Contents
Schedule 2 1
Part I 1
Part II 2
Schedule 2D—Tax exempt entities that become taxable 5
Division 57—Tax exempt entities that become taxable 5
Guide to Division 57 5
57‑1....................... What this Division is about................................................. 5
Subdivision 57‑A—Key concepts 6
57‑5....................... Entities to which this Division applies................................ 6
Subdivision 57‑B—Predecessors of the transition taxpayer 6
57‑10..................... Activities of transition taxpayer’s predecessor attributed to transition taxpayer 6
Subdivision 57‑C—Time when income derived 7
57‑15..................... Time when income derived................................................. 7
Subdivision 57‑D—Time when losses and outgoings incurred 8
57‑20..................... Time when losses and outgoings incurred.......................... 8
Subdivision 57‑E—Assets and liabilities 8
57‑25..................... Deemed disposal and re‑acquisition of assets..................... 8
57‑30..................... Deemed cessation and re‑assumption of liabilities............ 12
57‑32..................... Division 230 financial arrangements—market value of assets and rights 14
57‑33..................... Division 230 financial arrangements—transition taxpayer’s right to receive or obligation to provide payment.......................................................................................... 15
57‑35..................... Interpretation..................................................................... 16
Subdivision 57‑F—Superannuation deductions 16
57‑40..................... Contributions under defined benefit superannuation schemes 16
57‑45..................... Deduction for surplus to meet defined benefit superannuation scheme liabilities 18
57‑50..................... Contributions generally..................................................... 18
57‑52..................... Section 57‑50 does not apply if there is a surplus at transition time 22
57‑55..................... Deductions reduced under both sections 57‑40 and 57‑50 22
Subdivision 57‑G—Denial of certain deductions 23
57‑60..................... Effect of pre‑transition time accrued leave entitlements..... 23
57‑65..................... Treatment of bad debts...................................................... 25
57‑70..................... Treatment of superannuation lump sums and employment termination payments 27
Subdivision 57‑H—Domestic losses 27
57‑75..................... Domestic losses................................................................ 27
Subdivision 57‑J—Capital allowances and certain other deductions 28
57‑85..................... What are the modified deduction rules and corresponding deduction provisions? 28
57‑90..................... Post‑transition deductions—assume that the transition taxpayer had never been exempt 29
57‑95..................... Amount of deduction not allowable for transition year..... 29
57‑100................... No elections etc. before transition time............................. 29
57‑105................... Special rules for mining and quarrying............................. 30
Subdivision 57‑K—Balancing adjustments 30
57‑110................... Apportionment of balancing adjustments.......................... 30
Subdivision 57‑L—Trading stock 32
57‑115................... Modification of trading stock provisions.......................... 32
Subdivision 57‑M—Imputation 33
57‑120................... Cancellation of franking surplus, credit or debit............... 33
57‑125................... Subsidiary......................................................................... 35
Subdivision 57‑N—Division not applicable in respect of certain plant 35
57‑130................... Plant or depreciating assets covered by Subdivision 58‑B of the Income Tax Assessment Act 1997 35
Subdivision 57‑P—Balancing adjustment on ceasing to have a Division 230 financial arrangement 36
57‑135................... Balancing adjustment on ceasing to have a Division 230 financial arrangement referred to in section 57‑32.......................................................................................... 36
Schedule 2F—Trust losses and other deductions 39
Division 265—Overview of Schedule 39
265‑5..................... What this Schedule is about.............................................. 39
265‑10................... Diagram giving overview of Schedule.............................. 40
Division 266—Income tax consequences for fixed trusts of abnormal trading or change in ownership 41
Subdivision 266‑A—Overview of this Division 41
266‑5..................... What this Division is about............................................... 41
266‑10................... Diagram giving overview of this Division........................ 42
Subdivision 266‑B—Effect of change in ownership of fixed trust 44
266‑15................... What this Subdivision is about......................................... 44
266‑20................... Diagram giving overview of this Subdivision.................. 45
266‑25................... Fixed trust may be denied tax loss deduction.................... 45
266‑30................... Fixed trust may be required to work out its net income and tax loss in a special way 46
266‑35................... Fixed trust may be denied debt deduction......................... 46
266‑40................... The trust must pass 50% stake test................................... 47
266‑45................... The trust must meet non‑fixed trust stake test................... 48
266‑50................... Deducting part of a tax loss.............................................. 49
266‑55................... Information about non‑fixed trusts with interests in fixed trust 50
266‑60................... Notices where requirements of section 266‑55 are met..... 51
Subdivision 266‑C—Effect of change in ownership of unlisted widely held trust 52
266‑65................... What this Subdivision is about......................................... 52
266‑70................... Diagram giving overview of this Subdivision.................. 53
266‑75................... Unlisted widely held trust may be denied tax loss deduction 53
266‑80................... Unlisted widely held trust may be required to work out its net income and tax loss in a special way 54
266‑85................... Unlisted widely held trust may be denied debt deduction. 55
266‑90................... If abnormal trading or end of income year, trust must pass the 50% stake test 57
266‑95................... Deducting part of a tax loss.............................................. 57
Subdivision 266‑D—Effect of abnormal trading on listed widely held trust 58
266‑100................. What this Subdivision is about......................................... 58
266‑105................. Diagram giving overview of this Subdivision.................. 59
266‑110................. Listed widely held trust may be denied tax loss deduction 59
266‑115................. Listed widely held trust may be required to work out its net income and tax loss in a special way 60
266‑120................. Listed widely held trust may be denied debt deduction..... 60
266‑125................. There must be no abnormal trading (subject to 50% stake or business continuity exceptions) 61
266‑130................. Deducting part of a tax loss.............................................. 62
266‑135................. Listed widely held unit trust may be denied tax loss deduction otherwise allowable 62
Subdivision 266‑E—Effect of abnormal trading on unlisted very widely held trust or wholesale widely held trust 64
266‑140................. What this Subdivision is about......................................... 64
266‑145................. Diagram giving overview of this Subdivision.................. 65
266‑150................. Unlisted very widely held trust or wholesale widely held trust may be denied tax loss deduction 65
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.................................................... 66
266‑160................. Unlisted very widely held trust or wholesale widely held trust may be denied debt deduction 67
266‑165................. There must be no abnormal trading (subject to 50% stake exception) 68
266‑170................. Deducting part of a tax loss.............................................. 68
Subdivision 266‑F—Information about family trusts with interests in other trusts 69
266‑175................. What this Subdivision is about......................................... 69
266‑180................. Information about family trusts with interests in other trusts 69
266‑185................. Notices where requirements of section 266‑180 are met... 70
Division 267—Income tax consequences for non‑fixed trusts of change in ownership or control 72
Subdivision 267‑A—Overview of this Division 72
267‑5..................... What this Division is about............................................... 72
267‑10................... Diagram giving overview of this Division........................ 73
Subdivision 267‑B—Deducting tax losses, and certain amounts in respect of debts, from earlier years 74
267‑15................... What this Subdivision is about......................................... 74
267‑20................... Non‑fixed trust may be denied tax loss deduction............ 74
267‑25................... Non‑fixed trust may be denied debt deduction.................. 75
267‑30................... If certain distributions are made, the trust must pass the pattern of distributions test 76
267‑35................... The trust must not have previously failed to meet the condition in subsection 267‑30(2) 77
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................................................ 77
267‑45................... Group must not begin to control the trust......................... 78
267‑50................... Deducting part of a tax loss.............................................. 78
Subdivision 267‑C—Current year net income and tax loss, and certain debts incurred in current year 78
267‑55................... What this Subdivision is about......................................... 78
267‑60................... Trust may be required to work out its net income and tax loss in a special way 79
267‑65................... Non‑fixed trust may be denied debt deduction.................. 79
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................................................ 80
267‑75................... Group must not begin to control trust............................... 81
Subdivision 267‑D—Information about family trusts with interests in other trusts 81
267‑80................... What this Subdivision is about......................................... 81
267‑85................... Information about family trusts with interests in other trusts 82
267‑90................... Notices where requirements of section 267‑85 are met..... 83
Division 268—How to work out a trust’s net income and tax loss for the income year 85
Subdivision 268‑A—Overview of Division 85
268‑5..................... What this Division is about............................................... 85
Subdivision 268‑B—Dividing the income year into periods 85
268‑10................... Income year of fixed trust to be divided into periods—first case 85
268‑15................... Income year of fixed trust to be divided into periods—second case 86
268‑20................... Income year of widely held unit trust to be divided into periods 87
268‑25................... Income year of non‑fixed trust to be divided into periods. 87
Subdivision 268‑C—Other steps in working out the net income and tax loss 88
