Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1936 - SCHEDULE 2F

Division   265 -- Overview of Schedule

265 - 5   What this Schedule   is about

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

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

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 11 pt">- 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

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

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

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

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

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

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

271 - 10   Family trust distribution tax

    This Division   provides for tax to be payable in specified circumstances. The tax is called family trust distribution tax .

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

  (1)   This section applies if:

  (a)   a trustee makes a family trust election in relation to a trust; and

  (b)   at any time while the election is in force (including a time before it was made), the trust confers a present entitlement to, or distributes, income or capital of the trust:

  (i)   upon or to a person who is neither the individual specified in the family trust election nor a member of the individual's family group in relation to the conferral or distribution; or

  (ii)   upon or to the individual specified in the election or a member of the individual's family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual's family group in relation to the conferral or distribution.

  (2)   If this section applies:

  (a)   if the trustee is an individual--the trustee is liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998 , on the amount or value of the income or capital to which the entitlement relates, or that is distributed; or

  (b)   if the trustee is a company--the trustee, together with each person who was a director of the company at the time of the conferral or distribution, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998 , on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

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

  (1)   This section applies if:

  (a)   the trustee of a trust makes an interposed entity election for the trust to be included in the family group of the individual specified in a family trust election; and

  (b)   at any time while the election is in force (including a time before it was made), the trust confers a present entitlement to, or distributes, income or capital of the trust:

  (i)   upon or to a person who is neither the individual specified in the family trust election nor a member of the individual's family group in relation to the conferral or distribution; or

  (ii)   upon or to the individual specified in the election or a member of the individual's family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual's family group in relation to the conferral or distribution.

  (2)   If this section applies:

  (a)   if the trustee is an individual--the trustee is liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998 , on the amount or value of the income or capital to which the entitlement relates, or that is distributed; or

  (b)   if the trustee is a company--the trustee, together with each person who was a director of the company at the time of the conferral or distribution, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998 , on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

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

  (1)   This section applies if:

  (a)   the partners in a partnership make an interposed entity election for the partnership to be included in the family group of the individual specified in a family trust election; and

  (b)   at any time while the interposed entity election is in force (including a time before it was made), the partnership confers a present entitlement to, or distributes, income or capital:

  (i)   upon or to a person who is neither the individual specified in the family trust election nor a member of the individual's family group in relation to the conferral or distribution; or

  (ii)   upon or to the individual specified in the election or a member of the individual's family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual's family group in relation to the conferral or distribution.

  (2)   If this section applies, the partners, together with each person who at the time of the conferral or distribution was a director of any partner that was a company, are jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998 , on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

271 - 30   Tax liability where interposed company makes distribution outside family group

  (1)   This section applies if:

  (a)   a company makes an interposed entity election for the company to be included in the family group of the individual specified in a family trust election; and

  (b)   at any time while the interposed entity election is in force (including a time before it was made), the company confers a present entitlement to, or distributes, income or capital of the company:

  (i)   upon or to a person who is neither the individual specified in the family trust election nor a member of the individual's family group in relation to the conferral or distribution; or

  (ii)   upon or to the individual specified in the election or a member of the individual's family group, where the individual or member is the trustee of a trust, or the member is a trust, that is not included in the individual's family group in relation to the conferral or distribution.

  (2)   If this section applies, the company, together with each person who was a director of the company at the time of the conferral or distribution, is jointly and severally liable to pay tax, as imposed by the Family Trust Distribution Tax (Primary Liability) Act 1998 , on the amount or value of the income or capital to which the entitlement relates, or that is distributed.

271 - 35   Avoidance of double - counting

    If, after conferring a present entitlement to income or capital as mentioned in paragraph   271 - 15(1)(b), 271 - 20(1)(b), 271 - 25(1)(b) or 271 - 30(1)(b), the trust, partnership or company concerned distributes the income or capital in satisfaction of the entitlement, the distribution is disregarded for the purposes of that paragraph.

271 - 40   Exclusion of directors from liability to pay tax

  (1)   This section applies to a director of a company who is included among persons who are jointly and severally liable to pay family trust distribution tax under section   271 - 15, 271 - 20, 271 - 25 or 271 - 30.

