TAX LAWS AMENDMENT (2011 MEASURES NO. 5) ACT 2011 - SCHEDULE 2 Interim changes to the taxation of trust income

The following is a simplified outline of the relationship between this Division, Division 6E and Subdivisions 115 - C and 207 - B of the Income Tax Assessment Act 1997 .

This Division sets out the basic income tax treatment of the net income of the trust estate. Generally:

(a) it has the result of assessing beneficiaries on a share of the net income of the trust estate based on their present entitlement to a share of the income of the trust estate; and

(b) it has the result of assessing the trustee directly on any residual net income; and

(c) as a collection mechanism, it has the result of assessing the trustee in respect of some beneficiaries, such as non - residents or those under a legal disability.

If the trust estate has capital gains, franked distributions or franking credits, this basic treatment is modified as described below.

Division 6E modifies the operation of this Division for the purpose of excluding amounts relevant to capital gains, franked distributions and franking credits from the calculations of assessable amounts under sections 97, 98, 99, 99A and 100.

Division 6E does not modify the operation of this Division (or any other provision of this Act) for any other purpose. For example:

(a) it does not modify the operation of this Division for the purposes of applying section 100A; and

(b) it does not modify amounts taxed in the hands of the trustee under Subdivisions 115 - C and 207 - B of the Income Tax Assessment Act 1997 .

Subdivisions 115 - C and 207 - B of the Income Tax Assessment Act 1997 provide the corresponding taxation treatment for those capital gains, franked distributions and franking credits. Specifically:

(a) Subdivision 115 - C of that Act has the effect that an amount corresponding to each of those capital gains is taxed in the hands of the beneficiaries of the trust (as a capital gain) and, if necessary, assessed to the trustee.

(b) Subdivision 207 - B of that Act has the effect that an amount corresponding to each of those franked distributions is taxed in the hands of the beneficiaries of the trust and, if necessary, the trustee. It also has the effect that the entity in whose hands those distributions are taxed can take advantage of the relevant amount of related franking credits.

(1) Subsection ( 2) applies if an amount is included in the assessable income of a beneficiary of a trust estate because of Subdivision 115 - C or 207 - B of the Income Tax Assessment Act 1997 .

(2) For the purposes of a provision of this Act (other than a provision mentioned in subsection ( 3)), treat the amount as being included in the beneficiary's assessable income in relation to the net income of the trust estate under section 97, 98A or 100 (as the case requires).

(a) sections 97, 98A (other than subsection 98A(2)) and 100 (other than subsections 100(2) and (3));

(1) Subsection ( 2) applies if an amount in respect of which a trustee of a trust estate is liable to be assessed (and pay tax) under section 98 in respect of the beneficiary is increased because of Subdivision 115 - C or 207 - B of the Income Tax Assessment Act 1997 .

(2) For the purposes of a provision of this Act (other than a provision mentioned in subsection ( 5)), treat the amount of the increase as being an amount in respect of which the trustee is liable to be assessed (and pay tax) under section 98 in respect of the beneficiary's interest in or share of the net income of the trust estate.

(3) Subsection ( 4) applies if an amount in respect of which a trustee of a trust estate is liable to be assessed (and pay tax) under section 99 or 99A is increased because of Subdivision 115 - C or 207 - B of the Income Tax Assessment Act 1997 .

(4) For the purposes of a provision of this Act (other than a provision mentioned in subsection ( 5)), treat the amount of the increase as being an amount in respect of which the trustee is liable to be assessed (and pay tax) under section 99 or 99A in respect of the net income of the trust estate.

(a) sections 97, 98A (other than subsection 98A(2)) and 100 (other than subsections 100(2) and (3));

"adjusted Division 6 percentage" , of an entity that is a beneficiary or trustee of a trust estate, means the entity's Division 6 percentage of the income of the trust estate calculated on the assumption that the amount of a capital gain or franked distribution to which any beneficiary or the trustee of the trust estate is specifically entitled were disregarded in working out the income of the trust estate.

"adjusted net income" , in relation to a trust estate, has the meaning given by subsection 100AB(4).

