made, the trust must pass the pattern of distributions test

When trust must meet the condition

             (1)  If either or both of the following happened, the trust must meet the condition in subsection (2):

                     (a)  the trust distributed income:

                              (i)  in the income year or within 2 months after its end; and

                             (ii)  in at least one of the 6 earlier income years; or

                     (b)  the trust distributed capital:

                              (i)  in the income year or within 2 months after its end; and

                             (ii)  in at least one of the 6 earlier income years.

The condition

             (2)  The condition is that the trust must pass the pattern of distributions test for the income year.

To find out whether the trust passes the pattern of distributions test for the income year: see Subdivision 269‑D.

267‑35  The trust must not have previously failed to meet the condition in subsection 267‑30(2)

                   The trust must not have been prevented from deducting the tax loss in an earlier income year because of a failure to meet the condition in subsection 267‑30(2) or conditions that included that condition.

267‑40  If there are individuals with more than a 50% stake in income or capital, more than a 50% stake in income or capital must be maintained

When trust must meet condition

             (1)  If at any time (the test time) in the test period, individuals (the threshold group) have more than a 50% stake in the income or capital of the trust, the trust must meet the condition in subsection (2).

To find out whether individuals have more than a 50% stake in the income or capital of the trust: see Subdivision 269‑C.

Condition

             (2)  The condition is that, during the period beginning at the test time and finishing at the end of the test period, the same individuals (who must be some or all of the threshold group) must have had more than a 50% stake in the income or the capital, respectively, of the trust.

Commissioner discretion

             (3)  If:

                     (a)  after the test time, some or all of the threshold group cease to have a 50% stake in the income or capital of the trust at a particular time; and

                     (b)  having regard to the likely manner of exercise of any discretion of the trustee to distribute income or capital of the trust after the particular time and to any other relevant matter, the Commissioner considers it fair and reasonable that the individuals should be taken to have the stake at the particular time and at all later times in the test period;

the individuals are taken to have that stake at the particular time and at all later times in the test period.

267‑45  Group must not begin to control the trust

                   A group must not, during the test period, begin to control the trust directly or indirectly.

To find out what it means for a group to control the trust: see Subdivision 269‑E.

267‑50  Deducting part of a tax loss

             (1)  If section 267‑20 prevents a trust from deducting a tax loss because the trust does not meet the condition in section 267‑40 or 267‑45 or both conditions, it can deduct the part of the tax loss that is attributable to a part of the loss year.

             (2)  However, the trust can do this only if, assuming that that part of the loss year had been treated as the whole of the loss year for the purposes of sections 267‑40 and 267‑45, the trust would have been entitled to deduct the tax loss.

Subdivision 267‑CCurrent year net income and tax loss, and certain debts incurred in current year

267‑55  What this Subdivision is about

A non‑fixed trust:

     must work out its net income and tax loss for the income year in a special way; or

     cannot deduct certain amounts in respect of debts incurred in the income year;

unless:

     if applicable, it meets an ownership test relating to fixed entitlements to shares of income and capital; and

     its control has stayed the same.

267‑60  Trust may be required to work out its net income and tax loss in a special way

Type of trust to which this Subdivision applies

                   A trust that:

                     (a)  was a non‑fixed trust at any time in the income year (the test period); and

                     (b)  was not an excepted trust at all times in the test period;

must work out its net income and tax loss for the income year under Division 268 (How to work out a trust’s net income and tax loss for the income year), unless it meets:

   the condition in subsection 267‑70(2) (if applicable); and

   the condition in section 267‑75.

To find out the meaning of excepted trust: see section 272‑100.

267‑65  Non‑fixed trust may be denied debt deduction

Type of trust to which this section applies

             (1)  This section applies to a trust that:

                     (a)  can deduct in the income year (the test period) an amount:

                              (i)  under section 51 or 63 in respect of the writing off of the whole or part of a debt, incurred in the income year, as bad; or

                             (ii)  under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt incurred in the income year; and

                     (b)  was a non‑fixed trust at any time in the test period; and

                     (c)  was not an excepted trust at all times in the test period.

Note:          Subdivisions 709‑D and 719‑I of the Income Tax Assessment Act 1997 also affect when a trust that used to be a member of a consolidated group or MEC group may deduct a debt that used to be owed to a member of the group and that the trust writes off as bad.

Condition for deducting amount

             (2)  The trust cannot deduct the amount unless it meets

   the condition in subsection 267‑70(2) (if applicable); and

   the condition in section 267‑75.

267‑70  If there are individuals with more than a 50% stake in income or capital, more than a 50% stake in income or capital must be maintained

When trust must meet condition

             (1)  If at any time (the test time) in the test period, individuals (the threshold group) have more than a 50% stake in the income or capital of the trust, the trust must meet the condition in subsection (2).

To find out whether individuals have more than a 50% stake in the income or capital of the trust: see Subdivision 268‑C.

Condition

             (2)  The condition is that, during the period beginning at the test time and finishing at the end of the test period, the same individuals (who must be some or all of the threshold group) must have more than a 50% stake in the income or the capital, respectively, of the trust.

Commissioner discretion

             (3)  If:

                     (a)  after the test time, some or all of the threshold group cease to have a 50% stake in the income or capital of the trust at a particular time; and

                     (b)  having regard to the likely manner of exercise of any discretion of the trustee to distribute income or capital of the trust after the particular time and to any other relevant matter, the Commissioner considers it fair and reasonable that the individuals should be taken to have the stake at the particular time and at all later times in the test period;

the individuals are taken to have that stake at the particular time and at all later times in the test period.

267‑75  Group must not begin to control trust

                   A group must not, during the test period, begin to control the trust directly or indirectly.

To find out what it means for a group to control the trust: see Subdivision 269‑E.

Subdivision 267‑DInformation about family trusts with interests in other trusts

267‑80  What this Subdivision is about

If a trust would only avoid the tax consequences of this Division because of interests held by a non‑resident family trust, the Commissioner may require the trust to give certain information about the non‑resident family trust. If it is not given, the trust does not avoid the tax consequences of this Division.

267‑85  Information about family trusts with interests in other trusts

Notice about family trust

             (1)  The Commissioner may give the trustee of a trust (the primary trust) a notice in accordance with section 267‑90 if the requirements of subsections (2) to (5) of this section are met.

First requirement

             (2)  In its return of income for an income year, the primary trust:

                     (a)  must have deducted a tax loss from an earlier income year; or

                     (b)  must not have worked out its net income and tax loss for the income year under Division 268; or

                     (c)  must have deducted an amount in relation to a debt;

where it would not be allowed to deduct the tax loss or amount in respect of the debt, or would be required to work out its net income and loss under that Division, if it did not meet a condition or conditions as mentioned in section 267‑40 or 267‑70 (the conditions provision).

Second requirement

             (3)  The Commissioner must be satisfied that the primary trust would not meet the condition or conditions if one or more trusts were not family trusts.

Third requirement

             (4)  When the Commissioner gives the notice, for at least one of the family trusts:

                     (a)  a trustee of the trust must be a non‑resident; or

                     (b)  the central management and control of the trust must be outside Australia.

Fourth requirement

             (5)  The Commissioner must give the notice before the later of:

                     (a)  5 years after the end of the income year to which the return relates; and

                     (b)  the end of the period during which the trustee of the primary trust is required by section 262A to retain records in relation to that income year.

267‑90  Notices where requirements of section 267‑85 are met

Information required

             (1)  The notice that the Commissioner may give if the requirements of subsections 267‑85(2) to (5) are met must require the trustee to give the Commissioner specified information about conferrals of present entitlements to, and distributions of, income and capital, since the start of the test period mentioned in the conditions provision, by all of the family trusts meeting the requirements of paragraph 267‑85(4)(a) or (b).

Trustee knowledge

             (2)  The information need not be within the knowledge of the trustee at the time the notice is given.

Period for giving information

             (3)  The notice must specify a period within which the trustee is to give the information. The period must not end earlier than 21 days after the day on which the Commissioner gives the notice.

Consequence of not giving the information

             (4)  If the trustee does not give the information within the period or within such further period as the Commissioner allows, the primary trust is taken not to meet, and never to have met, the condition or conditions in the conditions provision.

Application of Division 268

             (5)  If, because of subsection (4), the fixed trust is required to work out under Division 268 its net income and tax loss for the income year mentioned in subsection 267‑85(2), that Division is to be applied as if Subdivision 268‑B required the income year to be divided into such periods as would result in the highest possible net income for the income year.

No offences or penalties

             (6)  To avoid doubt, subsections (4) and (5) do not cause the trustee of the primary trust to commit any offence or be liable to any penalty under Part VII for deducting the amount concerned, or for not working out the trust’s net income and tax loss under Division 268, in the trust’s return.


 

Division 268How to work out a trust’s net income and tax loss for the income year

Subdivision 268‑AOverview of Division

268‑5  What this Division is about

This Division requires a trust’s net income and tax loss to be worked out in a special way. The income year is divided into periods as the basis for the calculation.

Subdivision 268‑BDividing the income year into periods

268‑10  Income year of fixed trust to be divided into periods—first case

             (1)  If:

                     (a)  a trust’s net income and tax loss for the income year are required by section 266‑30 to be worked out under this Division; and

                     (b)  the trust did not meet the requirements of subsections 266‑45(2) and (4);

the income year is divided into periods as follows.

             (2)  The first period starts at the start of the income year. Each later period starts immediately after the end of the previous period.

             (3)  The last period ends at the end of the income year. Each period (except the last) ends at the latest time that would result in the trust passing the 50% stake test for the whole of the period.

268‑15  Income year of fixed trust to be divided into periods—second case

             (1)  If:

                     (a)  a trust’s net income and tax loss for the income year are required by section 266‑30 to be worked out under this Division; and

                     (b)  the trust met the requirements of subsections 266‑45(2) and (4);

the income year is divided into periods as follows.

             (2)  The first period starts at the start of the income year. Each later period starts immediately after the end of the previous period.

             (3)  The last period ends at the end of the income year. Each period (except the last) ends at the earliest of:

                     (a)  the latest time that would result in the persons holding fixed entitlements to shares of the income or shares of the capital of:

                              (i)  if the trust met the requirements of paragraph 266‑45(2)(a)—the trust; or

                             (ii)  if the trust met the requirements of paragraph 266‑45(2)(b)—the holding entity mentioned in that paragraph;

                            and the percentages of the shares that they hold, remaining the same during the whole of the period; and

                     (b)  the times that, for all of the non‑fixed trusts (other than excepted trusts) holding directly or indirectly a fixed entitlement to a share of the income or capital of the trust at any time during the income year, are the latest times that would result in individuals having more than a 50% stake in their income or capital; and

                     (c)  the earliest time in the period when a group begins to control a non‑fixed trust (other than an excepted trust) that holds directly or indirectly a fixed entitlement to a share of the income or capital of the trust at any time during the income year.

To find out when a group begins to control a trust: see Subdivision 269‑E.

268‑20  Income year of widely held unit trust to be divided into periods

             (1)  If a trust’s net income and tax loss for the income year are required by section 266‑80, 266‑115 or 266‑155 to be worked out under this Division, the income year is divided into periods as follows.

             (2)  The first period starts at the start of the income year. Each later period starts immediately after the end of the previous period.

             (3)  The last period ends at the end of the income year. Each period (except the last) ends at the earliest time at which there is an abnormal trading in the trust’s units, where the trust does not pass the 50% stake test in respect of the following times:

                     (a)  the beginning of the period;

                     (b)  immediately after the abnormal trading.

             (4)  However, if the trust is a listed widely held trust, what would otherwise be 2 or more successive periods are treated as a single period if during all of them the trust passed the same business test in relation to the time immediately before the end of the first of the successive periods.

268‑25  Income year of non‑fixed trust to be divided into periods

             (1)  If a trust’s net income and tax loss for the income year are required by section 267‑60 to be worked out under this Division, the income year is divided into periods as follows.

             (2)  The first period starts at the start of the income year. Each later period starts immediately after the end of the previous period.

             (3)  The last period ends at the end of the income year.