268‑30................... Calculate the notional loss or net income for each period.. 88
268‑35................... How to attribute deductions to periods............................. 89
268‑40................... How to attribute assessable income to periods.................. 90
268‑45................... How to calculate the trust’s net income for the income year 91
268‑60................... How to work out the trust’s section 36‑10 tax loss for the income year 92
Subdivision 268‑D—Rules that supplement Subdivision 268‑C if the trust is in partnership 93
268‑70................... How to calculate the trust’s notional loss or net income for a period when the trust was a partner 93
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.................................... 94
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.................................. 95
268‑85................... Trust’s full year deductions include a share of partnership’s full year deductions 96
Division 269—Concepts and tests applied in Divisions 266 and 267 97
Subdivision 269‑A—Overview of Division 97
269‑5..................... What this Division is about............................................... 97
Subdivision 269‑B—Abnormal trading 97
269‑10................... Trading............................................................................. 97
269‑15................... Abnormal trading—general.............................................. 97
269‑20................... Abnormal trading—suspected acquisition or merger........ 98
269‑25................... Abnormal trading—5% of units in a single transaction.... 98
269‑30................... Abnormal trading—suspected 5% of units in a series of transactions 98
269‑35................... Abnormal trading—20% of units traded, issued or redeemed over 60 day period 99
269‑40................... Abnormal trading—50% stake not maintained................. 99
269‑45................... Time at which trustee to have knowledge or suspicion..... 99
269‑47................... Abnormal trading where holding trust.............................. 99
269‑49................... No abnormal trading where proportionate issue of units 100
Subdivision 269‑C—Passing the 50% stake test etc. 101
269‑50................... More than a 50% stake in income or capital.................... 101
269‑55................... Passing the 50% stake test.............................................. 101
Subdivision 269‑D—Pattern of distributions test 102
269‑60................... Pattern of distributions test............................................. 102
269‑65................... Test year distribution of income or capital...................... 102
269‑70................... When individual receives different percentages.............. 103
269‑75................... Incomplete distributions.................................................. 103
269‑80................... Where individual’s death or breakdown of marriage or relationship 104
269‑85................... Arrangements to pass pattern of distributions test.......... 105
Subdivision 269‑E—Control a non‑fixed trust 105
269‑95................... Control a non‑fixed trust................................................. 105
Subdivision 269‑F—Business continuity test 108
269‑100................. Passing the business continuity test................................ 108
269‑105................. Modified test for income years starting on or after 1 July 2015 110
Division 270—Schemes to take advantage of deductions 112
270‑5..................... What this Division is about............................................. 112
270‑10................... Schemes to take advantage of deductions....................... 112
270‑15................... Tax consequences of schemes........................................ 113
270‑20................... Benefit............................................................................ 114
270‑25................... Outsider to trust.............................................................. 114
Division 271—Family trust distribution tax 116
271‑5..................... What this Division is about............................................. 116
271‑10................... Family trust distribution tax............................................ 116
271‑15................... Tax liability where family trust makes distribution etc. outside family group 116
271‑20................... Tax liability where interposed trust makes distribution etc. outside family group 117
271‑25................... Tax liability where interposed partnership makes distribution etc. outside family group 118
271‑30................... Tax liability where interposed company makes distribution outside family group 119
271‑35................... Avoidance of double‑counting........................................ 120
271‑40................... Exclusion of directors from liability to pay tax............... 120
271‑45................... Requirements for section 271‑55 notice to family trust... 121
271‑50................... Requirements for section 271‑55 notice to interposed entity 122
271‑55................... Notice requiring information about non‑resident distributions etc. 123
271‑60................... Tax liability where non‑resident family trust’s tax unpaid 125
271‑65................... Tax liability where non‑resident interposed entity’s tax unpaid 128
271‑70................... Reduction of liability where tax paid............................... 131
271‑75................... Payment of family trust distribution tax.......................... 131
271‑80................... Late payment of family trust distribution tax................... 132
271‑90................... Notice of liability............................................................ 133
271‑95................... Request for notice of liability.......................................... 134
271‑105................. Amounts subject to family trust distribution tax not assessable 135
Division 272—Interpretation 137
Subdivision 272‑A—Fixed entitlement to share of income or capital 137
272‑5..................... Fixed entitlement to share of income or capital of a trust 137
272‑10................... Fixed entitlement to share of income or capital of a company 138
272‑15................... Fixed entitlement to share of income or capital of a partnership 138
272‑20................... Fixed entitlement to share of income or capital held indirectly 139
272‑25................... Special cases of fixed entitlements held directly or indirectly 139
272‑30................... Additional special cases of fixed entitlements held directly or indirectly 143
272‑35................... Arrangements to pass fixed entitlement tests.................. 144
272‑40................... Continued holding of fixed entitlement where death occurs 144
Subdivision 272‑B—Distribution of income or capital 145
272‑45................... Trust distribution to beneficiary...................................... 145
272‑50................... Company distribution to shareholder.............................. 145
272‑55................... Partnership distribution to partner................................... 146
272‑60................... Other distributions of income and capital........................ 146
272‑63................... Distribute indirectly........................................................ 147
Subdivision 272‑C—Fixed trusts and non‑fixed trusts 147
272‑65................... Fixed trust....................................................................... 147
272‑70................... Non‑fixed trust............................................................... 147
Subdivision 272‑D—Family trust etc. 148
272‑75................... Family trust..................................................................... 148
272‑80................... Family trust election........................................................ 148
272‑85................... Interposed entity election................................................ 153
272‑87................... Passing the family control test........................................ 157
272‑90................... Family group.................................................................. 159
272‑95................... Family............................................................................. 162
Subdivision 272‑E—Excepted trust 163
272‑100................. Excepted trust................................................................. 163
Subdivision 272‑F—Widely held unit trust 163
272‑105................. Widely held unit trust...................................................... 163
Subdivision 272‑G—Unlisted widely held trust and listed widely held trust 165
272‑110................. Unlisted widely held trust............................................... 165
272‑115................. Listed widely held trust................................................... 165
Subdivision 272‑H—Unlisted very widely held trust 166
272‑120................. Unlisted very widely held trust....................................... 166
Subdivision 272‑I—Wholesale widely held trust 167
272‑125................. Wholesale widely held trust............................................ 167
Subdivision 272‑J—Kind of trust can be affected by ownership by higher level trust 168
272‑127................. Kind of trust can be affected by ownership by higher level trust 168
Subdivision 272‑K—Trusts beginning or ceasing to exist 169
272‑130................. Trusts beginning or ceasing to exist................................ 169
Subdivision 272‑L—Listed public company 169
272‑135................. Listed public company.................................................... 169
Subdivision 272‑M—Various definitions 170
272‑140................. Definitions...................................................................... 170
Schedule 2H—Demutualisation of mutual entities other than insurance companies and health insurers 175
Division 326—Demutualisation 175
Guide to Division 326 176
326‑1..................... What this Division is about............................................. 176
Subdivision 326‑A—Application, key concepts and related expressions 176
326‑5..................... Application..................................................................... 176
326‑10................... Mutual entity and demutualisation.................................. 178
326‑15................... Provisions relating to listing on a stock exchange........... 179
326‑20................... Demutualisation resolutions etc...................................... 179
326‑25................... Demutualisation shares................................................... 180
326‑30................... Existing members and new members.............................. 180
326‑35................... Pre‑CGT members and post‑CGT members................... 181
Subdivision 326‑B—How demutualisation is to be effected 181
326‑40................... Methods of demutualisation............................................ 182
326‑45................... Direct method................................................................. 182
326‑50................... Holding company method............................................... 183
326‑52................... Combined direct and holding company method.............. 184
326‑55................... Distributing trust method................................................ 186
326‑60................... Continuity of beneficial interest test................................ 188
Subdivision 326‑C—CGT consequences of extinguishment of membership rights in mutual entity 190