(a) a beneficiary of a trust estate has a Division 6 percentage of the income of the trust estate equal to the share (expressed as a percentage) of the income of the trust estate to which the beneficiary is presently entitled; and

(b) the trustee of a trust estate has a Division 6 percentage of the income of the trust estate equal to the share (expressed as a percentage) of the income of the trust estate to which no beneficiary is presently entitled.

(d) the trustee of a trust estate has a Division 6 percentage of the income of the trust estate of 100%.

(a) an exempt entity is presently entitled to an amount of the income of a trust estate; and

(b) the exempt entity is not an exempt Australian government agency (within the meaning of the Income Tax Assessment Act 1997 ); and

(c) at the end of 2 months after the end of the relevant income year, the trustee has failed to notify the exempt entity in writing of the present entitlement.

(2) For the purposes of this section, treat the trustee as giving the exempt entity notice in writing of the present entitlement at a time to the extent that the trustee pays the exempt entity the amount of the present entitlement at that time.

(3) For the purposes of this Act, treat the exempt entity as not being presently entitled, and having never been presently entitled, to the amount mentioned in paragraph ( 1)(a) of the income of the trust estate, to the extent that the trustee failed to notify the exempt entity of that amount as mentioned in paragraph ( 1)(c).

(4) However, subsection ( 3) does not apply if the Commissioner decides that the failure mentioned in paragraph ( 1)(c) of the trustee should be disregarded.

(5) In making a decision under subsection ( 4) (or refusing to make such a decision), the Commissioner must have regard to the following:

(b) the extent to which the trustee has taken action to try to correct the failure and if so, how quickly that action was taken;

(c) whether this section has operated previously in relation to the trustee, and if so, the circumstances in which this occurred;

(6) If subsection ( 3) applies, for the purposes of any application of section 99A in relation to the trust estate in relation to the relevant year of income, treat the trust estate as a resident trust estate.

(a) is a managed investment trust (within the meaning of the Income Tax Assessment Act 1997 ) in relation to a year of income; or

(b) is treated in the same way as a managed investment trust in relation to a year of income for the purposes of Division 275 of that Act.

(a) an exempt entity is presently entitled to an amount of the income of a trust estate; and

(b) the exempt entity is not an exempt Australian government agency (within the meaning of the Income Tax Assessment Act 1997 ); and

(c) the exempt entity's adjusted Division 6 percentage of the income of the trust estate exceeds the benchmark percentage determined under subsection ( 3).

(2) Subject to subsection 100AA(3), for the purposes of this Act, treat the exempt entity as not being presently entitled, and having never been presently entitled, to the amount of the income of the trust estate mentioned in paragraph ( 1)(a) of this section, to the extent that ensures that the exempt entity's adjusted Division 6 percentage of the income of the trust estate equals the benchmark percentage determined under subsection ( 3) of this section.

(3) Determine the benchmark percentage by working out the following fraction (expressed as a percentage):

(4) A trust estate's adjusted net income for a year of income is its net income for that year of income, with the following adjustments:

(a) firstly, in determining that net income, disregard any capital gain or franked distribution to the extent to which a beneficiary of the trust estate or the trustee is specifically entitled to that gain or distribution;

(b) next, in determining the net capital gain (if any) of the trust for the year of income, disregard steps 3 and 4 of the method statement in subsection 102 - 5(1) (CGT discount and small business concessions);

(c) next, reduce that net income by amounts (if any) that do not represent net accretions of value to the trust estate in that year of income (other than amounts included in that net income under Part IVA).

(5) Subsection ( 2) does not apply in relation to a trust estate in relation to a year of income if the Commissioner is of the opinion that it would be unreasonable that the subsection should apply in relation to that trust estate in relation to that year of income.

(6) In forming an opinion for the purposes of subsection ( 5), the Commissioner must consider the following matters:

(a) the circumstances that led to the exempt entity's adjusted Division 6 percentage exceeding the benchmark percentage determined under subsection ( 3);

(b) the extent to which the exempt entity's adjusted Division 6 percentage exceeds that benchmark percentage;

(c) the extent to which the exempt entity actually received distributions from the trust estate in respect of the year of income;

(d) the extent to which other beneficiaries of the trust estate were entitled to receive distributions of, or otherwise benefit from, amounts representing the adjusted net income of the trust estate ;

(7) If subsection ( 2) applies, for the purposes of any application of section 99A in relation to the trust estate in relation to the relevant year of income, treat the trust estate as a resident trust estate.