             (4)  If the condition in subsection 267‑70(2) applies but the trust does not meet the condition, each period (except the last) ends at the earlier of:

                     (a)  the latest time, after the test time mentioned in that section, that would result in the same individuals having more than a 50% stake in the income or the capital, as the case requires, of the trust during the whole of the period; or

                     (b)  the earliest time when a group begins to control the trust directly or indirectly.

             (5)  If the condition in subsection 267‑70(2) does not apply, or does apply and the trust meets the condition, each period (except the last) ends at the earliest time when a group begins to control the trust directly or indirectly.

Subdivision 268‑COther steps in working out the net income and tax loss

268‑30  Calculate the notional loss or net income for each period

             (1)  A notional loss or notional net income of the trust must be worked out for each period into which the income year has been divided in accordance with Subdivision 268‑B.

             (2)  The trust has a notional loss for a period if the deductions attributed to the period under section 268‑35 exceed the assessable income attributed to the period under section 268‑40. The notional loss is the amount of the excess.

For a period during which the trust was in partnership, the notional loss is worked out under Subdivision 268‑D.

             (3)  On the other hand, if that assessable income exceeds those deductions, the trust has a notional net income for the period, equal to the excess.

For a period during which the trust was in partnership, the notional net income is worked out under Subdivision 268‑D.

             (4)  If the trust has a notional loss for none of the periods in the income year, this Subdivision has no further application, and the trust’s net income for the income year is calculated in the usual way.

The usual way of working out net income is set out in section 95.

268‑35  How to attribute deductions to periods

             (1)  The trust’s deductions for the income year are attributed to periods in the income year as follows.

             (2)  The following deductions are attributed to each period in proportion to the length of the period:

                    (aa)  deductions for the decline in value of a depreciating asset;

See Division 40 of the Income Tax Assessment Act 1997.

                     (c)  deductions for expenditure, deductions for which are spread over 2 or more years, but not full year deductions (see subsection (5));

                     (d)  deductions for expenditure of capital monies in connection with an Australian film.

See section 124ZAFA.

             (3)  All other deductions (except full year deductions) are attributed to periods as if each period were an income year.

             (4)  Full year deductions are not attributed to any of the periods. They are brought in at a later stage of the process of calculating the trust’s net income for the income year.

             (5)  These are full year deductions:

                     (a)  deductions for bad debts under section 8‑1 (about general deductions) of the Income Tax Assessment Act 1997;

                     (b)  deductions for bad debts under section 25‑35 (about bad debts) of the Income Tax Assessment Act 1997, or for losses on debt/equity swaps under section 63E;

                     (c)  deductions, so far as they are allowable under Division 8 (which is about deductions) of the Income Tax Assessment Act 1997, because Subdivision H (Period of deductibility of certain advance expenditure) of Division 3 of Part III applies to the trust in relation to the income year;

                     (d)  deductions allowable under Division 30 of the Income Tax Assessment Act 1997;

                     (e)  deductions for payments of pensions, gratuities or retiring allowances under section 25‑50 of the Income Tax Assessment Act 1997;

                      (f)  deductions for tax losses of earlier income years;

See Division 36 of the Income Tax Assessment Act 1997.

                      (j)  deductions for Farm Management Deposits.

See Schedule 2G to the Income Tax Assessment Act 1936.

             (6)  However, a deduction for the balance of capital expenditure is not a full year deduction if the deduction results from the disposal, loss, lapse, termination of use or destruction of the property.

See Subdivision 40‑D of the Income Tax Assessment Act 1997.

268‑40  How to attribute assessable income to periods

             (1)  The trust’s assessable income for the income year is attributed to periods in the income year as follows.

             (2)  The following amounts are attributed to periods so far as they are reasonably attributable to those periods:

                     (a)  amounts included in the trust’s assessable income under section 97 (Beneficiary of a trust estate not under a legal disability); or

                     (b)  amounts included in the trust’s assessable income under section 98A (Non‑resident beneficiaries assessable in respect of certain income).

             (3)  The following items of assessable income are attributed to each period in proportion to the length of the period:

                     (a)  insurance recoveries for loss of livestock or trees;

See section 385‑130 of the Income Tax Assessment Act 1997.

                     (b)  amounts included in assessable income as a result of elections relating to the forced disposal of livestock;

See Subdivision 385‑E and section 385‑160 of the Income Tax Assessment Act 1997.

                     (c)  recoupment of mains electricity connection expenditure.

See item 1.25 in section 20‑30, which lists deductions for which recoupments are assessable under Subdivision 20‑A, of the Income Tax Assessment Act 1997.

             (4)  An amount included in the trust’s assessable income under section 385‑185 (Election to defer including profit on second wool clip) of the Income Tax Assessment Act 1997 is attributed to the period when the wool would ordinarily have been shorn.

             (5)  An amount included in the trust’s assessable income that is a dividend under:

                     (a)  section 65 (Payments to associated persons); or

                     (c)  section 109 (Excessive payments to shareholders and associates); or

                     (d)  Division 7A of Part III (Distributions to entities connected with a private company);

is attributed to the period when the amount was paid or credited, whichever occurred first.

             (6)  All other items of assessable income (except full year amounts) are attributed to periods as if each period were an income year.

             (7)  Full year amounts are amounts referred to in paragraphs (2)(a) and (b), so far as they are not reasonably attributable to a period. They are brought in at a later stage of the process of calculating the trust’s net income for the income year.

268‑45  How to calculate the trust’s net income for the income year

             (1)  The trust’s net income for the income year is worked out as follows.

             (2)  Add up the notional net incomes (if any) worked out under section 268‑30 or 268‑70.

Note:          A notional loss for a period is not taken into account, but counts towards the trust’s tax loss for the income year.

             (3)  Add the full year amounts referred to in subsection 268‑40(7) (if any).

             (4)  Subtract the trust’s full‑year deductions of these kinds:

                     (a)  deductions for bad debts under section 8‑1 (about general deductions) of the Income Tax Assessment Act 1997;

                     (b)  deductions for bad debts under section 25‑35 (about bad debts) of the Income Tax Assessment Act 1997;

                     (c)  deductions, so far as they are allowable under Division 8 (which is about deductions) of the Income Tax Assessment Act 1997 because Subdivision H (Period of deductibility of certain advance expenditure) of Division 3 of Part III applies to the trust in relation to the income year;

unless they exceed the total of the notional net incomes and the full year amounts. (If they equal or exceed that total, the trust does not have a net income for the income year.)

             (5)  If an amount remains, subtract from it the trust’s other full year deductions, in the order shown in subsection 268‑35(5), unless they exceed the amount remaining. (If they equal or exceed that amount, the trust does not have a net income for the income year.)

             (6)  The amount (if any) remaining is the trust’s net income for the income year.

268‑60  How to work out the trust’s section 36‑10 tax loss for the income year

             (1)  For the purposes of Division 36 (Tax losses of earlier income years) of the Income Tax Assessment Act 1997, instead of working out the trust’s tax loss for the year under section 36‑10 of that Act, it is worked out as follows.

             (2)  Total the notional losses.

             (3)  Add the amount (if any) by which the trust’s full year deductions of these kinds:

                     (a)  deductions for bad debts under section 8‑1 (about general deductions) of the Income Tax Assessment Act 1997;

                     (b)  deductions for bad debts under section 25‑35 ( about bad debts) of the Income Tax Assessment Act 1997;

                     (c)  deductions, so far as they are allowable under Division 8 (which is about deductions) of the Income Tax Assessment Act 1997 because Subdivision H (Period of deductibility of certain advance expenditure) of Division 3 of Part III applies to the trust in relation to the income year;

exceed the total of:

                     (d)  the notional net incomes (if any); and

To work out the notional net income: see sections 268‑30 and 268‑70.

                     (e)  the full year amounts referred to in section 268‑40 (if any).

             (4)  If the trust derived exempt income, subtract its net exempt income as defined in section 36‑20 of the Income Tax Assessment Act 1997.

             (5)  Any amount remaining is the trust’s tax loss for the income year.

To find out how much of the tax loss can be deducted in later income years, see Division 266 or 267.

To find out how to deduct it, see section 36‑15 or 36‑17 of the Income Tax Assessment Act 1997.

Subdivision 268‑DRules that supplement Subdivision 268‑C if the trust is in partnership

268‑70  How to calculate the trust’s notional loss or net income for a period when the trust was a partner

             (1)  This section applies if at any time during a period the trust was a partner in one or more partnerships.

             (2)  The trust has a notional loss for the period if the total (the loss total) of:

                     (a)  the deductions attributed to the period under section 268‑35; and

                     (b)  the trust’s share of each notional loss (if any) of a partnership for the period;

exceeds the total (the income total) of:

                     (c)  the assessable income attributed to the period under section 268‑40; and

                     (d)  the trust’s share of each notional net income (if any) of a partnership for the period.

The notional loss is the amount of the excess.

Note:          A notional loss is taken into account in working out the trust’s tax loss under section 268‑60.

             (3)  On the other hand, if the income total exceeds the loss total, the trust has a notional net income for the period, equal to the excess.

Note:          A notional net income is taken into account in working out the trust’s net income under section 268‑45.

             (4)  If the trust has a notional net income for all periods in the income year, this Subdivision has no further application, and the trust’s net income for the income year is worked out in the usual way.

The usual way of working out net income is set out in section 95.

268‑75  How to calculate the trust’s share of a partnership’s notional loss or notional net income for a period if both entities have the same income year

             (1)  This section applies if at any time during a period the trust is a partner in a partnership that has an income year that starts and ends when the trust’s income year starts and ends.

             (2)  The partnership’s notional loss or notional net income for the period is worked out in the same way as the notional loss or notional net income of a trust.

             (3)  The trust’s share is calculated by dividing:

                     (a)  the trust’s interest in the partnership’s net income or partnership loss of the income year;

by:

                     (b)  the amount of that net income or partnership loss;

and expressing the result as a percentage.

             (4)  However, if the partnership had neither a net income nor a partnership loss, the trust’s share is a percentage that is fair and reasonable having regard to the extent of the trust’s interest in the partnership.

268‑80  How to calculate the trust’s share of a partnership’s notional loss or notional net income for a period if the entities have different income years

             (1)  This section applies if at any time during a period the trust is a partner in a partnership that has an income year that starts and ends at a different time from when the trust’s income year starts and ends.

             (2)  So much of the partnership’s net income or partnership loss of an income year as was derived during the period is a notional net income or notional loss of the partnership for the period. (For the purposes of this subsection, the partnership’s net income or partnership loss is calculated without taking account of the partnership’s full year deductions for that income year.)

Note:          The partnership’s full year deductions are dealt with in section 268‑85.

             (3)  The trust’s share is calculated by dividing:

                     (a)  the trust’s interest in the partnership’s net income or partnership loss of the income year;

by:

                     (b)  the amount of that net income or partnership loss;

and expressing the result as a percentage.

268‑85  Trust’s full year deductions include a share of partnership’s full year deductions

             (1)  This section applies if at any time during the income year the trust is a partner in a partnership that has one or more full year deductions for the income year of the partnership that corresponds to the income year of the trust.

             (2)  The partnership’s full year deductions are treated as full year deductions of the trust, but only to the extent of the trust’s share.

             (3)  If the partnership’s income year is the same as the trust’s, the trust’s share is calculated by dividing:

                     (a)  the trust’s interest in the partnership’s net income or partnership loss of the income year;

by:

                     (b)  the amount of that net income or partnership loss;

and expressing the result as a percentage.

             (4)  However, if the partnership had neither a net income nor a partnership loss, the trust’s share is a percentage that is fair and reasonable having regard to the extent of the trust’s interest in the partnership.

             (5)  If the partnership’s income year does not start and end at the same time as the trust’s income year, the trust’s share is a percentage that is fair and reasonable having regard to all relevant circumstances.


 

Division 269Concepts and tests applied in Divisions 266 and 267

Subdivision 269‑AOverview of Division

269‑5  What this Division is about

This Division explains the following concepts or tests that are used in preceding Divisions of this Schedule:

     abnormal trading;

     50% stake test etc.;

     pattern of distributions test;

     control;

     same business test.

Subdivision 269‑BAbnormal trading

269‑10  Trading

                   A trading in units in a unit trust occurs if there is an issue, redemption or transfer of, or other dealing in, the units.

269‑15  Abnormal trading—general

             (1)  There is an abnormal trading in units in a unit trust if there is a trading in the units that is abnormal having regard to all relevant factors, including:

                     (a)  the timing of the trading, when compared to the normal timing for trading in its units; and

                     (b)  the number of units traded, when compared to the normal number of units traded; and

                     (c)  any connection between the trading and any other trading in units in the trust; and

                     (d)  any connection between the trading and a tax loss or other deduction of the trust.

             (2)  There may also be an abnormal trading under any of the following provisions.

269‑20  Abnormal trading—suspected acquisition or merger

                   There is an abnormal trading in units in a unit trust if a trading occurs in its units that the trustee knows or reasonably suspects is part of an acquisition of the trust or merger of the trust with another trust.

269‑25  Abnormal trading—5% of units in a single transaction

                   There is an abnormal trading in units in a unit trust (other than a wholesale widely held trust) if 5% or more of the units are traded in one transaction.

269‑30  Abnormal trading—suspected 5% of units in a series of transactions

             (1)  There is an abnormal trading in units in a unit trust (other than a wholesale widely held trust) if the trustee knows or reasonably suspects that a person, or a person and one or more associates of the person, have acquired or redeemed 5% or more of the units in 2 or more transactions and would not have done so if the trust did not have a tax loss or other deduction.

             (2)  For the purposes of other provisions of this Schedule, the abnormal trading occurs at the time of the particular transaction that causes the 5% figure to be exceeded.

269‑35  Abnormal trading—20% of units traded, issued or redeemed over 60 day period

             (1)  There is an abnormal trading in units in a unit trust (other than a wholesale widely held trust) if more than 20% of the units on issue at the end of any 60 day period were traded during the period.

             (2)  For the purposes of other provisions of this Schedule, the abnormal trading occurs at the end of the 60 day period.

269‑40  Abnormal trading—50% stake not maintained

             (1)  There is an abnormal trading in units in a wholesale widely held trust during a period if the trustee knows or reasonably suspects that the same persons did not hold more than 50% of its units at the beginning and end of the period.

             (2)  For the purposes of other provisions of this Schedule, the abnormal trading occurs immediately before the end of the period.

269‑45  Time at which trustee to have knowledge or suspicion

                   For the purposes of section 269‑20, 269‑30 or 269‑40, the trustee must have the knowledge or reasonable suspicion mentioned in that section:

                     (a)  if the section is being applied in determining for the purposes of section 268‑20 whether an abnormal trading occurred—at some time during the income year mentioned in that section; or

                     (b)  if it is being applied in determining for the purposes of any other provision whether an abnormal trading occurred during a period—at some time during the period.

269‑47  Abnormal trading where holding trust

Holding trust and subsidiary trust

             (1)  If a unit trust has fixed entitlements directly or indirectly to all of the income and capital of another unit trust:

                     (a)  the first trust is a holding trust of the second; and

                     (b)  the second is a subsidiary trust of the first.

Abnormal trading causing or ending holding‑subsidiary relationship

             (2)  The transaction that causes a trust to become, or to cease to be, a holding trust of a subsidiary trust (the bottom subsidiary trust) is an abnormal trading in units in the bottom subsidiary trust unless:

                     (a)  the holding trust is itself a subsidiary trust of one or more holding trusts (each of which is a higher holding trust); and

                     (b)  immediately before and after the transaction, the bottom subsidiary trust is a subsidiary trust of one or more of the higher holding trusts.

Abnormal trading while holding‑subsidiary relationship exists

             (3)  While one or more trusts are holding trusts of the same subsidiary trust, there is an abnormal trading in units in the subsidiary trust if and only if, and at the time at which, there is an abnormal trading in units in the holding trust that is not itself a subsidiary trust of another holding trust.

269‑49  No abnormal trading where proportionate issue of units

                   If the issue of units in a unit trust to existing unit holders does not cause each unit holder’s proportion of the total fixed entitlements to shares of the income and capital of the trust to change, then, except for the purposes of section 269‑20, the issue is disregarded in determining whether there has been an abnormal trading in units in the unit trust.

Subdivision 269‑CPassing the 50% stake test etc.

269‑50  More than a 50% stake in income or capital

More than a 50% stake in income

             (1)  If there are individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the income of a trust, those individuals have more than a 50% stake in the income of the trust.

More than a 50% stake in capital

             (2)  If there are individuals who have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the capital of the trust, those individuals have more than a 50% stake in the capital of the trust.

269‑55  Passing the 50% stake test

             (1)  If, at all times during a period, or at 2 times:

                     (a)  the same individuals have more than a 50% stake in the income of a trust; and

                     (b)  the same individuals (who may be different from those in paragraph (a)) have more than a 50% stake in the capital of the trust;

the trust passes the 50% stake test for the period or in respect of the 2 times.

             (2)  If a trust is a widely held unit trust it is taken to pass the 50% stake test for a period or in respect of 2 times if it is reasonable to assume that the requirements of paragraphs (1)(a) and (b) are satisfied in respect of the period or the 2 times.

Subdivision 269‑DPattern of distributions test

269‑60  Pattern of distributions test

                   A trust passes the pattern of distributions test for an income year if, before the end of 2 months after the end of the income year:

                     (a)  the trust distributed directly or indirectly to the same individuals, for their own benefit, a greater than 50% share of all test year distributions of income (see subsection 269‑65(1)); and

                     (b)  the trust distributed directly or indirectly to the same individuals (who may be different from those in paragraph (a)), for their own benefit, a greater than 50% share of all test year distributions of capital (see subsection 269‑65(3)).

269‑65  Test year distribution of income or capital

Test year distribution of income

             (1)  A test year distribution of income is the total of all distributions of income made by the trust in any of the following periods, provided the period does not start more than 6 years before the start of the income year:

                     (a)  the period from the start of the income year until 2 months after its end;

                     (b)  if the trust distributed income before the trigger year (see subsection (2))—the income year, before the trigger year, that is closest to the trigger year;

                     (c)  if paragraph (b) does not apply and the trust distributed income in the trigger year—the trigger year;

                     (d)  if neither paragraph (b) nor paragraph (c) applies—the income year, closest to the trigger year, in which the trust distributed income;

                     (e)  each intervening income year (if any) between the one in paragraph (a) and the one in paragraph (b), (c) or (d).

Trigger year

             (2)  If this Subdivision is being applied for the purposes of section 267‑20, the trigger year is the loss year mentioned in that section. If it is being applied for the purposes of section 267‑25, the trigger year is the year in which the debt mentioned in that section was incurred.

Test year distribution of capital

             (3)  Subsection (1) applies in the same way to distributions of capital made by the trust, to determine what is a test year distribution of capital.

269‑70  When individual receives different percentages

                   For the purposes of section 269‑60, if the trust does not distribute to an individual the same percentage of income or capital for every test year distribution, the trust is taken to have distributed to the individual, for every test year distribution, the smallest percentage that it distributed to the individual for any of the test year distributions.

269‑75  Incomplete distributions

                   For the purposes of section 269‑60, if, before the end of 2 months after the end of the income year:

                     (a)  the trust has distributed directly or indirectly the whole or part of a test year distribution of income or test year distribution of capital to a company, partnership or trust (the entity); and

                     (b)  an amount (the undistributed amount) consisting of the whole or part of the income or capital so distributed to the entity satisfies the following requirements:

                              (i)  the amount has not been distributed by the entity; and

                             (ii)  an individual, directly or indirectly, and for his or her own benefit, has a fixed entitlement to a share of the amount;

the entity is taken to have distributed the share of the undistributed amount to the individual immediately before the end of 2 months after the end of the income year.

269‑80  Where individual’s death or breakdown of marriage or relationship

             (1)  For the purposes of section 269‑60, if:

                     (a)  the trust distributes, directly or indirectly to an individual as mentioned in that section, income or capital that is included in a test year distribution; and

                     (b)  a later distribution of income or capital is made that is included in the same or a different test year distribution; and

                     (c)  either the individual dies before the later distribution is made or:

                              (i)  before it is made, there is a breakdown in the marriage or relationship (see section 272‑140) of the individual; and

                             (ii)  after the breakdown, no distribution of income or capital of the trust, that is included in a test year distribution, is made directly or indirectly to the individual; and

                            (iii)  it is reasonable to assume that the breakdown in the marriage or relationship is the reason for no such distribution being made;

then subsections (2) and (3) apply.

             (2)  No income or capital distributed to the individual by the trust, directly or indirectly as mentioned in section 269‑60, is to be included in any test year distribution.

             (3)  If:

                     (a)  the requirements of subsection (1) are met because the individual has died; and

                     (b)  immediately before his or her death, the individual had directly or indirectly, and for his or her own benefit, a fixed entitlement to a share of the income or capital of the trust; and

                     (c)  after the individual’s death, the fixed entitlement is held by a person as trustee of the individual’s estate or by a person who received it as a beneficiary of the estate;

no income or capital distributed to the person as such a trustee or beneficiary, directly or indirectly as mentioned in section 269‑60, is to be included in any test year distribution.

269‑85  Arrangements to pass pattern of distributions test

             (1)  The trust is taken for the purposes of section 269‑60 not to have distributed, directly or indirectly to an individual, and for the individual’s own benefit, a share of a test year distribution of income or capital of the trust if the condition in subsection (2) is met.

             (2)  The condition is that an arrangement was entered into where:

                     (a)  the arrangement in some way (directly or indirectly) related to, affected or depended for its operation on the share or its value; and

                     (b)  the purpose, or one of the purposes, of the arrangement was to ensure that the trust would meet the condition in subsection 267‑30(2).

Subdivision 269‑EControl a non‑fixed trust

269‑95  Control a non‑fixed trust

Basic meaning

             (1)  Subject to this section, a group (see subsection (5)) controls a non‑fixed trust if:

                     (a)  the group has the power, by means of the exercise of a power of appointment or revocation or otherwise, to obtain beneficial enjoyment (directly or indirectly) of the capital or income of the trust; or

                     (b)  the group is able (directly or indirectly) to control the application of the capital or income of the trust; or

                     (c)  the group is capable, under a scheme, of gaining the beneficial enjoyment in paragraph (a) or the control in paragraph (b); or

                     (d)  the trustee is accustomed, under an obligation or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the group; or

                     (e)  the group is able to remove or appoint the trustee; or

                      (f)  the group acquires more than a 50% stake in the income or capital of the trust.

Replacement group after death etc.

             (2)  The consequences set out in subsection (3) apply if:

                     (a)  a group (the original group) ceases to control a non‑fixed trust only because of the death, incapacitation or breakdown in the marriage or relationship of the individual comprising, or an individual included in, the group; and

                     (b)  another group (the replacement group) begins to control the trust within the following period (whether or not any other group controlled the trust in the interim):

                              (i)  one year after the death, incapacitation or breakdown in the marriage or relationship; or

                             (ii)  such longer period as the Commissioner determines in relation to the death, incapacitation or breakdown in the marriage or relationship; and

                     (c)  the replacement group consists of:

                              (i)  if the individual who died or became incapacitated or whose marriage or relationship broke down comprised the original group—one or more individuals who are members of the individual’s family (see section 272‑95); or

                             (ii)  in any other case—one or more such individuals together with all of the persons who were members of the original group, other than any individual who has died or become incapacitated or whose marriage or relationship has broken down; and

                     (d)  the replacement group began to control the trust only because of the death, incapacitation or breakdown in the marriage or relationship of the individual; and

                     (e)  disregarding any individual who died or became incapacitated or whose marriage or relationship broke down and the one or more individuals covered by paragraph (c)—the beneficiaries of the trust immediately before the original group ceased to control the trust are the beneficiaries of the trust immediately after the replacement group begins to control the trust.

Consequences of subsection (2)

             (3)  For the purposes of subsection (2), the consequences are that:

                     (a)  the replacement group is taken to have controlled the trust from the time when the original group began to control it until the time when the replacement group actually began to control it; and

                     (b)  the original group is taken not to have controlled the trust; and

                     (c)  if:

                              (i)  a person or persons (other than a replacement group) began to control the trust at some time during the period from the time the original group ceased to control the trust until the replacement group began to do so; and

                             (ii)  the person or persons began to control the trust only because of the death, incapacitation or breakdown in the marriage or relationship of the individual; and

                            (iii)  the control did not continue after the replacement group began to control the trust;

                            the person or persons are taken not to have controlled the trust.

Deemed absence of control

             (4)  If:

                     (a)  at a particular time, a group controls a non‑fixed trust; and

                     (b)  the Commissioner, having regard to:

                              (i)  the identity of the beneficiaries of the trust at any time before and at any time after the group began to control the trust; and

                             (ii)  all other relevant circumstances;

                            considers that it is reasonable that the group be taken not to control the trust at the particular time;

the group is taken not to control the trust at the particular time.

Group

             (5)  A group is:

                     (a)  a person; or

                     (b)  a person and one or more associates; or

                     (c)  2 or more associates of a person.

Subdivision 269‑FSame business test

269‑100  Passing the same business test

Basic meaning

             (1)  A listed widely held trust passes the same business test during a period (the same business test period) in relation to a time (the test time) if throughout the same business test period it carries on the same business as it carried on immediately before the test time.

Relevance of being a trust

             (2)  The mere fact of being a trust does not mean that the trust cannot carry on a business.

First exception

             (3)  However, the trust does not pass the same business test if, at any time during the same business test period, it derives assessable income from:

                     (a)  a business of a kind that it did not carry on before the test time; or

                     (b)  a transaction of a kind that it had not entered into in the course of its business operations before the test time.

Second exception

             (4)  The trust also does not pass the same business test if, before the test time, it:

                     (a)  started to carry on a business it had not previously carried on; or

                     (b)  in the course of its business operations, entered into a transaction of a kind that it had not previously entered into;

and did so for the purpose, or for purposes including the purpose, of being taken to have carried on throughout the same business test period the same business as it carried on immediately before the test time.

Third exception

             (5)  So far as the test is applied for the purpose of section 266‑115 (Listed widely held trust may be required to work out its net income and tax loss in a special way) and section 268‑20 (Widely held unit trust’s income year to be divided into periods), the trust also does not pass the test if, at any time during the same business test period, it incurs expenditure:

                     (a)  in carrying on a business of a kind that it did not carry on before the test time; or

                     (b)  as a result of a transaction of a kind that it had not entered into in the course of its business operations before the test time.


 

Division 270Schemes to take advantage of deductions

270‑5  What this Division is about

A trust may be prevented from making any use of deductions, or full use of deductions in an income year, if a scheme to take advantage of the deductions exists.

270‑10  Schemes to take advantage of deductions

Basic case

             (1)  The consequences set out in section 270‑15 result if:

                     (a)  a deduction is allowable to a trust for the income year; and

                     (b)  under a scheme, the following happen (in any order):

                              (i)  the trust derives an amount of assessable income (the scheme assessable income) in the income year; and

                             (ii)  an outsider to the trust (see section 270‑25) directly or indirectly provides a benefit (see section 270‑20) to the trustee, to a beneficiary in the trust or to an associate of the trustee or of a beneficiary; and

Note:       The benefit may constitute all or any of the scheme assessable income.

                            (iii)  the trustee, a beneficiary in the trust or an associate of the trustee or of a beneficiary, directly or indirectly provides a benefit to the outsider to the trust or to an associate of the outsider (other than an associate covered by any of paragraphs 270‑25(1)(a) to (f)); and

Note:       The benefit may constitute all or any of the deduction.

                     (c)  it is reasonable to conclude that:

                              (i)  the trust derived the scheme assessable income; or

                             (ii)  the outsider provided the benefit as mentioned in subparagraph (b)(ii); or

                            (iii)  the trustee, beneficiary or associate provided the benefit as mentioned in subparagraph (b)(iii);

                            wholly or partly, but not merely incidentally, because the deduction would be allowable; and

                     (d)  the trust is not an excepted trust under paragraph 272‑100(b), (c) or (d).

Special case

             (2)  If:

                     (a)  under a scheme, a person who, before the scheme was entered into, was an outsider to a trust becomes:

                              (i)  the trustee of the trust; or

                             (ii)  a person with a fixed entitlement to a share of the income or capital of the trust; and

                     (b)  if the person had not ceased to be an outsider to the trust, the requirements of subsection (1) would have been satisfied in relation to the scheme;

the requirements of subsection (1) are taken to have been satisfied in relation to the scheme.

270‑15  Tax consequences of schemes

                   If the requirements of subsection 270‑10(1) are satisfied, the consequences are that:

                     (a)  to the extent (if any) that the deduction mentioned in paragraph 270‑10(1)(a) relates exclusively, or may appropriately be related, to the scheme assessable income, the deduction is not allowable; and

                     (b)  if the net income of the trust is less than the scheme assessable income or there is no net income—the trust has a net income equal to, or the net income is increased so that it equals, the scheme assessable income; and

                     (c)  paragraph (b) and the scheme assessable income are disregarded in working out any tax loss incurred by the trust in the income year; and

                     (d)  if paragraph (b) applies and the deduction mentioned in paragraph 270‑10(1)(a) is for a tax loss—paragraph (b) and the scheme assessable income are disregarded in working out any deduction in respect of the tax loss allowable after the income year.

270‑20  Benefit

                   A benefit is:

                     (a)  money, a dividend or property (whether tangible or intangible); or

                     (b)  a right or entitlement (whether or not property); or

                     (c)  services; or

                     (d)  the extinguishment, forgiveness, release or waiver of a debt or other liability; or

                     (e)  the doing of anything that results in the derivation of assessable income; or

                      (f)  anything that, disregarding the preceding paragraphs, is a benefit or advantage.

270‑25  Outsider to trust

Outsider to family trust

             (1)  If the trust mentioned in paragraph 270‑10(1)(a) is a family trust, an outsider to the trust is a person other than:

                     (a)  the trustee of the trust; or

                     (b)  a person with a fixed entitlement to a share of the income or capital of the trust; or

                     (c)  the individual specified in the trust’s family trust election; or

                     (d)  a member of the individual’s family; or

                   (da)  a trust with the same individual specified in its family trust election; or

                     (e)  a company, partnership or trust that made an interposed entity election to be included in the individual’s family group, where the election was in force (including before it was made) when the scheme mentioned in paragraph 270‑10(1)(b) commenced; or

                      (f)  a fixed trust, company or partnership (an entity) where, at all times while the scheme mentioned in paragraph 270‑10(1)(b) was being carried out:

                              (i)  the individual specified in the trust’s family trust election; or

                             (ii)  one or more members of the individual’s family; or

                            (iii)  the trustees of one or more family trusts, provided the individual is specified in the family trust election of each of those family trusts;

                            or any combination of the above, had fixed entitlements, directly or indirectly, and for their own benefit, to all of the income and capital of the entity.

Outsider to non‑family trust

             (2)  If the trust mentioned in paragraph 270‑10(1)(a) is not a family trust, an outsider to the trust is a person other than:

                     (a)  the trustee of the trust; or

                     (b)  a person with a fixed entitlement to a share of the income or capital of the trust.


 

Division 271Family trust distribution tax

271‑5  What this Division is about

Basically, if:

     the trustee of a trust makes a family trust election; or

     a company, the partners in a partnership or the trustee of a trust makes an election to be included in a family group in relation to a family trust;

and the company, partnership or trust concerned confers a present entitlement to, or distributes, income or capital other than upon or to a specified individual or members of his or her family group, a special tax is payable on the conferral or distribution.

If certain persons do not provide information about conferrals of present entitlements or distributions by non‑residents connected with them, the persons may become liable to the special tax on their own conferrals or distributions.

If certain non‑residents do not pay the special tax by the due date, other persons connected with them may also become liable to pay a special tax equal to the unpaid amount.

271‑10  Family trust distribution tax

                   This Division provides for tax to be payable in specified circumstances. The tax is called family trust distribution tax.

271‑15  Tax liability where family trust makes distribution etc. outside family group

             (1)  This section applies if:

                     (a)  a trustee makes a family trust election in relation to a trust; and

                     (b)  at any time while the election is in force (including a time before it was made), the trust confers a present entitlement to, or distributes, income or capital of the trust:

                              (i)  upon or to a person who is neither the individual specified in the family trust election nor a member of the individual’s family group in relation to the conferral or distribution; or

                             (ii)  upon or to the individual specified in the election or a member of the individual’s family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual’s family group in relation to the conferral or distribution.

             (2)  If this section applies:

                     (a)  if the trustee is an individual—the trustee is liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital to which the entitlement relates, or that is distributed; or

                     (b)  if the trustee is a company—the trustee, together with each person who was a director of the company at the time of the conferral or distribution, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

271‑20  Tax liability where interposed trust makes distribution etc. outside family group

             (1)  This section applies if:

                     (a)  the trustee of a trust makes an interposed entity election for the trust to be included in the family group of the individual specified in a family trust election; and

                     (b)  at any time while the election is in force (including a time before it was made), the trust confers a present entitlement to, or distributes, income or capital of the trust:

                              (i)  upon or to a person who is neither the individual specified in the family trust election nor a member of the individual’s family group in relation to the conferral or distribution; or

                             (ii)  upon or to the individual specified in the election or a member of the individual’s family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual’s family group in relation to the conferral or distribution.

             (2)  If this section applies:

                     (a)  if the trustee is an individual—the trustee is liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital to which the entitlement relates, or that is distributed; or

                     (b)  if the trustee is a company—the trustee, together with each person who was a director of the company at the time of the conferral or distribution, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

271‑25  Tax liability where interposed partnership makes distribution etc. outside family group

             (1)  This section applies if:

                     (a)  the partners in a partnership make an interposed entity election for the partnership to be included in the family group of the individual specified in a family trust election; and

                     (b)  at any time while the interposed entity election is in force (including a time before it was made), the partnership confers a present entitlement to, or distributes, income or capital:

                              (i)  upon or to a person who is neither the individual specified in the family trust election nor a member of the individual’s family group in relation to the conferral or distribution; or

                             (ii)  upon or to the individual specified in the election or a member of the individual’s family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual’s family group in relation to the conferral or distribution.

             (2)  If this section applies, the partners, together with each person who at the time of the conferral or distribution was a director of any partner that was a company, are jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

271‑30  Tax liability where interposed company makes distribution outside family group

             (1)  This section applies if:

                     (a)  a company makes an interposed entity election for the company to be included in the family group of the individual specified in a family trust election; and

                     (b)  at any time while the interposed entity election is in force (including a time before it was made), the company confers a present entitlement to, or distributes, income or capital of the company:

                              (i)  upon or to a person who is neither the individual specified in the family trust election nor a member of the individual’s family group in relation to the conferral or distribution; or

                             (ii)  upon or to the individual specified in the election or a member of the individual’s family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual’s family group in relation to the conferral or distribution.

             (2)  If this section applies, the company, together with each person who was a director of the company at the time of the conferral or distribution, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

271‑35  Avoidance of double‑counting

                   If, after conferring a present entitlement to income or capital as mentioned in paragraph 271‑15(1)(b), 271‑20(1)(b), 271‑25(1)(b) or 271‑30(1)(b), the trust, partnership or company concerned distributes the income or capital in satisfaction of the entitlement, the distribution is disregarded for the purposes of that paragraph.

271‑40  Exclusion of directors from liability to pay tax

             (1)  This section applies to a director of a company who is included among persons who are jointly and severally liable to pay family trust distribution tax under section 271‑15, 271‑20, 271‑25 or 271‑30.

Director not taking part in distribution decision

             (2)  If:

                     (a)  the director did not take part in any decision to confer the entitlement or make the distribution concerned; and

                     (b)  if the director was aware of the proposal to make the decision or of the fact that it was made—the director took reasonable steps to prevent the making, or the implementation, of the decision;

the director is not included among the persons jointly and severally liable.

Director taking part in distribution decision

             (3)  If:

                     (a)  the director took part in any decision to confer the entitlement or make the distribution; and

                     (b)  the director voted against, or otherwise disagreed with the decision; and

                     (c)  the director took reasonable steps to prevent the implementation of the decision;

the director is not included among the persons jointly and severally liable.

271‑45  Requirements for section 271‑55 notice to family trust

Notice about non‑resident distributions

             (1)  The Commissioner may give a notice in accordance with section 271‑55 (which deals with information about distributions etc. by certain non‑residents) to the trustee of a trust (the primary entity) who has made a family trust election, provided the requirements of subsections (2) to (4) of this section are met.

First requirement

             (2)  At a time (the test time) while the election is in force (including a time before it was made), the primary entity must have conferred a present entitlement to, or distributed, income or capital upon or to a company, partnership or trust (the secondary entity) that at the time was, because of an interposed entity election, a member of the family group of the individual (the primary individual) specified in the family trust election.

Second requirement

             (3)  When the Commissioner gives the notice:

                     (a)  if the secondary entity is a partnership—a partner must be a non‑resident; and

                     (b)  if the secondary entity is a company—the company must be a non‑resident; and

                     (c)  if the secondary entity is a trust—either:

                              (i)  a trustee must be a non‑resident; or

                             (ii)  the central management and control of the trust must be outside Australia.

Third requirement

             (4)  The Commissioner must give the notice before the later of:

                     (a)  5 years after the conferral or distribution mentioned in subsection (2); and

                     (b)  the end of the period during which the primary entity is required by section 262A to retain records in relation to the income year in which the conferral or distribution took place.

271‑50  Requirements for section 271‑55 notice to interposed entity

Notice about non‑resident distributions

             (1)  If:

                     (a)  a company, the trustee of a trust or the partners in a partnership (which company, trust or partnership is the primary entity) makes an interposed entity election to be included in the family group of an individual specified in a family trust election; and

                     (b)  the requirements of subsections (2) to (4) are met;

the Commissioner may give the company, trustee or partners a notice in accordance with section 271‑55 (which deals with information about distributions etc. by certain non‑residents).

First requirement

             (2)  At a time (the test time) while the election was in force (including a time before it was made), the primary entity must have conferred a present entitlement to, or distributed, income or capital upon or to a company, partnership or trust (a secondary entity), where the secondary entity:

                     (a)  was the family trust whose trustee made the family trust election; or

                     (b)  was, because of an interposed entity election that was in force at the time, included in the family group of the individual (the primary individual) specified in the family trust election.

Second requirement

             (3)  When the Commissioner gives the notice:

                     (a)  if the secondary entity is a partnership—a partner must be a non‑resident; and

                     (b)  if the secondary entity is a company—the company must be a non‑resident; and

                     (c)  if the secondary entity is a trust—either:

                              (i)  a trustee must be a non‑resident; or

                             (ii)  the central management and control of the trust must be outside Australia.

Third requirement

             (4)  The Commissioner must give the notice before the later of:

                     (a)  5 years after the conferral or distribution mentioned in subsection (2); and

                     (b)  the end of the period during which the primary entity is required by section 262A to retain records in relation to the income year in which the conferral or distribution took place.

271‑55  Notice requiring information about non‑resident distributions etc.

Information required

             (1)  The notice that the Commissioner may give the company, partnership or trustee if the requirements of subsections 271‑45(2) to (4) or 271‑50(2) to (4) are met must require the company, partners or trustee to give the Commissioner specified information about conferrals of present entitlements to, or distributions of, income or capital since the test time by any company, partnership or trust covered by subsection (2) of this section.

Entities covered

             (2)  The following are covered by this subsection:

                     (a)  the secondary entity; and

                     (b)  any company in respect of which an interposed entity election had been made to be included in the family group of the primary individual, where the company was a non‑resident, and the election was in force, when the conferral or distribution took place; and

                     (c)  any partnership in respect of which an interposed entity election had been made to be included in the family group of the primary individual, where any of the partners was a non‑resident, and the election was in force, when the conferral or distribution took place; and

                     (d)  any trust in respect of which a family trust election specifying the primary individual had been made or in respect of which an interposed entity election had been made to be included in the family group of the primary individual, where, when the conferral or distribution took place, either a trustee was a non‑resident or the trust’s central management and control were outside Australia.

Information not within knowledge

             (3)  The information need not be within the knowledge of the company, partners or trustee at the time the notice is given.

Period for giving information

             (4)  The notice must specify a period within which the company, partners or trustee is to give the information. The period must not end earlier than 21 days after the day on which the Commissioner gives the notice.

Company’s liability

             (5)  If the company does not give the information within the period or within such further period as the Commissioner allows, it, together with each person who was a director of the company at the test time, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital mentioned in subsection 271‑50(2).

Partners’ liability

             (6)  If the partners do not give the information within the period or within such further period as the Commissioner allows, they, together with each person who at the test time was a director of any partner that was a company, are jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital mentioned in subsection 271‑50(2).

Trustee’s liability

             (7)  If the trustee does not give the information within the period or within such further period as the Commissioner allows:

                     (a)  if the trustee is an individual—the trustee is liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital mentioned in subsection 271‑45(2) or 271‑50(2); or

                     (b)  if the trustee is a company—the trustee, together with each person who was a director of the company at the test time, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998, on the amount or value of the income or capital mentioned in subsection 271‑45(2) or 271‑50(2).

271‑60  Tax liability where non‑resident family trust’s tax unpaid

Conditions for tax liability

             (1)  If:

                     (a)  tax under section 271‑15 on the amount or value of income or capital of a family trust becomes due and payable; and

                     (b)  the Commissioner determines, in writing, at or after the time when the tax became due and payable, that it is unlikely that the whole or part (the unpaid amount) of the tax will be paid; and

                     (c)  when the Commissioner makes the determination:

                              (i)  a trustee of the family trust is a non‑resident; or

                             (ii)  the central management and control of the family trust is outside Australia.

then the consequences set out in subsection (2) result.

Tax liability

             (2)  The consequences are:

                     (a)  if there is only one person covered by subsection (3)—that person is liable to pay tax, as imposed by the Family Trust Distribution Tax (Secondary Liability) Act 1998, on the unpaid amount; and

                     (b)  if there are 2 or more persons covered by subsection (3)—those persons are jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Secondary Liability) Act 1998, on the unpaid amount.

Persons liable under subsection (2)

             (3)  The persons covered by this subsection are:

                     (a)  the trustee of any trust to which subsection (4) applies; and

                     (b)  if the trustee of any such trust is a company—any person who is a director of the company when the determination is made; and

                     (c)  any company to which subsection (5) applies; and

                     (d)  any person who is a director of such a company when the determination is made.

Trust mentioned in paragraph (3)(a)

             (4)  This subsection applies to a trust if the trust would be:

                     (a)  prevented by Division 266 or 267 from deducting a tax loss or amount in respect of a debt; or

                     (b)  required by Division 266 or 267 to work out its net income and tax loss under Division 268;

in the income year in which the determination is made, or an earlier income year, if the family trust had not been a family trust.

Company mentioned in paragraph (3)(c)

             (5)  This subsection applies to a company if, in its return of income for the income year in which the determination is made or an earlier income year:

                     (a)  the company deducted an amount in respect of a debt, where it was allowed to do so but, because of former section 63B or 63C, or Subdivision 165‑C, 709‑D or 719‑I of the Income Tax Assessment Act 1997, it would not have been if the family trust had not been a family trust; or

                     (b)  the company deducted a tax loss (within the meaning of the Income Tax Assessment Act 1997) where it was allowed to do so but, because of Subdivision 165‑A of that Act, it would not have been if the family trust had not been a family trust; or

                     (c)  the company applied a net capital loss (within the meaning of former Part IIIA of this Act) where it was allowed to do so but, because of former subsection 160ZC(5), it would not have been if the family trust had not been a family trust; or

                     (d)  the company applied a net capital loss (within the meaning of the Income Tax Assessment Act 1997) where it was allowed to do so but, because of Subdivision 165‑CA of that Act, it would not have been if the family trust had not been a family trust;

                     (e)  the company did not calculate its taxable income in accordance with former section 50C of this Act where it was not required to do so but would have been if the family trust had not been a family trust; or

                      (f)  the company calculated its taxable income in accordance with former section 50C and took into account an amount, by reason of former subsection 50D(2), in ascertaining the eligible notional loss of the company under former section 50D, where it was required to calculate its taxable income in accordance with former section 50C and entitled to take the amount into account but would not have been so entitled if the family trust had not been a family trust; or

                     (g)  the company did not calculate its taxable income and tax loss under Subdivision 165‑B of the Income Tax Assessment Act 1997 where it was not required to do so but would have been if the family trust had not been a family trust; or

                     (h)  the company did not calculate its net capital gain and net capital loss under Subdivision 165‑CB of the Income Tax Assessment Act 1997 where it was not required to do so but would have been if the family trust had not been a family trust.

271‑65  Tax liability where non‑resident interposed entity’s tax unpaid

When section applies

             (1)  This section applies if:

                     (a)  a company, the partners in a partnership or the trustee of a trust makes an interposed entity election to be included in the family group of an individual (the primary individual); and

                     (b)  while the interposed entity election is in force, the company, partnership or trust (the primary interposed entity) confers a present entitlement to, or distributes, income or capital; and

                     (c)  family trust distribution tax becomes due and payable on the amount or value of the income or capital.

Determination about unpaid tax

             (2)  If:

                     (a)  the Commissioner determines, in writing, at or after the time when the tax became due and payable, that it is unlikely that the whole or part (the unpaid amount) of the tax will be paid; and

                     (b)  at the time:

                              (i)  if the primary interposed entity is a company—the company is a non‑resident; and

                             (ii)  if the primary interposed entity is a partnership—a partner is a non‑resident; and

                            (iii)  if the primary interposed entity is a trust—either a trustee is a non‑resident or the central management and control of the trust is outside Australia;

then the consequences in subsection (3) result.

Consequences

             (3)  The consequences are:

                     (a)  if there is only one person covered by subsection (4)—that person is liable to pay tax, as imposed by the Family Trust Distribution Tax (Secondary Liability) Act 1998, on the unpaid amount; and

                     (b)  if there are 2 or more persons covered by subsection (4)—those persons are jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Secondary Liability) Act 1998, on the unpaid amount.

Persons covered

             (4)  The persons covered by this subsection are:

                     (a)  any company to which subsection (5) applies; and

                     (b)  any person who is a director of such a company when the determination is made; and

                     (c)  any partner in a partnership to which subsection (5) applies; and

                     (d)  if any partner in any such partnership is a company—any person who is a director of the company when the determination is made; and

                     (e)  the trustee of any trust to which subsection (5) applies; and

                      (f)  if the trustee of any such trust is a company—any person who is a director of the company when the determination is made.

Entities making election and distribution etc.

             (5)  This subsection applies to any company, partnership or trust (an entity), other than the primary interposed entity, meeting the following conditions:

                     (a)  the company, the partners in the partnership or the trustee of the trust made:

                              (i)  an interposed entity election to be included in the family group of the primary individual; or

                             (ii)  a family trust election specifying the primary individual; and

                     (b)  while that election and the interposed entity election made in respect of the primary interposed entity were in force, and before the Commissioner made the determination mentioned in paragraph (2)(a), the entity conferred a present entitlement to, or distributed, income or capital upon or to an eligible entity (see subsection (6)).

Eligible entities

             (6)  Each of the following is an eligible entity:

                     (a)  the primary interposed entity;

                     (b)  a company in respect of which an interposed entity election had been made to be included in the family group of the primary individual, where the company was a non‑resident, and the election was in force, when the conferral or distribution took place;

                     (c)  a partnership in respect of which an interposed entity election had been made to be included in the family group of the primary individual, where any of the partners was a non‑resident, and the election was in force, when the conferral or distribution took place;

                     (d)  a trust:

                              (i)  in respect of which an interposed entity election had been made to be included in the family group of the primary individual; or

                             (ii)  in respect of which a family trust election had been made specifying the primary individual;

                            where, when the conferral or distribution took place, the election was in force and either a trustee was a non‑resident or the trust’s central management and control were outside Australia.

271‑70  Reduction of liability where tax paid

                   If family trust distribution tax (the secondary tax) becomes payable under section 271‑60 or 271‑65 on an amount of family trust distribution tax (the primary tax) that the Commissioner determined was unlikely to be paid:

                     (a)  if any of the primary tax is later paid—any liability to the secondary tax existing at the time of the payment is reduced by the amount of the payment; and

                     (b)  if any of the secondary tax is later paid—any liability to the primary tax existing at the time of the payment is reduced by the amount of the payment.

271‑75  Payment of family trust distribution tax

Tax under sections 271‑15 to 271‑30

             (1)  Family trust distribution tax under any of sections 271‑15 to 271‑30 is due and payable:

                     (a)  in a case where the conferral or distribution on whose amount or value the tax is payable was made before the day on which the election was made—at the end of 21 days after the day on which the election was made; or

                     (b)  in any other case—at the end of 21 days after the day on which the conferral or distribution, on whose amount or value the tax is payable, was made;

or by the end of such later day as the Commissioner, in special circumstances, allows.

Tax under section 271‑55

             (2)  Family trust distribution tax under section 271‑55 is due and payable at the end of 21 days after the end of the period or further period mentioned in subsection (5), (6) or (7), as the case requires, of that section.

Tax under section 271‑60 or 271‑65

             (3)  Family trust distribution tax under section 271‑60 or 271‑65 is due and payable at the end of 21 days after the day, or the last day, on which the notice mentioned in subsection 271‑90(2) is given.

Debt due

             (4)  Family trust distribution tax, when it becomes due and payable, is a debt due to the Commonwealth and payable to the Commissioner.

Application

             (5)  Subsection (4) does not apply in relation to any family trust distribution tax that becomes due and payable on or after 1 July 2000.

Note:          For provisions about collection and recovery of family trust distribution tax and other amounts on or after 1 July 2000, see Part 4‑15 in Schedule 1 to the Taxation Administration Act 1953.

271‑80  Late payment of family trust distribution tax

                   If any of the family trust distribution tax which a person is liable to pay remains unpaid 60 days after the day by which it is due to be paid, the person is liable to pay the general interest charge on the unpaid amount for each day in the period that:

                     (a)  started at the beginning of the 60th day after the day by which the family trust distribution tax was due to be paid; and

                     (b)  finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid:

                              (i)  the family trust distribution tax;

                             (ii)  general interest charge on any of the family trust distribution tax.

Note:          The general interest charge is worked out under Part IIA of the Taxation Administration Act 1953.

271‑90  Notice of liability

Notice for purposes of section 271‑15 etc.

             (1)  The Commissioner may give a person or persons, by post or otherwise, a notice specifying:

                     (a)  the amount of any family trust distribution tax that the Commissioner has ascertained is payable under any of sections 271‑15 to 271‑30 and 271‑55 by the person or persons; and

                     (b)  the day on which that tax became or will become due and payable.

Notice for purposes of section 271‑60 or 271‑65

             (2)  The Commissioner must give persons, by post or otherwise, a notice specifying the amount of any family trust distribution tax that the Commissioner has ascertained is payable under section 271‑60 or 271‑65 by the persons.

Effect of notice on liability etc.

             (3)  The liability of a person or persons to family trust distribution tax on the amount or value of a distribution, and (except in the case of a notice under subsection (2)) the due date for payment of the tax, are not dependent on, or in any way affected by, the giving of a notice in respect of the amount.

Amendment of notice

             (4)  The Commissioner may at any time amend a notice. An amended notice is a notice for the purposes of this section.

Inconsistency between notices

             (5)  If there is an inconsistency between notices that relate to the same subject matter, the later notice prevails to the extent of the inconsistency.

Objections

             (6)  A person who is or persons who are dissatisfied with a notice made in relation to the person or persons may object against it in the manner set out in Part IVC of the Taxation Administration Act 1953.

271‑95  Request for notice of liability

             (1)  A person or persons may make a written request to the Commissioner to be given a notice under subsection 271‑90(1) or (2) in respect of specified circumstances in which family trust distribution tax may be payable.

Compliance with request for subsection 271‑90(1) notice

             (2)  In the case of a notice under subsection 271‑90(1), the Commissioner must, subject to subsection (4) of this section, comply with the request if it is lodged with the Commissioner before the end of the 21 days mentioned in subsection 271‑75(1) or (2), or before the end of such later day as the Commissioner allows.

Compliance with request for subsection 271‑90(2) notice

             (3)  In the case of a notice under subsection 271‑90(2), the Commissioner must, subject to subsection (4) of this section, comply with the request regardless of when it is lodged.

Further information

             (4)  If the Commissioner considers that the notice cannot be given unless the person making the request gives the Commissioner further information about the circumstances in which the family trust distribution tax may be payable, the Commissioner must request the person to give the Commissioner the information.

Failure to give information

             (5)  If the person does not give the information, the Commissioner is not required to comply with the request to give the notice.

271‑100  Evidentiary effect of notice of liability

             (1)  The production of:

                     (a)  a notice given under section 271‑90; or

                     (b)  a document that is signed by the Commissioner and appears to be a copy of such a notice;

is conclusive evidence that:

                     (c)  the notice was duly given; and

                     (d)  in the case of a notice under subsection 271‑90(1)—the amount of family trust distribution tax specified in the notice became due and payable by the person or persons to whom it was given on the day specified; and

                     (e)  in the case of a notice under subsection 271‑90(2)—the amount of family trust distribution tax specified in the notice became payable by the persons to whom it was given.

             (2)  Subsection (1) does not apply in proceedings under Part IVC of the Taxation Administration Act 1953 on a review or appeal relating to the review.

271‑105  Amounts subject to family trust distribution tax not assessable

             (1)  If:

                     (a)  family trust distribution tax (the tax payable) becomes payable under any of sections 271‑15 to 271‑30 and 271‑55 on the amount or value of income or capital of a company, partnership or trust; and

                     (b)  a payment (the tax payment amount) of the whole or part of the tax payable is made, or a reduction (also the tax payment amount) in the whole or part of the tax payable takes place under paragraph 271‑70(b); and

                     (c)  taking into account any previous application of this subsection, the whole or part of the amount or value of the income or capital is included in the assessable income of the company, partnership or trust or of any other person;

the amount included in the assessable income is reduced by the amount worked out using the formula in subsection (2).

             (2)  The formula is:

The original assessable amount is so much of the amount or value of the income or capital as, disregarding any previous reductions under this section, is included in the assessable income of the company, partnership or trust or of any other person.

             (3)  The amount of the reduction is not assessable income and is not exempt income.


 

Division 272Interpretation

Subdivision 272‑AFixed entitlement to share of income or capital

272‑5  Fixed entitlement to share of income or capital of a trust

             (1)  If, under a trust instrument, a beneficiary has a vested and indefeasible interest in a share of income of the trust that the trust derives from time to time, or of the capital of the trust, the beneficiary has a fixed entitlement to that share of the income or capital.

Case where interest not defeasible

             (2)  If:

                     (a)  a person holds units in a unit trust; and

                     (b)  the units are redeemable or further units are able to be issued; and

                     (c)  if units in the unit trust are listed for quotation in the official list of an approved stock exchange—the units held by the person will be redeemed, or any further units will be issued, for the price at which other units of the same kind in the unit trust are offered for sale on the approved stock exchange at the time of the redemption or issue; and

                     (d)  if the units are not listed as mentioned in paragraph (c)—the units held by the person will be redeemed, or any further units will be issued, for a price determined on the basis of the net asset value, according to Australian accounting principles, of the unit trust at the time of the redemption or issue;

then the mere fact that the units are redeemable, or that the further units are able to be issued, does not mean that the person’s interest, as a unit holder, in the income or capital of the unit trust is defeasible.

Deemed fixed entitlement

             (3)  If:

                     (a)  a beneficiary with an interest in a share of income that the trust derives from time to time, or of the capital of a trust, does not have a fixed entitlement to the share; and

                     (b)  the Commissioner considers that the beneficiary should be treated as having the fixed entitlement, having regard to:

                              (i)  the circumstances in which the entitlement is capable of not vesting or the defeasance can happen; and

                             (ii)  the likelihood of the entitlement not vesting or the defeasance happening; and

                            (iii)  the nature of the trust;

the beneficiary has the fixed entitlement.

272‑10  Fixed entitlement to share of income or capital of a company

             (1)  If a shareholder in a company holds shares carrying the right to receive some or all of the dividends that may be paid by the company, the shareholder has a fixed entitlement to a share of the income of the company equal to the percentage of the total dividends represented by the dividends that the shareholder has a right to receive.

             (2)  If a shareholder in a company holds shares carrying the right to receive the whole or part of any distribution of the paid‑up share capital of the company in the event of any return of capital to shareholders, the shareholder has a fixed entitlement to a share of the capital of the company equal to the percentage of the total distribution represented by the amount that the shareholder has a right to receive.

272‑15  Fixed entitlement to share of income or capital of a partnership

             (1)  If, under a partnership agreement:

                     (a)  a partner is entitled to a share of income that the partnership derives from time to time, or of the capital of the partnership; and

                     (b)  the share is not able to be varied;

the partner has a fixed entitlement to that share of the income or capital.

Deemed fixed entitlement

             (2)  If:

                     (a)  a partner does not have a fixed entitlement to a share of income that the partnership derives from time to time, or of the capital of a partnership, only because the partner’s share of the income or capital is able to be varied; and

                     (b)  the Commissioner considers that the partner should be treated as having the fixed entitlement, having regard to:

                              (i)  the circumstances in which the share is able to be varied; and

                             (ii)  the likelihood of the variation happening; and

                            (iii)  the nature of the partnership;

the partner has the fixed entitlement.

272‑20  Fixed entitlement to share of income or capital held indirectly

                   A person holds a fixed entitlement to a share of the income or capital of a company, partnership or trust indirectly if the person holds the entitlement indirectly through fixed entitlements to shares of the income or capital, respectively, of interposed companies, partnerships or trusts.

272‑25  Special cases of fixed entitlements held directly or indirectly

Coverage of section

             (1)  This section affects references in this Schedule (other than in subparagraph 269‑75(b)(ii) and section 272‑30) to a person or individual having, directly or indirectly, a fixed entitlement to a share of the income or capital of a company, partnership or trust (the main entity) at a particular time (the test time).

Note:          This section will not affect a reference to a person or individual having a fixed entitlement where the phrase “directly or indirectly” is not used.

Certain interposed government bodies and special companies

             (2)  If at the test time a government body or a special company has, directly or indirectly, a fixed entitlement to a share of the income or capital of the main entity, subsection (4) or (5) applies.

To find out the meaning of government body and special company: see section 272‑140.

Certain interposed funds

             (3)  If:

                     (a)  a fund is:

                              (i)  a complying superannuation fund or complying approved deposit fund in relation to the income year in which the test time occurs; or

                             (ii)  a superannuation fund for foreign residents at the test time; and

                     (b)  at the test time the fund has, directly or indirectly, a fixed entitlement to a share of the income or capital of the main entity;

subsection (4) or (5) applies.

Note:          See subsection 6(1) for the meaning of complying superannuation fund, complying approved deposit fund and superannuation fund for foreign residents.

Government bodies, and funds or companies with more than 50 members

             (4)  In the case of a government body, or a fund or company that has more than 50 members:

                     (a)  except where paragraph (b) applies—the body, fund or company is treated as if it had the fixed entitlement as an individual and for the individual’s own benefit; and

                     (b)  if the reference is in subsection 272‑105(2)—the fixed entitlement is treated as if it were held instead by more than 20 individuals and for their own benefit.

Funds or companies with 50 members or fewer

             (5)  In the case of a fund or company that has 50 members or fewer, the fund or company is treated as if it did not have the entitlement, but the members are treated as if they had the entitlement in equal proportions.