326‑65................... Extinguishment of membership rights............................ 190
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 190
326‑70................... Application of Subdivision............................................. 191
326‑75................... Capital losses made from certain disposals to be disregarded 192
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 192
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 193
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....................................................... 194
326‑95................... Disposal by post‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share.................................................... 195
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 196
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 197
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....................................................... 199
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.................................................... 200
326‑120................. Adjusted market value.................................................... 201
326‑125................. Undeducted membership costs....................................... 202
326‑130................. Adjusted first day trading price of demutualisation shares 204
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 204
326‑135................. Application of Subdivision............................................. 205
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................................................... 206
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....................................................... 207
326‑150................. Disposal by post‑CGT member of a demutualisation share (other than a demutualisation original share) or an interest in such a share.................................................... 208
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................................................... 209
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....................................................... 210
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............................................... 211
326‑170................. Various adjusted market values...................................... 212
326‑175................. Undeducted membership costs....................................... 214
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 215
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.................................................... 216
Subdivision 326‑G—CGT consequences of disposal of rights or interests resulting from extinguishment of membership rights 216
326‑185................. Disposal of right to receive shares in demutualised entity 217
326‑190................. Extinguishment of right to shares in demutualised entity by the issue of the shares 218
326‑195................. Disposal of right to receive shares in holding company.. 218
326‑200................. Disposal of interest in trust that holds shares in demutualised entity 219
Subdivision 326‑H—CGT consequences of transfer of ordinary shares 221
326‑205................. Transfer of share or distribution of proceeds of sale of share not to have any CGT consequences 221
Subdivision 326‑I—CGT consequences of disposal of demutualisation shares or an interest in such shares by a trustee on behalf of a member 221
326‑210................. Disposal by a trustee....................................................... 221
Subdivision 326‑J—CGT consequences of change in rights attaching to special shares or replacement of special shares by ordinary shares 222
326‑215................. Change of rights to, and replacement of, special shares.. 222
Subdivision 326‑K—CGT consequences of disposal of shares or an interest in shares acquired under a roll‑over provision 222
326‑220................. Disposal of shares or interest in shares........................... 222
Subdivision 326‑L—CGT consequences of payment to member of demutualised entity out of accumulated surplus of the entity 223
326‑225................. Payment out of assets of demutualised entity that is not included in assessable income is taken not to be a dividend.......................................................................... 224
Subdivision 326‑M—Indexation 224
326‑230................. Indexing of amounts....................................................... 224
326‑235................. Indexation factor............................................................. 224
326‑240................. Index number.................................................................. 225
Subdivision 326‑N—Non‑CGT consequences of issue of demutualisation shares 225
326‑245................. General taxation consequences of issue of demutualisation shares 225
Schedule 2D—Tax exempt entities that become taxable
Division 57—Tax 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‑A—Key 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‑B—Predecessors 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‑C—Time 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‑D—Time 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‑E—Assets 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.
Note: If the asset is, or is part of, a Division 230 financial arrangement, section 57‑32 may affect how the market value of the asset is worked out.
Excluded provisions
(4) For the purposes of subsection (2), the excluded provisions are:
(e) former Division 10B of Part III of this Act (about industrial property); and
(f) former 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 |
| 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) |
| 6A | Division 230 |
| 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.