(a) is a managed investment trust (within the meaning of the Income Tax Assessment Act 1997 ) in relation to a year of income; or

(b) is treated in the same way as a managed investment trust in relation to a year of income for the purposes of Division 275 of that Act.

(b) any of the following things are taken into account in working out the net income of the trust estate:

(i) a capital gain (to the extent that an amount of the capital gain remained after applying steps 1 to 4 of the method statement in subsection 102 - 5(1) of the Income Tax Assessment Act 1997 );

(ii) a franked distribution (to the extent that an amount of the franked distribution remained after reducing it by deductions that were directly relevant to it);

(1) Make the assumptions in the following subsections for the purposes of working out in accordance with Division 6 an amount:

(a) included in the assessable income of a beneficiary of a trust estate under section 97, 98A or 100; or

(b) in respect of which a trustee of a trust estate is liable to pay tax under section 98, in relation to a beneficiary of the trust estate; or

Note: Those assumptions are made only for the purposes of working out the amounts mentioned in paragraphs ( a), (b) and (c). They are not made for any other purposes (for example, determining the income of a trust estate, the net income of a trust estate, or the amount of a present entitlement of a beneficiary of a trust estate to the income of the trust estate).

(2) Assume that the income of the trust estate were equal to the Division 6E income of the trust estate.

(3) Assume that the net income of the trust estate were equal to the Division 6E net income of the trust estate.

(4) Assume that the amount of a present entitlement of a beneficiary of the trust estate to the income of the trust estate were equal to the amount of the beneficiary's Division 6E present entitlement to the income of the trust estate.

(2) The Division 6E income , of the trust estate, is the income of the trust estate worked out on the assumption that amounts attributable to the things mentioned in paragraph 102UW(b) were disregarded. The Division 6E income of the trust estate cannot be less than nil.

(3) The Division 6E net income , of the trust estate, is the net income of the trust estate worked out on the assumption that the things mentioned in paragraph 102UW(b) were disregarded. The Division 6E net income of the trust estate cannot be less than nil.

(4) A beneficiary of the trust estate has an amount of a Division 6E present entitlement to the income of the trust estate that is equal to the amount of the beneficiary's present entitlement to the income of the trust estate, decreased by:

(a) for each capital gain taken into account as mentioned in paragraph 102UW(b)--so much of the beneficiary's share of the capital gain as was included in the income of the trust estate; and

(b) for each franked distribution taken into account as mentioned in paragraph 102UW(b)--so much of the beneficiary's share of the franked distribution as was included in the income of the trust estate.

Omit "The rules also give the beneficiary a deduction if necessary to prevent it from being taxed twice on the same parts of the trust's net income.", substitute "Division 6E of Part III of the Income Tax Assessment Act 1936 will exclude amounts from the beneficiary's assessable income if necessary to prevent it from being taxed twice on the same parts of the trust's net income.".

(3) If you are a beneficiary of the trust estate, for each * capital gain of the trust estate, Division 102 applies to you as if you had:

(a) if the capital gain was not reduced under either step 3 of the method statement in subsection 102 - 5(1) (discount capital gains) or Subdivision 152 - C (small business 50% reduction)--a capital gain equal to the amount mentioned in subsection 115 - 225(1); and

(b) if the capital gain was reduced under either step 3 of the method statement or Subdivision 152 - C but not both (even if it was further reduced by the other small business concessions)--a capital gain equal to twice the amount mentioned in subsection 115 - 225(1); and

(c) if the capital gain was reduced under both step 3 of the method statement and Subdivision 152 - C (even if it was further reduced by the other small business concessions)--a capital gain equal to 4 times the amount mentioned in subsection 115 - 225(1).

Note: This subsection does not affect the amount (if any) included in your assessable income under Division 6 of Part III of the Income Tax Assessment Act 1936 because of the capital gain of the trust estate . However, Division 6E of that Part may have the effect of reducing the amount included in your assessable income under Division 6 of that Part by an amount related to the capital gain you have under this subsection.

(b) on the assumption that there is a share of the income of the trust to which a beneficiary of the trust is presently entitled, you would be liable to be assessed (and pay tax) under section 98 of the Income Tax Assessment Act 1936 in relation to the trust estate in respect of the beneficiary.

(2) For each * capital gain of the trust estate, increase the amount (the assessable amount ) in respect of which you are actually liable to be assessed (and pay tax) under section 98 of the Income Tax Assessment Act 1936 in relation to the trust estate in respect of the beneficiary by:

(a) unless paragraph ( b) applies--the amount mentioned in subsection 115 - 225(1) in relation to the beneficiary; or

(b) if the liability is under paragraph 98(3)(b) or subsection 98(4), and the capital gain was reduced under step 3 of the method statement in subsection 102 - 5(1) (discount capital gains)--twice the amount mentioned in subsection 115 - 225(1) in relation to the beneficiary.

(3) To avoid doubt, increase the assessable amount under subsection ( 2) even if the assessable amount is nil.

(b) section 99A of the Income Tax Assessment Act 1936 does not apply in relation to the trust estate in relation to the relevant income year.

(2) For each * capital gain of the trust estate, increase the amount (the assessable amount ) in respect of which you are liable to be assessed (and pay tax) under section 99 of the Income Tax Assessment Act 1936 in relation to the trust estate by the amount mentioned in subsection 115 - 225(1).

(4) For each * capital gain of the trust estate, increase the amount (the assessable amount ) in respect of which you are liable to be assessed (and pay tax) under section 99A of the Income Tax Assessment Act 1936 in relation to the trust estate by:

(a) if the capital gain was not reduced under either step 3 of the method statement in subsection 102 - 5(1) (discount capital gains) or Subdivision 152 - C (small business 50% reduction)--the amount mentioned in subsection 115 - 225(1); and

(b) if the capital gain was reduced under either step 3 of the method statement or Subdivision 152 - C but not both (even if it was further reduced by the other small business concessions)--twice the amount mentioned in subsection 115 - 225(1); and

(c) if the capital gain was reduced under both step 3 of the method statement and Subdivision 152 - C (even if it was further reduced by the other small business concessions)--4 times the amount mentioned in subsection 115 - 225(1).

(5) To avoid doubt, increase the assessable amount under subsection ( 2) or (4) even if the assessable amount is nil.

(a) the amount of the * capital gain remaining after applying steps 1 to 4 of the method statement in subsection 102 - 5(1); and

(b) your * share of the capital gain (see section 115 - 227), divided by the amount of the capital gain.

(2) Subsection ( 3) applies if the net income of the trust estate (disregarding the amount of any * franking credits) for the relevant income year falls short of the sum of:

(a) the * net capital gain (if any) of the trust estate for the income year; and

(b) the total of all * franked distributions (if any) included in the assessable income of the trust estate for the income year (to the extent that an amount of the franked distributions remained after reducing them by deductions that were directly relevant to them).

(3) For the purposes of subsection ( 1), replace paragraph ( a) of that subsection with the following paragraph:

(i) the amount of the * capital gain remaining after applying steps 1 to 4 of the method statement in subsection 102 - 5(1); and

(ii) the * net income of the trust estate for that income year (disregarding the amount of any * franking credits), divided by the sum mentioned in subsection ( 2); and

An entity that is a beneficiary or the trustee of a trust estate has a share of a * capital gain that is the sum of:

(a) the amount of the capital gain to which the entity is * specifically entitled; and

(b) if there is an amount of the capital gain to which no beneficiary of the trust estate is specifically entitled, and to which the trustee is not specifically entitled--that amount multiplied by the entity's * adjusted Division 6 percentage of the income of the trust estate for the relevant income year.

(1) A beneficiary of a trust estate is specifically entitled to an amount of a * capital gain made by the trust estate in an income year equal to the amount calculated under the following formula:

"net financial benefit" means an amount equal to the * financial benefit that is referable to the capital gain (after any application by the trustee of losses, to the extent that the application is consistent with the application of capital losses against the capital gain in accordance with the method statement in subsection 102 - 5(1)).