Mixed application of subsections (4) and (5) in certain provisions

             (6)  If, apart from this subsection:

                     (a)  the following apply:

                              (i)  for the purposes of section 266‑40 or subsection 267‑40(2), 267‑70(2), 268‑10(3), 268‑15(3) or 268‑25(4), it is necessary to determine whether individuals had fixed entitlements during a period; and

                             (ii)  the consequences in subsection (4) would apply to a fund or company for part of the period and the consequences in subsection (5) would apply for the remainder of the period; or

                     (b)  the following apply:

                              (i)  for the purposes of subsection 266‑90(1) or (2), 266‑125(2), 266‑165(2) or 268‑20(3), it is necessary to determine whether individuals had fixed entitlements at 2 times; and

                             (ii)  the consequences in subsection (4) would apply to a fund or company at one of the times and the consequences in subsection (5) would apply at the other time;

the consequences in subsection (5) instead apply to the fund or company for the whole of the period, or at both of the times, as the case may be.

Entities ceasing to be special companies

             (7)  If:

                     (a)  subsection (4) or (5) applies in relation to a special company during a period (the special company period); and

                     (b)  the special company period ends when the special company ceases to be a special company without ceasing to exist; and

                     (c)  having regard to the matters set out in subsection (8), the Commissioner considers it fair and reasonable to treat one or more of the persons who were members of the special company immediately after it ceased to be a special company as having held the fixed entitlement mentioned in subsection (2) during the whole or part of the special company period;

then:

                     (d)  subsection (4) or (5) does not apply in relation to the special company during the whole or the part of the special company period; and

                     (e)  the one or more persons are, as mentioned in paragraph (c), treated as having the fixed entitlement instead of the company.

Matters for the purposes of paragraph (7)(c)

             (8)  For the purposes of paragraph (7)(c), the matters are:

                     (a)  the identity of its members before and after the special company ceases to be a special company; and

                     (b)  the circumstances in which it ceases to be a special company; and

                     (c)  the nature of the rights in the special company held by its members before and after it ceases to be a special company; and

                     (d)  any other matter that the Commissioner considers relevant.

272‑30  Additional special cases of fixed entitlements held directly or indirectly

Coverage of section

             (1)  This section also affects references in this Schedule (other than in subparagraph 269‑75(b)(ii) and section 272‑25) to a person or individual having, directly or indirectly, a fixed entitlement to a share of the income or capital of a company, partnership or trust (the main entity) at a particular time (the test time).

Note:          This section will not affect a reference to a person or individual having a fixed entitlement where the phrase “directly or indirectly” is not used.

Interposed family trusts

             (2)  If at the test time a family trust has, directly or indirectly, a fixed entitlement to a share of the income or capital of the main entity, it is treated as if it had the fixed entitlement as an individual and for the individual’s own benefit.

Interposed listed public companies and widely held unit trusts

             (3)  If:

                     (a)  at the test time a listed public company or widely held unit trust has, directly or indirectly, a fixed entitlement to a share of the income or capital of the main entity; and

To find out the meaning of listed public company: see section 272‑135.

                     (b)  having regard to the matters set out in subsection (4), the Commissioner considers it fair and reasonable to treat the company or trust as holding, at the test time, the whole or part of its fixed entitlement as an individual and for the individual’s own benefit;

the company or trust is treated as so holding the whole or the part of its fixed entitlement.

Matters for the purposes of paragraph (3)(b)

             (4)  For the purposes of paragraph (3)(b), the matters are:

                     (a)  the practicability of identifying any individuals who at the test time have fixed entitlements to a share of the income or capital of the main entity indirectly through the company or trust and for their own benefit; and

                     (b)  any change before or after the test time in the individuals who can be identified as having fixed entitlements of the kind mentioned in paragraph (a); and

                     (c)  any other matter that the Commissioner considers relevant.

272‑35  Arrangements to pass fixed entitlement tests

             (1)  If the operation of a provision of this Schedule depends on or is in any way affected by an individual having a fixed entitlement directly or indirectly, and for the individual’s own benefit, to a share of the income or capital of a company, partnership or trust, an individual who would otherwise have that fixed entitlement is taken not to have it for the purposes of the operation of the provision if the condition in subsection (2) is met.

             (2)  The condition is that an arrangement was entered into where:

                     (a)  the arrangement in some way (directly or indirectly) related to, affected or depended for its operation on the fixed entitlement or its value; and

                     (b)  the purpose, or one of the purposes, of the arrangement was to ensure that, for the purposes of the operation of the provision, the individual would have the fixed entitlement.

272‑40  Continued holding of fixed entitlement where death occurs

                   If, immediately before an individual dies, he or she has a fixed entitlement to a share of the income or capital of a trust, partnership or company directly or indirectly, and for his or her own benefit, the individual is taken to continue to have the entitlement for so long as:

                     (a)  it is held by someone as trustee of the individual’s estate; or

                     (b)  it is held by someone who received it as a beneficiary of the estate.

Subdivision 272‑BDistribution of income or capital

272‑45  Trust distribution to beneficiary

                   A trust distributes income or capital of the trust to a person if it:

                     (a)  pays or credits the income or capital in the form of money to the person; or

                     (b)  transfers the income or capital in the form of property to the person; or

                     (c)  reinvests or otherwise deals with the income or capital on behalf of the person or in accordance with the directions of the person; or

                     (d)  applies the income or capital for the benefit of the person;

in the person’s capacity as a beneficiary of the trust.

272‑50  Company distribution to shareholder

Distribution of income

             (1)  A company distributes income of the company to a person if the company pays a dividend or non‑share dividend to the person.

Distribution of capital

             (2)  A company distributes capital of the company to a person if:

                     (a)  it pays or credits money, or transfers property, of the company to the person, where the amount paid or credited, or the amount or value of the property, is debited against an amount standing to the credit of the share capital account of the company; and

                     (b)  the payment, crediting or transfer is not the payment of a dividend.

             (3)  A company distributes capital of the company to a person if the company makes a non‑share capital return to the person.

272‑55  Partnership distribution to partner

                   A partnership distributes income or capital of the partnership to a person if it:

                     (a)  pays or credits the income or capital in the form of money to the person; or

                     (b)  transfers the income or capital in the form of property to the person; or

                     (c)  reinvests or otherwise deals with the income or capital on behalf of the person or in accordance with the directions of the person; or

                     (d)  applies the income or capital for the benefit of the person;

in the person’s capacity as a partner in the partnership.

272‑60  Other distributions of income and capital

             (1)  A company, partnership or trust (an entity) also distributes income or capital to a person in circumstances not covered by section 272‑45, 272‑50 or 272‑55 if it:

                     (a)  pays (including by way of a loan) or credits money of the entity to the person, or reinvests such money for the person; or

                     (b)  transfers property of the entity to, or allows use of property of the entity by, the person; or

                     (c)  deals with money or property of the entity for or on behalf of the person or as the person directs; or

                     (d)  applies money or property of the entity for the benefit of the person; or

                     (e)  extinguishes, forgives, releases or waives a debt or other liability owed by the person to the entity.

Limit on distributions

             (2)  However, subsection (1) only applies if, and to the extent that:

                     (a)  the amount paid, credited, reinvested or applied, the value of the property transferred, or the value of the other thing done;

exceeds:

                     (b)  the amount or value of any consideration given in return.

Character of distributions

             (3)  Each thing that is a distribution because of subsection (1) is a distribution of income unless it is clear that the money or property concerned was capital, or that the debt or liability was attributable to capital, of the entity.

272‑63  Distribute indirectly

                   A trust distributes income or capital indirectly to an individual if it distributes the income or capital to a company, partnership or trust (the first interposed entity) interposed between the trust and the individual and:

                     (a)  the first interposed entity distributes to the individual an amount or property attributable to the income or capital; or

                     (b)  another company, partnership or trust (the final interposed entity) distributes to the individual an amount or property that is attributable to the income or capital as a result of:

                              (i)  the distribution of an amount or property attributable to the income or capital to the final interposed entity by the first interposed entity; or

                             (ii)  successive distributions of amounts or property attributable to the income or capital to and by any companies, partnerships or trusts interposed between the first interposed entity and the final interposed entity.

Subdivision 272‑CFixed trusts and non‑fixed trusts

272‑65  Fixed trust

                   A trust is a fixed trust if persons have fixed entitlements to all of the income and capital of the trust.

272‑70  Non‑fixed trust

                   A trust is a non‑fixed trust if it is not a fixed trust.

Subdivision 272‑DFamily trust etc.

272‑75  Family trust

                   A trust is a family trust at any time when a family trust election (see subsection 272‑80(1)) in respect of the trust is in force.

272‑80  Family trust election

Nature of election

             (1)  Subject to this section, the trustee of the trust may make an election (the family trust election) in accordance with this section that the trust is a family trust for the purposes of this Schedule at all times after the beginning of a specified income year.

How election made

             (2)  The election must be in writing and in the approved form.

Election to specify individual and certain information

             (3)  The election must also specify an individual as the individual whose family group is to be taken into account in relation to the election, and must contain such other information as the Commissioner requires.

Trust must pass family control test

             (4)  If the trust does not pass the family control test (see section 272‑87) at the end of the specified income year, the trustee must not make the election.

Earlier year may be the specified year

          (4A)  The specified income year may be a year before the one in which the election is made if:

                     (a)  at all times in the period from the beginning of the specified income year until 30 June in the income year before the one during which the election is made, the trust passes the family control test (see section 272‑87); and

                     (b)  either:

                              (i)  any conferrals of present entitlement to income or capital of the trust made by the trustee during that period have been made on; or

                             (ii)  any distributions of income or capital of the trust made by the trustee during that period have been made to;

                            the individual specified in the election or members of that individual’s family group.

Election generally cannot be varied or revoked

             (5)  Subject to subsections (5A), (5B), (5C), (6) and (6A), the election cannot be varied or revoked.

Variation cases

          (5A)  The trustee of a trust may, in respect of an income year during the period specified in subsection (6B), vary an election so that a different individual (the new individual) is specified for the purposes of subsection (3) as the individual whose family group is to be taken into account in relation to the election if:

                     (a)  the new individual was a member of the family of the individual originally specified in the election at the election commencement time; and

                     (b)  any conferrals of present entitlement to income or capital of:

                              (i)  the trust; and

                             (ii)  an entity for which an interposed entity election has been made in relation to the trust;

                            during the period in which the election has been in force have been made on the new individual or on persons who would have been members of the new individual’s family group at the time of the conferral; and

                     (c)  any distributions of income or capital of:

                              (i)  the trust; and

                             (ii)  an entity for which an interposed entity election has been made in relation to the trust;

                            during the period in which the election has been in force have been made to the new individual or to persons who would have been members of the new individual’s family group at the time of the distribution.

          (5B)  A variation of an election under subsection (5A) in relation to a trust can only be made once.

          (5C)  The trustee of a trust may vary an election so that a different individual (the new individual) is specified for the purposes of subsection (3) as the individual whose family group is to be taken into account in relation to the election if:

                     (a)  an order; or

                     (b)  an agreement; or

                     (c)  an award;

of a kind mentioned in paragraphs 126‑5(1)(a) to (f) of the Income Tax Assessment Act 1997 results in the new individual, or a group comprising the new individual and members of the new individual’s family, having control of the trust under subsection (5D).

          (5D)  The new individual, or a group comprising the new individual and members of the new individual’s family, have control of the trust for the purposes of subsection (5C) if any of paragraphs 272‑87(2)(a) to (g) are satisfied in relation to a group consisting of:

                     (a)  the new individual; or

                     (b)  the new individual and members of the new individual’s family.

Revocation cases

             (6)  The trustee of a fixed trust may revoke the election if:

                     (a)  at the beginning of the specified income year:

                              (i)  the individual specified in the election; or

                             (ii)  one or more members of the individual’s family; or

                            (iii)  the trustee of another trust that is a family trust, provided the individual is specified in that trust’s family trust election;

                            or any combination of the above, had the fixed entitlements, directly or indirectly, and for their own benefit, to all of the income and capital of the trust; and

                     (b)  at a later time (whether before or after the return is furnished, but while the trust is still a fixed trust), an individual, other than one of a kind mentioned in subparagraph (a)(i), (ii) or (iii), holds a fixed entitlement, directly or indirectly, and for his or her own benefit, to any of the income or capital of the trust.

          (6A)  The trustee of a trust may, in respect of an income year during the period specified in subsection (6B), revoke the election unless:

                     (a)  the trust, or another entity, has incurred a tax loss and had its assessable income reduced by part or all of the loss in an income year or years during the period:

                              (i)  starting at the beginning of the income year specified in the election; and

                             (ii)  finishing at the end of the income year immediately prior to the income year from which the revocation is to be effective (see subsection (8));

                            and the trust, or the other entity, could not have had its assessable income so reduced had the election not been in force; or

                     (b)  the trust, or another entity, has claimed a deduction for bad debts in an income year or years during the period specified in paragraph (a) and the trust, or the other entity, could not have claimed the deduction had the election not been in force; or

                     (c)  a beneficiary of the trust in an income year during the period specified in paragraph (a) received a franked distribution indirectly through the trust and paragraph 207‑150(1)(a) of the Income Tax Assessment Act 1997 would have applied in relation to the distribution had the election not been in force.

Period to vary or revoke the election

          (6B)  The trustee of a trust cannot vary or revoke the election under subsections (5A) or (6A) unless the variation or revocation is in respect of an income year that occurs during the period:

                     (a)  starting at the beginning of the income year specified in the election and finishing at the end of the fourth income year after the income year specified in the election; or

                     (b)  starting at the beginning of the income year in which Schedule 8 to the Tax Laws Amendment (2007 Measures No. 4) Act 2007 commenced and finishing at the end of the subsequent income year.

How to vary or revoke the election

             (7)  To revoke an election under subsection (6), the revocation must be made in the trust’s return of income for the income year in which the later time occurs. If the trustee is not required to give a return for the income year, the revocation must:

                     (a)  be in writing and in the approved form; and

                     (b)  specify the later time; and

                     (c)  be given to the Commissioner before the end of:

                              (i)  2 months after the end of the income year in which the later time occurs; or

                             (ii)  such later day as the Commissioner allows.

             (8)  To vary or revoke an election under subsection (5A), (5C) or (6A), the variation or revocation must be made in the trust’s return of income for the income year from which the variation or revocation is to be effective. If the trustee is not required to give a return for the income year, the variation or revocation must:

                     (a)  be in writing and in the approved form; and

                     (b)  specify the income year from which the variation or revocation is to be effective; and

                     (c)  be given to the Commissioner on or before:

                              (i)  2 months after the end of that income year; or

                             (ii)  such later day as the Commissioner allows.

When election is in force

             (9)  The election is in force:

                     (a)  if it is not revoked—at all times after the election commencement time (see subsection (10)); or

                     (b)  if it is revoked under subsection (6)—at all times from the election commencement time until the later time specified in the revocation; or

                     (c)  if it is revoked under subsection (6A)—at all times from the election commencement time until the end of the income year immediately prior to the income year from which the revocation is to be effective (see subsection (8)).

Election commencement time

           (10)  The election commencement time is:

                     (a)  if the trust does not pass the family control test (see section 272‑87) at all times in the income year specified—the earliest time from which the trust does pass the family control test for the remainder of that income year; or

                     (b)  in any other case—the beginning of the income year specified.

Only one election

           (11)  The trustee must not make more than one election under this section in relation to the trust.

272‑85  Interposed entity election

Nature of election

             (1)  Subject to this section, if the trustee makes a family trust election, a company, the partners in any partnership or the trustee of any other trust may make an election (an interposed entity election) in accordance with this section that the company, partnership or trust is to be included, at all times after a specified day in a specified income year, in the family group of the individual specified in the family trust election.

How election made

             (2)  The election must be in writing and in the approved form.

Election to contain information

             (3)  The election must contain such information as the Commissioner requires.

Family control test must be passed

             (4)  The company, partnership or trust must pass the family control test (see section 272‑87) at the end of the income year.

Earlier year may be the specified year

          (4A)  The specified income year may be a year before the one in which the election is made if:

                     (a)  at all times in the period from the beginning of the specified income year until 30 June in the income year before the one during which the election is made, the company, partnership or trust passes the family control test (see section 272‑87); and

                     (b)  either:

                              (i)  any conferrals of present entitlement to income or capital of the trust made by the trustee during that period have been made on; or

                             (ii)  any distributions of income or capital of the trust made by the trustee during that period have been made to;

                            the individual specified in the family trust election or members of that individual’s family group.

Election generally cannot be revoked

             (5)  Subject to subsections (5A) and (5B), the election cannot be revoked.

Revocation cases

          (5A)  A company, the partners in any partnership or the trustee of a trust may, in respect of an income year during the period specified in subsection (5C), revoke the election if at the election commencement time, or at a later time, the entity was, or becomes, a member of the family group (within the meaning of subsection 272‑90(3A) or (5)) of the individual specified in the family trust election.

          (5B)  The election is taken to be revoked if the family trust election to which it relates is revoked.

Period to revoke the election

          (5C)  A company, the partners in any partnership or the trustee of a trust cannot revoke an election under subsection (5A) unless the revocation is in respect of an income year that occurs during the period:

                     (a)  starting at the later of:

                              (i)  the beginning of the income year specified in the election; and

                             (ii)  the beginning of the income year in which the entity became a member of the family group;

                            and finishing at the end of the fourth income year after the income year referred to in subparagraph (i) or (ii); or

                     (b)  starting at the beginning of the income year in which Schedule 8 to the Tax Laws Amendment (2007 Measures No. 4) Act 2007 commenced and finishing at the end of the subsequent income year.

How revocation is made

             (6)  A revocation must be made in the entity’s return of income for the income year from which the revocation is to be effective. If the entity is not required to give a return for the income year, the revocation must:

                     (a)  be in writing and in the approved form; and

                     (b)  specify the income year from which the revocation is to be effective; and

                     (c)  be given to the Commissioner on or before:

                              (i)  2 months after the end of that income year; or

                             (ii)  such later day as the Commissioner allows.

When election is in force

          (6A)  The election is in force:

                     (a)  if it is not revoked—at all times after the election commencement time (see subsection (6B)); or

                     (b)  if it is revoked under subsection (5A)—at all times from the election commencement time to the end of the income year immediately prior to the income year from which the revocation is to be effective (see subsection (6)); or

                     (c)  if the family trust election to which it relates is revoked under subsection 272‑80(6)—at all times from the election commencement time until the later time specified in that revocation; or

                     (d)  if the family trust election to which it relates is revoked under subsection 272‑80(6A)—at all times from the election commencement time to the end of the income year immediately prior to the income year from which the family trust revocation is to be effective (see subsection 272‑80(8)).

Election commencement time

          (6B)  The election commencement time is:

                     (a)  if the company, partnership or trust does not pass the family control test at all times in the specified income year—the later of:

                              (i)  the beginning of the specified day; and

                             (ii)  the earliest time from which the company, partnership or trust does pass the family control test for the remainder of the specified income year; or

                     (b)  in any other case—the beginning of the specified day.

Restriction on multiple elections

             (7)  The company, partners or trustee must not make an election under this section that the company, partnership or trust is to be included in the family group of the individual specified in the family trust election in respect of more than one trust, unless the individual specified in each of the family trust elections is the same.

             (8)  For the purposes of subsection (7) disregard an election that has been revoked under subsection (5A) or (5B).

272‑87  Passing the family control test

Trusts

             (1)  A trust in respect of which a family trust election or an interposed entity election is proposed to be made passes the family control test if:

                     (a)  the requirement in any of the paragraphs of subsection (2) is satisfied in relation to a group consisting of:

                              (i)  the individual (the primary individual) who is to be specified in the family trust election or, in the case of an interposed entity election, who is specified in the family trust election to which the interposed entity election will relate; or

                             (ii)  one or more members of the primary individual’s family (see section 272‑95); or

                            (iii)  the primary individual and one or more members of the primary individual’s family; or

                     (b)  the requirement in any of paragraphs (a) to (e) of subsection (2) is satisfied in relation to a group consisting of a person or persons covered by subparagraph (a)(i), (ii) or (iii) of this subsection and one or more legal or financial advisers to the primary individual or to a member of the primary individual’s family; or

                     (c)  the requirement in paragraph (f) of subsection (2) is satisfied in relation to a group consisting of:

                              (i)  the trustees of one or more family trusts, provided the primary individual is specified in the family trust election of each of those family trusts; or

                             (ii)  such trustees and a person or persons covered by subparagraph (a)(i), (ii) or (iii).

Requirement for purposes of subsection (1)

             (2)  The requirement for the purposes of subsection (1) is that:

                     (a)  the group has the power, by means of the exercise of a power of appointment or revocation or otherwise, to obtain beneficial enjoyment (directly or indirectly) of the capital or income of the trust; or

                     (b)  the group is able (directly or indirectly) to control the application of the capital or income of the trust; or

                     (c)  the group is capable, under a scheme, of gaining the beneficial enjoyment in paragraph (a) or the control in paragraph (b); or

                     (d)  the trustee of the trust is accustomed, under an obligation or might reasonably be expected, to act in accordance with the directions, instructions or wishes of the group; or

                     (e)  the group is able to remove or appoint the trustee of the trust; or

                      (f)  the group has more than a 50% stake in the income or capital of the trust; or

                     (g)  persons in the group are the only persons who, under the terms of the trust, can obtain the beneficial enjoyment of the income and capital of the trust.

Companies and partnerships

             (3)  A company or partnership in respect of which an interposed entity election is proposed to be made passes the family control test if a group consisting of:

                     (a)  the individual who is specified in the family trust election mentioned in subsection 272‑85(1) in relation to the interposed entity election; or

                     (b)  one or more members of the individual’s family (see section 272‑95); or

                     (c)  the trustees of one or more family trusts, provided the individual is specified in the family trust election of each of those family trusts; or

                     (d)  any persons covered by any combination of the above paragraphs;

have (between them), directly or indirectly, and for their own benefit, fixed entitlements to a greater than 50% share of the income or a greater then 50% share of the capital of the company or partnership.

272‑90  Family group

             (1)  This section states whether a person is a member of the family group of the individual (the primary individual) specified in the family trust election in relation to a conferral of a present entitlement to, or a distribution of, income or capital of a company, partnership or trust, upon or to the person.

Family member

             (2)  A member of the primary individual’s family (see section 272‑95) is a member of the primary individual’s family group in relation to the conferral or distribution.

Certain former family members

          (2A)  The following persons are members of the primary individual’s family group in relation to the conferral or distribution:

                     (a)  a person who was a spouse of either the primary individual or of a member of the primary individual’s family before a breakdown in the marriage or relationship; and

                     (b)  a person:

                              (i)  who was the spouse of either the primary individual or of a member of the primary individual’s family immediately before the death of the primary individual or member of the primary individual’s family; and

                             (ii)  who is now the spouse of a person who is not a member of the primary individual’s family; and

                     (c)  a person who was a child of the spouse of either the primary individual or of a member of the primary individual’s family before a breakdown in the marriage or relationship of the primary individual or the member of the primary individual’s family.

Note:          The fact that a person is a member of the family group of an individual under this subsection does not mean that the person is a member of the individual’s family under section 272‑95.

Trust covered by family trust election

             (3)  The trust in respect of which the family trust election was made is a member of the primary individual’s family group in relation to the conferral or distribution.

Trust with same primary individual

          (3A)  A trust with the same primary individual specified in its family trust election is a member of the primary individual’s family group in relation to the conferral or distribution.

Entity covered by interposed entity election

             (4)  A company, partnership or trust is a member of the primary individual’s family group in relation to the conferral or distribution if:

                     (a)  the company, partners or trustee has made an interposed entity election to that effect; and

                     (b)  the election is in force when the conferral takes place or the distribution is made.

Entity owned by family

             (5)  A company, partnership or trust is a member of the primary individual’s family group in relation to the conferral or distribution if, when the conferral takes place or the distribution is made:

                     (a)  the primary individual; or

                     (b)  one or more members of the primary individual’s family; or

                     (c)  the trustees of one or more family trusts, provided the primary individual is specified in the family trust election of each of those family trusts;

or any combination of the above, have fixed entitlements directly or indirectly, and for their own benefit, to all of the income and capital of the company, partnership or trust.

Funds

             (6)  A fund, authority or institution in Australia that is mentioned in item 1 or 2 of the table in section 30‑15 of the Income Tax Assessment Act 1997 is a member of the primary ind