Note: If the liability is, or is part of, a Division 230 financial arrangement, section 57‑32 may affect how the market value of the corresponding right or other asset is worked out.
(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.
57‑32 Division 230 financial arrangements—market value of assets and rights
(1) This section applies in relation to an asset (the subject asset) held by an entity (the holder) if:
(a) the subject asset is:
(i) covered by subsection 57‑25(1); or
(ii) a right, or other asset, corresponding to a liability covered by subsection 57‑30(1); and
(b) the subject asset, or the corresponding liability for the subject asset, is or is part of a Division 230 financial arrangement at the transition time; and
(c) when the arrangement was entered into:
(i) the parties to the arrangement were not dealing at arm’s length (within the meaning of the Income Tax Assessment Act 1997) in relation to the subject asset; or
(ii) if the subject asset gives rise to an interest that is not an equity interest in an entity—the return on the interest would reasonably be expected to be less than the benchmark rate of return (within the meaning of that Act) for the interest.
(2) For the purposes mentioned in subsection (3), assume at the transition time that the market value of the subject asset is the total amount (the initial amount) of the financial benefits (within the meaning of the Income Tax Assessment Act 1997) that the holder provided in relation to the subject asset before the transition time:
(a) reduced by:
(i) repayments of principal made in relation to the subject asset before the transition time; and
(ii) the amount of any impairment (within the meaning of the accounting principles (within the meaning of that Act)) of the subject asset at the transition time; and
(b) increased by the amount of the cumulative amortisation (worked out using the effective interest method recognised by the accounting principles (within the meaning of that Act)) of any difference at the transition time between:
(i) the initial amount; and
(ii) the amount payable on the maturity of the subject asset.
(3) Subsection (2) has effect for the purposes of working out the subject asset’s adjusted market value under section 57‑25 or 57‑30 for use when applying Division 230 of the Income Tax Assessment Act 1997 to the subject asset or the corresponding liability for the subject asset.
57‑33 Division 230 financial arrangements—transition taxpayer’s right to receive or obligation to provide payment
(1) This section applies in relation to the following:
(a) an asset covered by subsection 57‑25(1) to which section 57‑32 applies;
(b) the corresponding liability for a right, or other asset, covered by subsection 57‑30(1) to which section 57‑32 applies.
Note: Section 57‑32 applies if the asset or liability is or is part of a Division 230 financial arrangement.
(2) For the purposes of section 230‑60 of the Income Tax Assessment Act 1997, assume the following:
(a) in the case of an asset—that the transition taxpayer acquired the asset at the transition time in return for the transition taxpayer starting to have an obligation to provide one or more financial benefits in relation to the Division 230 financial arrangement;
(b) in the case of a liability—that the transition taxpayer started to have the liability at the transition time in return for the transition taxpayer starting to have a right to receive one or more financial benefits under the Division 230 financial arrangement.
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‑F—Superannuation 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‑G—Denial 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‑H—Domestic 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‑J—Capital 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 | Former Division 10BA of Part III | |
| 7 | Industrial property (copyright in Australian film) | Former Division 10B of Part III | |
| 9 | Gifts | Section 25‑50 and Division 30 | Former section 78 |
| 13 | R&D | Division 355 | |
| 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 former 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‑K—Balancing 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) | Former sections 124N and 124P | Former Division 10B of Part III |
| 7 | R&D | Sections 40‑292, 40‑293, 355‑315 and 355‑525 | Section 40‑25, 355‑305 or 355‑520 |
| 8 | Scientific research | Subsection 73A(4) | Section 73A |
Note: Item 7 of the table is expanded by section 355‑340 of the Income Tax (Transitional Provisions) Act 1997.
Subdivision 57‑L—Trading 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‑N—Division 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.