"share of net financial benefit" means an amount equal to the * financial benefit that, in accordance with the terms of the trust:

(b) is referable to the * capital gain (after application by the trustee of any losses, to the extent that the application is consistent with the application of capital losses against the capital gain in accordance with the method statement in subsection 102 - 5(1)); and

(c) is recorded, in its character as referable to the capital gain, in the accounts or records of the trust no later than 2 months after the end of the income year.

Note: A trustee of a trust estate that makes a choice under section 115 - 230 is taken to be specifically entitled to a capital gain.

(2) To avoid doubt, for the purposes of subsection ( 1), something is done in accordance with the terms of the trust if it is done in accordance with:

(b) the terms of the trust deed (if any), and the terms applicable to the trust because of the operation of legislation, the common law or the rules of equity.

(3) For the purposes of this section, in calculating the amount of the * capital gain, disregard sections 112 - 20 and 116 - 30 (Market value substitution rule) to the extent that those sections have the effect of increasing the amount of the capital gain.

(1) The purpose of this section is to allow a trustee of a resident trust to make a choice that has the effect that the trustee will be assessed on a * capital gain of the trust if no trust property representing the capital gain has been paid to or applied for the benefit of a beneficiary of the trust.

(2) A trustee can only make a choice under this section in relation to a trust estate that is, in the income year in respect of which the choice is made, a resident trust estate (within the meaning of Division 6 of Part III of the Income Tax Assessment Act 1936 ).

(a) a * capital gain is taken into account in working out the * net capital gain of a trust for an income year; and

(b) trust property representing all or part of that capital gain has not been paid to or applied for the benefit of a beneficiary of the trust by the end of 2 months after the end of the income year;

(4) These are the consequences if the trustee makes a choice that this subsection applies in respect of a * capital gain:

(a) sections 115 - 215 and 115 - 220 do not apply in relation to the capital gain;

(b) for the purposes of this Act, the trustee is taken to be * specifically entitled to all of the capital gain.

(a) a * franked distribution is made, or * flows indirectly, to a partnership or the trustee of a trust in an income year; and

(b) the assessable income of the partnership or trust for that year includes an amount (the franking credit amount ) that is all or a part of the additional amount of assessable income included under subsection ( 1) in relation to the distribution; and

(c) the distribution flows indirectly to an entity that is a partner in the partnership, or a beneficiary or the trustee of the trust; and

(d) disregarding Division 6E of Part III of the Income Tax Assessment Act 1936 , the entity has an amount of assessable income for that year that is attributable to all or a part of the distribution.

(4) Despite any provisions in Divisions 5 and 6 of Part III of the Income Tax Assessment Act 1936 , the entity's assessable income for that year also includes:

(a) in the case of an entity that is a partner in a partnership--so much of the franking credit amount as is equal to the entity's * share of the * franking credit on the distribution; and

(i) so much of the franking credit amount as is equal to the entity's share of the franking credit on the distribution; and

Example: A franked distribution of $70 is made to the trustee of a trust in an income year. The trust also has $100 of assessable income from other sources. Under subsection ( 1), the trust's assessable income includes an additional amount of $30 (which is the franking credit on the distribution). The trust has a net income of $200 for that income year.

There are 2 beneficiaries of the trust, P and Q, who are presently entitled to the trust's income. Under the trust deed, P is entitled to all of the franked distribution and Q is entitled to all other income.

The distribution flows indirectly to P (as P has a share of the trust's net income that is covered by paragraph 97(1)(a) and has a share of the distribution under section 207 - 55 equal to 100% of the distribution).

Under this subsection, P's assessable income includes $70 (the amount mentioned in section 207 - 37 (attributable franked distribution)) and also includes the full amount of the franking credit (as P's share of the franking credit on the distribution is $30 under section 207 - 57). Q's assessable income does not include any of the amount of the franked distribution or the franking credit.

(a) a * franked distribution is made, or * flows indirectly, to the trustee of a trust in an income year; and

(b) the assessable income of the trust for that year includes an amount (the franking credit amount ) that is all or a part of the additional amount of assessable income included under subsection ( 1) in relation to the distribution; and

(c) disregarding Division 6E of Part III of the Income Tax Assessment Act 1936 , the trustee of the trust is liable to be assessed (and pay tax) in respect of an amount (the assessable amount ) under section 98, 99 or 99A of that Act in relation to the trust.

(6) Despite any provisions in Division 6 of Part III of the Income Tax Assessment Act 1936 , for the purposes of that Division, increase the assessable amount by so much of the franking credit amount as is equal to:

(a) if the trustee of the trust is liable to be assessed (and pay tax) under section 98 of that Act--the sum of:

(i) the trustee's * share of the * franking credit on the distribution in respect of the beneficiary; and

(b) if the trustee of the trust is liable to be assessed (and pay tax) under section 99 or 99A of that Act--the sum of:

(a) the amount of the * franked distribution (to the extent that an amount of the franked distribution remained after reducing it by deductions that were directly relevant to it); and

(b) the beneficiary's or the trustee's (as the case requires) * share of the franked distribution (see section 207 - 55), divided by the amount of the franked distribution.

(2) Subsection ( 3) applies if the net income of the trust estate (disregarding the amount of any * franking credits) for the relevant income year falls short of the sum of:

(a) the * net capital gain (if any) of the trust estate for the income year; and

(3) For the purposes of subsection ( 1), replace paragraph ( a) of that subsection with the following paragraph:

(i) the amount of the * franked distribution (to the extent that an amount of the franked distribution remained after reducing it by deductions that were directly relevant to it); and

(ii) the * net income of the trust estate for that income year (disregarding the amount of any * franking credits), divided by the sum mentioned in subsection ( 2); and

Omit "The beneficiary is therefore allowed a tax offset of $30", substitute "The beneficiary is also allowed a tax offset of $30".

(4) For the purposes of column 3 of item 3 of the table in subsection ( 3), the amount is the sum of:

(a) so much of the amount worked out under column 2 of item 3 of the table in subsection ( 3) to which:

(i) unless subparagraph ( ii) applies--the focal entity is * specifically entitled; or

(ii) if the focal entity is the trustee and has the share amount because of the operation of section 98 of the Income Tax Assessment Act 1936 in respect of a beneficiary (see subparagraph 207 - 50(4)(b)(i))--the beneficiary is specifically entitled; and

(b) if there is an amount of the * franked distribution to which no beneficiary is specifically entitled--that amount multiplied by:

(i) unless subparagraph ( ii) applies--the focal entity's * adjusted Division 6 percentage of the income of the trust for the relevant income year; or

(1) A beneficiary of a trust estate is specifically entitled to an amount of a * franked distribution made to the trust estate in an income year equal to the amount calculated under the following formula:

"net financial benefit" means an amount equal to the * financial benefit that is referable to the * franked distribution (after any application by the trustee of expenses that are directly relevant to the franked distribution).

"share of net financial benefit" means an amount equal to the * financial benefit that, in accordance with the terms of the trust:

(b) is referable to the * franked distribution (after application by the trustee of any expenses that are directly relevant to the franked distribution); and

(c) is recorded, in its character as referable to the franked distribution, in the accounts or records of the trust no later than the end of the income year.

(2) To avoid doubt, for the purposes of subsection ( 1), something is done in accordance with the terms of the trust if it is done in accordance with:

(b) the terms of the trust deed (if any), and the terms applicable to the trust because of the operation of legislation, the common law or the rules of equity.

(b) all of the franked distributions that the trust receives in the income year are, in accordance with the terms of the trust, to the extent that they are distributed in that income year, distributed within a single class.

(2) For the purposes of this Subdivision and Division 6E of Part III of the Income Tax Assessment Act 1936 , treat all of the * franked distributions that the trust receives in the income year as one single franked distribution.

(3) To avoid doubt, for the purposes of subsection ( 1), something is done in accordance with the terms of the trust if it is done in accordance with:

(b) the terms of the trust deed (if any), and the terms applicable to the trust because of the operation of legislation, the common law or the rules of equity.

"adjusted Division 6 percentage" , in relation to a trust estate, has the same meaning as in Division 6 of Part III of the Income Tax Assessment Act 1936 .

(a) specifically entitled to a * capital gain has the meaning given by section 115 - 228; and

Note: A trustee of a trust estate that makes a choice under section 115 - 230 is taken to be specifically entitled to a capital gain.

(b) specifically entitled to a * franked distribution has the meaning given by section 207 - 58.

Omit "Where subsection ( 1) applies in relation to a beneficiary in relation to a year of income", substitute "Where the trustee of a trust estate is assessed and is liable to pay tax in respect of the whole or a part of a share of the net income of a trust estate of a year of income in pursuance of subsection 98(3)".

Omit "(including, for a beneficiary that is a company, any tax paid in respect of that interest because of section 115 - 220 of the Income Tax Assessment Act 1997 )".

(1AA) If an amount is included in the assessable income of a beneficiary of a trust estate because of Subdivision 115 - C or 207 - B of the Income Tax Assessment Act 1997 , for the purposes of paragraph ( 1)(b), treat the beneficiary as deriving income from another source.

After " subsection ( 1) or (1A) applies", insert "(or a beneficiary under a legal disability whose assessable income is increased as a result of Subdivision 115 - C or 207 - B of the Income Tax Assessment Act 1997 )".

(i) the taxpayer is a trustee who is liable to be assessed under section 98 in respect of a share of the net income of a trust estate in respect of a beneficiary;

(c) an amount in respect of which a trustee of a trust estate is liable to be assessed (and pay tax) under section 98 in respect of the taxpayer's spouse.

(ca) where a beneficiary of a trust is specifically entitled to an amount of a capital gain or a franked distribution of the trust for a year of income:

(i) in the case of a capital gain--the amount mentioned in subsection 115 - 225(1) in respect of the beneficiary; or

(ii) in the case of a franked distribution--the amount mentioned in subsection 207 - 37(1) in respect of the beneficiary;

(i) sections 97, 98A and 100 applied only to so much of the beneficiary's share of the net income of the Australian trust or the ultimate trust as is attributable to periods when the beneficiary was a Part X Australian resident;

(ii) Subdivision 115 - C of the Income Tax Assessment Act 1997 applied only to so much of the beneficiary's share of each capital gain of the Australian trust or the ultimate trust as is attributable to periods when the beneficiary was a Part X Australian resident;

(iii) Subdivision 207 - B of the Income Tax Assessment Act 1997 applied only to so much of the beneficiary's share of each franked distribution of the Australian trust or the ultimate trust as is attributable to periods when the beneficiary was a Part X Australian resident;

(a) sections 115 - 215 and 115 - 220 do not apply in relation to the * capital gain; and

(b) for the purposes of this Act, the trustee is taken to be * specifically entitled to all of the capital gain.

(a) sections 115 - 215 and 115 - 220 do not apply in relation to the * capital gain; and

(b) for the purposes of this Act, the trustee is taken to be * specifically entitled to all of the capital gain.

(1) Subject to this item, the amendments made by this Schedule apply to assessments for the 2010 - 11 income year and later income years.

(2) Subitems ( 3) and (4) apply in relation to a trust whose 2010 - 11 income year started before 1 July 2010.

(3) The amendments made by this Schedule do not apply to an assessment for the 2010 - 11 income year unless the trustee of the trust makes a choice in accordance with subitem ( 4).

(a) can only be made before the end of 2 months after the commencement of this item; and

MITs and the 2010 - 11, 2011 - 12, 2012 - 13, 2013 - 14, 2014 - 15, 2015 - 16 and 2016 - 17 income years

(b) is treated in the same way as a managed investment trust in relation to an income year for the purposes of Division 275 of the Income Tax Assessment Act 1997 .

(6) The amendments made by this Schedule do not apply to an assessment for an income year mentioned in paragraph ( 7)(c) unless the trustee of the entity makes a choice in accordance with subitem ( 7) in relation to the income year or an earlier income year.

(A) if that income year is the 2010 - 11, 2011 - 12, 2012 - 13 or 2013 - 14 income year--Schedule 2 to the Tax Laws Amendment (2011 Measures No. 5) Act 2011 ; or

Commonwealth Consolidated Acts

TAX LAWS AMENDMENT (2011 MEASURES NO. 5) ACT 2011 - SCHEDULE 2