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: