Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
266‑145 Diagram giving overview of this Subdivision
Diagram showing effect of abnormal trading on unlisted very widely held trust or wholesale widely held trust
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
Diagram showing income tax consequences for non-fixed trusts of change in ownership or control
Subdivision 267‑B—Deducting tax losses, and certain amounts in respect of debts, from earlier years
267‑15 What this Subdivision is about
A non‑fixed trust cannot deduct:
• a tax loss from a loss year; or
• certain amounts in respect of debts incurred in earlier income years;
unless:
• if applicable, it meets an ownership test based on income and capital distributions; and
• it did not fail that test in a previous year; and
• if applicable, it meets an ownership test based on fixed entitlements to income and capital; and
• its control has stayed the same.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
267‑20 Non‑fixed trust may be denied tax loss deduction
Type of trust to which this Subdivision applies
(1) This section applies to a trust that:
(a) can deduct in the income year a tax loss from a loss year; and
(b) was a non‑fixed trust at any time in the period (the test period) from the beginning of the loss year until the end of the income year; and
(c) was not an excepted trust at all times in the test period.
To find out the meaning of non‑fixed trust: see section 272‑70.
To find out the meaning of excepted trust: see section 272‑100.
Conditions for deducting tax loss
(2) The trust cannot deduct the tax loss unless it meets:
• the condition in subsection 267‑30(2) (if applicable); and
• the condition in section 267‑35; and
• the condition in subsection 267‑40(2) (if applicable); and
• the condition in section 267‑45.
267‑25 Non‑fixed trust may be denied debt deduction
Type of trust to which this section applies
(1) This section applies to a trust that:
(a) can deduct in the income year an amount:
(i) under section 51 or 63, or under section 8‑1 or 25‑35 of the Income Tax Assessment Act 1997, in respect of the writing off of the whole or part of a debt, incurred in an earlier income year, as bad; or
(ii) under subsection 63E(3) or (4) in respect of a debt/equity swap relating to the whole or part of a debt incurred in an earlier income year; and
(b) was a non‑fixed trust at any time in the period (the test period) beginning on the day the debt was incurred and ending at the end of the income year; and
(c) was not an excepted trust at all times in the test period.
Note: Subdivisions 709‑D and 719‑I of the Income Tax Assessment Act 1997 also affect when a trust that used to be a member of a consolidated group or MEC group may deduct a debt that used to be owed to a member of the group and that the trust writes off as bad.
Condition for deducting amount
(2) The trust cannot deduct the amount unless it meets:
• the condition in subsection 267‑30(2) (if applicable); and
• the condition in section 267‑35; and
• the condition in subsection 267‑40(2) (if applicable); and
• the condition in section 267‑45.
267‑30 If certain distributions are made, the trust must pass the pattern of distributions test
When trust must meet the condition
(1) If either or both of the following happened, the trust must meet the condition in subsection (2):
(a) the trust distributed income:
(i) in the income year or within 2 months after its end; and
(ii) in at least one of the 6 earlier income years; or
(b) the trust distributed capital:
(i) in the income year or within 2 months after its end; and
(ii) in at least one of the 6 earlier income years.
The condition
(2) The condition is that the trust must pass the pattern of distributions test for the income year.
To find out whether the trust passes the pattern of distributions test for the income year: see Subdivision 269‑D.
267‑35 The trust must not have previously failed to meet the condition in subsection 267‑30(2)
The trust must not have been prevented from deducting the tax loss in an earlier income year because of a failure to meet the condition in subsection 267‑30(2) or conditions that included that condition.
267‑40 If there are individuals with more than a 50% stake in income or capital, more than a 50% stake in income or capital must be maintained
When trust must meet condition
(1) If at any time (the test time) in the test period, individuals (the threshold group) have more than a 50% stake in the income or capital of the trust, the trust must meet the condition in subsection (2).
To find out whether individuals have more than a 50% stake in the income or capital of the trust: see Subdivision 269‑C.
Condition
(2) The condition is that, during the period beginning at the test time and finishing at the end of the test period, the same individuals (who must be some or all of the threshold group) must have had more than a 50% stake in the income or the capital, respectively, of the trust.
Commissioner discretion
(3) If:
(a) after the test time, some or all of the threshold group cease to have a 50% stake in the income or capital of the trust at a particular time; and
(b) having regard to the likely manner of exercise of any discretion of the trustee to distribute income or capital of the trust after the particular time and to any other relevant matter, the Commissioner considers it fair and reasonable that the individuals should be taken to have the stake at the particular time and at all later times in the test period;
the individuals are taken to have that stake at the particular time and at all later times in the test period.
267‑45 Group must not begin to control the trust
A group must not, during the test period, begin to control the trust directly or indirectly.
To find out what it means for a group to control the trust: see Subdivision 269‑E.
267‑50 Deducting part of a tax loss
(1) If section 267‑20 prevents a trust from deducting a tax loss because the trust does not meet the condition in section 267‑40 or 267‑45 or both conditions, it can deduct the part of the tax loss that is attributable to a part of the loss year.
(2) However, the trust can do this only if, assuming that that part of the loss year had been treated as the whole of the loss year for the purposes of sections 267‑40 and 267‑45, the trust would have been entitled to deduct the tax loss.
Subdivision 267‑C—Current year net income and tax loss, and certain debts incurred in current year
267‑55 What this Subdivision is about
A non‑fixed trust:
• must work out its net income and tax loss for the income year in a special way; or
• cannot deduct certain amounts in respect of debts incurred in the income year;
unless:
• if applicable, it meets an ownership test relating to fixed entitlements to shares of income and capital; and
• its control has stayed the same.
Note: The exceptions mentioned in this section apply differently in relation to designated infrastructure project entities: see sections 415‑25 and 415‑30 of the Income Tax Assessment Act 1997.
267‑60 Trust may be required to work out its net income and tax loss in a special way
Type of trust to which this Subdivision applies
A trust that:
(a) was a non‑fixed trust at any time in the income year (the test period); and
(b) was not an excepted trust at all times in the test period;
must work out its net income and tax loss for the income year under Division 268 (How to work out a trust’s net income and tax loss for the income year), unless it meets:
• the condition in subsection 267‑70(2) (if applicable); and
• the condition in section 267‑75.
To find out the meaning of excepted trust: see section 272‑100.