Subdivision 57‑P—Balancing adjustment on ceasing to have a Division 230 financial arrangement
57‑135 Balancing adjustment on ceasing to have a Division 230 financial arrangement referred to in section 57‑32
(1) This section applies if:
(a) section 57‑32 was applied to work out the market value of an asset (the subject asset); and
(b) the transition taxpayer is a party to the Division 230 financial arrangement (the financial arrangement) to which the subject asset, or the corresponding liability for the subject asset, is or is part of; and
(c) a balancing adjustment is made under Subdivision 230‑G of the Income Tax Assessment Act 1997, after the transition time, in relation to the financial arrangement.
(2) For the purposes of making the balancing adjustment under Subdivision 230‑G of the Income Tax Assessment Act 1997 in relation to the financial arrangement, adjust the amount worked out using the method statement (the method statement) in subsection 230‑445(1) of that Act by:
(a) if the transition taxpayer is the holder of the subject asset—increasing any gain or reducing any loss by the amount worked out under subsection (4) of this section; or
(b) if the transition taxpayer is the holder of the corresponding liability for the subject asset—reducing any gain or increasing any loss by the amount worked out under subsection (4) of this section.
(3) Despite subsection (2):
(a) if the amount worked out under subsection (4) exceeds the amount of the loss to be reduced under paragraph (2)(a)—the transition taxpayer is taken, for the purposes of making the balancing adjustment, to have made a gain equal to the amount of the excess; or
(b) if the amount worked out under subsection (4) exceeds the amount of the gain to be reduced under paragraph (2)(b)—the transition taxpayer is taken, for the purposes of making the balancing adjustment, to have made a loss equal to the amount of the excess; or
(c) if when applying the method statement no balancing adjustment is made in relation to the financial arrangement—the transition taxpayer is taken, for the purposes of making the balancing adjustment, to have:
(i) if the transition taxpayer is the holder of the subject asset—made a gain equal to the amount worked out under subsection (4); or
(ii) if the transition taxpayer is the holder of the corresponding liability for the subject asset—made a loss equal to the amount worked out under subsection (4).
(4) For the purposes of subsections (2) and (3), the amount is the difference between:
(a) the amount that the transition taxpayer would need to receive or pay under the financial arrangement without an amount being assessable income of, or deductible to, the transition taxpayer if the subject asset, or the corresponding liability for the subject asset, were disposed of at the time the balancing adjustment is made; and
(b) the amount that the transition taxpayer would need to receive or pay under the financial arrangement without an amount being assessable income of, or deductible to, the transition taxpayer if:
(i) the subject asset, or the corresponding liability for the subject asset, were disposed of at the time the balancing adjustment is made; and
(ii) the assumptions in subsection (5) were made.
(5) The assumptions referred to in subparagraph (4)(b)(ii) are that, when the financial arrangement was entered into:
(a) the parties to the arrangement were dealing with each other at arm’s length (within the meaning of the Income Tax Assessment Act 1997) in relation to the arrangement; and
(b) if the arrangement gives rise to an interest that is not an equity interest in an entity—the return on the interest would reasonably be expected to be equal to the benchmark rate of return (within the meaning of the Income Tax Assessment Act 1997) for the interest.
(6) This section applies despite section 230‑510 of the Income Tax Assessment Act 1997.
Schedule 2F—Trust losses and other deductions
Division 265—Overview 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 266—Income tax consequences for fixed trusts of abnormal trading or change in ownership
Subdivision 266‑A—Overview 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‑B—Effect 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.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
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.
Note: See section 415‑25 of the Income Tax Assessment Act 1997 if the trust was a designated infrastructure project entity during part, but not the whole, of the test period.
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‑C—Effect 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.
Note: The exception mentioned in this section applies differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
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.
Note: See section 415‑25 of the Income Tax Assessment Act 1997 if the trust was a designated infrastructure project entity during part, but not the whole, of the test period.
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‑D—Effect 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.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
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).
Note: See section 415‑25 of the Income Tax Assessment Act 1997 if the trust was a designated infrastructure project entity during part, but not the whole, of the test period.