Director not taking part   in distribution decision

  (2)   If:

  (a)   the director did not take part   in any decision to confer the entitlement or make the distribution concerned; and

  (b)   if the director was aware of the proposal to make the decision or of the fact that it was made--the director took reasonable steps to prevent the making, or the implementation, of the decision;

the director is not included among the persons jointly and severally liable.

Director taking part   in distribution decision

  (3)   If:

  (a)   the director took part   in any decision to confer the entitlement or make the distribution; and

  (b)   the director voted against, or otherwise disagreed with the decision; and

  (c)   the director took reasonable steps to prevent the implementation of the decision;

the director is not included among the persons jointly and severally liable.

271 - 45   Requirements for section   271 - 55 notice to family trust

Notice about non - resident distributions

  (1)   The Commissioner may give a notice in accordance with section   271 - 55 (which deals with information about distributions etc. by certain non - residents) to the trustee of a trust (the primary entity ) who has made a family trust election, provided the requirements of subsections   (2) to (4) of this section are met.

First requirement

  (2)   At a time (the test time ) while the election is in force (including a time before it was made), the primary entity must have conferred a present entitlement to, or distributed, income or capital upon or to a company, partnership or trust (the secondary entity ) that at the time was, because of an interposed entity election, a member of the family group of the individual (the primary individual ) specified in the family trust election.

Second requirement

  (3)   When the Commissioner gives the notice:

  (a)   if the secondary entity is a partnership--a partner must be a non - resident; and

  (b)   if the secondary entity is a company--the company must be a non - resident; and

  (c)   if the secondary entity is a trust--either:

  (i)   a trustee must be a non - resident; or

  (ii)   the central management and control of the trust must be outside Australia.

Third requirement

  (4)   The Commissioner must give the notice before the later of:

  (a)   5 years after the conferral or distribution mentioned in subsection   (2); and

  (b)   the end of the period during which the primary entity is required by section   262A to retain records in relation to the income year in which the conferral or distribution took place.

271 - 50   Requirements for section   271 - 55 notice to interposed entity

Notice about non - resident distributions

  (1)   If:

  (a)   a company, the trustee of a trust or the partners in a partnership (which company, trust or partnership is the primary entity ) makes an interposed entity election to be included in the family group of an individual specified in a family trust election; and

  (b)   the requirements of subsections   (2) to (4) are met;

the Commissioner may give the company, trustee or partners a notice in accordance with section   271 - 55 (which deals with information about distributions etc. by certain non - residents).

First requirement

  (2)   At a time (the test time ) while the election was in force (including a time before it was made), the primary entity must have conferred a present entitlement to, or distributed, income or capital upon or to a company, partnership or trust (a secondary entity ), where the secondary entity:

  (a)   was the family trust whose trustee made the family trust election; or

  (b)   was, because of an interposed entity election that was in force at the time, included in the family group of the individual (the primary individual ) specified in the family trust election.

Second requirement

  (3)   When the Commissioner gives the notice:

  (a)   if the secondary entity is a partnership--a partner must be a non - resident; and

  (b)   if the secondary entity is a company--the company must be a non - resident; and

  (c)   if the secondary entity is a trust--either:

  (i)   a trustee must be a non - resident; or

  (ii)   the central management and control of the trust must be outside Australia.

Third requirement

  (4)   The Commissioner must give the notice before the later of:

  (a)   5 years after the conferral or distribution mentioned in subsection   (2); and

  (b)   the end of the period during which the primary entity is required by section   262A to retain records in relation to the income year in which the conferral or distribution took place.

271 - 55   Notice requiring information about non - resident distributions etc.

Information required

  (1)   The notice that the Commissioner may give the company, partnership or trustee if the requirements of subsections   271 - 45(2) to (4) or 271 - 50(2) to (4) are met must require the company, partners or trustee to give the Commissioner specified information about conferrals of present entitlements to, or distributions of, income or capital since the test time by any company, partnership or trust covered by subsection   (2) of this section.

Entities covered

  (2)   The following are covered by this subsection:

  (a)   the secondary entity; and

  (b)   any company in respect of which an interposed entity election had been made to be included in the family group of the primary individual, where the company was a non - resident, and the election was in force, when the conferral or distribution took place; and

  (c)   any partnership in respect of which an interposed entity election had been made to be included in the family group of the primary individual, where any of the partners was a non - resident, and the election was in force, when the conferral or distribution took place; and