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 business continuity 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 business continuity 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 business continuity 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 business continuity test as mentioned in paragraph 266‑125(2)(b); and
(c) the Commissioner considers that the trust passed the business continuity 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 business continuity test in relation to the time immediately before the abnormal trading.
Subdivision 266‑E—Effect 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.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
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.
Note: See section 415‑25 of the Income Tax Assessment Act 1997 if the trust was a designated infrastructure project entity during part, but not the whole, of the test period.
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‑F—Information 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 beginning 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 267—Income tax consequences for non‑fixed trusts of change in ownership or control
Subdivision 267‑A—Overview 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‑B—Deducting 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.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
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‑C—Current 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.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
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.
Note: See section 415‑25 of the Income Tax Assessment Act 1997 if the trust was a designated infrastructure project entity during part, but not the whole, of the test period.
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‑D—Information 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 beginning 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 268—How to work out a trust’s net income and tax loss for the income year
Subdivision 268‑A—Overview 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‑B—Dividing 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 begins at the beginning of the income year. Each later period begins 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 begins at the beginning of the income year. Each later period begins 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 begins at the beginning of the income year. Each later period begins 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, what would, apart from this subsection, be 2 or more successive periods are treated as a single period if:
(a) the trust is a listed widely held trust; and
(b) during all of the periods the trust passed the business continuity 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 begins at the beginning of the income year. Each later period begins 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‑C—Other 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 former 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.
Note: See Division 393 of the Income Tax Assessment Act 1997.
(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‑D—Rules 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 begins and ends when the trust’s income year begins 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 begins and ends at a different time from when the trust’s income year begins 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 begin 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 269—Concepts and tests applied in Divisions 266 and 267
Subdivision 269‑A—Overview 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;
• business continuity test.
Subdivision 269‑B—Abnormal 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‑C—Passing 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‑D—Pattern 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 begin more than 6 years before the beginning of the income year:
(a) the period from the beginning 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‑E—Control 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‑F—Business continuity test
269‑100 Passing the business continuity test
Basic meaning
(1) A listed widely held trust passes the business continuity test during a period (the business continuity test period) in relation to a time (the test time) if throughout the business continuity 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 business continuity test under this section if, at any time during the business continuity 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 business continuity test under this section if, before the test time, it:
(a) began 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 business continuity 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 business continuity test under this section if, at any time during the business continuity 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.
269‑105 Modified test for income years starting on or after 1 July 2015
Cases in which businesses need only be similar
(1) A listed widely held trust also passes the business continuity test during a period (the business continuity test period) in relation to a time (the test time) and in relation to:
(a) a tax loss for a loss year starting on or after 1 July 2015; or
(b) net income for an income year starting on or after 1 July 2015; or
(c) a debt, incurred in an income year starting on or after 1 July 2015, that the trust writes off as bad; or
(d) a debt, incurred in an income year starting on or after 1 July 2015, in relation to which a debt/equity swap (within the meaning of section 63E) occurs;
if throughout the business continuity test period it carries on a business (its current business) that is similar to the business it carried on immediately before the test time (its former business).
Relevance of being a trust
(2) The mere fact of being a trust does not mean that the trust cannot carry on a business.
Matters to be considered
(3) Without limiting the matters that may be taken into account in ascertaining whether the trust’s current business is similar to its former business, the following must be taken into account:
(a) the extent to which the assets (including goodwill) that are used in its current business to generate assessable income throughout the business continuity test period were also used in its former business to generate assessable income;
(b) the extent to which the activities and operations from which its current business generated assessable income throughout the business continuity test period were also the activities and operations from which its former business generated assessable income;
(c) the identity of its current business and the identity of its former business;
(d) the extent to which any changes to its former business result from development or commercialisation of assets, products, processes, services or marketing or organisational methods of the former business.
Exception
(4) However, the trust does not pass the business continuity test under this section if, before the test time, it:
(a) began 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 business continuity test period a business that is similar to the business it carried on immediately before the test time.
Division 270—Schemes 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 271—Family 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: