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TAXATION LAWS AMENDMENT ACT (NO. 7) 2000 NO. 173, 2000 - SCHEDULE 2

- Pay as you go (PAYG) instalments for certain beneficiaries of trusts

Taxation Administration Act 1953

1 At the end of section 45-280 in Schedule 1

Add:

Exception for certain resident unit trusts

(5) Your instalment income for the current period does not include an amount for a trust under subsection (1) if the conditions in either subsection 45-285(1) or (2) are satisfied for you for that trust for that period.

Note: Your instalment income will instead include a distribution by the trust: see section 45-285.

Exception for trusts whose beneficiary is absolutely entitled

(6) Your instalment income for the current period does not include an amount for a trust under subsection (1) if, throughout the current period:

(a)
the trustee of the trust did not have any active duties to perform in the management of the trust (other than the duty to deal with the trust income and capital in accordance with any requests made or directions given by the beneficiary or beneficiaries); and

(b)
if there was only one beneficiary, the beneficiary:

(i)
was absolutely entitled to the trust assets; and
(ii)
had a vested and indefeasible interest in any trust income arising from time to time; and
(c)
if there was more than one beneficiary, each beneficiary:

(i)
was absolutely entitled to that beneficiary's interest in the trust assets; and
(ii)
had a vested and indefeasible interest in a proportion of any trust income arising from time to time, being a proportion that corresponded to the beneficiary's proportional interest in the trust capital.
Instead, your instalment income for the current period includes the following amount:

2 After section 45-280 in Schedule 1

Insert:

45-285 Instalment income includes distributions by certain resident unit trusts
(1) Your instalment income for a period includes trust income or trust capital that a unit trust distributes to you, or applies for your benefit, during that period if:

(a)
the unit trust is a resident unit trust (within the meaning of section 102Q of the Income Tax Assessment Act 1936 ) for the income year of the trust that is or includes that period; and

(b)
throughout that period:

(i)
any of the units in the trust were listed for quotation in the official list of a stock exchange in Australia or elsewhere; or
(ii)
any of the units in the trust were offered to the public; or
(iii)
the units in the trust were held by at least 50 persons; and
(c)
section 45-287 in this Schedule did not apply to the trust at any time during that period; and

(d)
throughout that period, the trust's activities consisted only of activities listed in the definition of eligible investment business in section 102M of the Income Tax Assessment Act 1936 .

(It does not matter whether the trust income or trust capital is included in your assessable income for the income year that is or includes that period.)

(2) Your instalment income for a period also includes trust income or trust capital that a unit trust distributes to you, or applies for your benefit, during that period if:

(a)
the income or capital is not included in your instalment income under subsection (1); and

(b)
the unit trust is a resident unit trust (within the meaning of section 102Q of the Income Tax Assessment Act 1936 ) for the income year of the trust that is or includes that period; and

(c)
throughout that period, the trust's activities consisted only of activities listed in the definition of eligible investment business in section 102M of the Income Tax Assessment Act 1936 ; and

(d)
throughout that period, either:

(i)
you are yourself the trustee of a unit trust that satisfies each of paragraphs (1)(a) to (d) of this section; or
(ii)
you are yourself the trustee of one or more trusts covered by section 45-288; or
(iii)
you are exempt from tax; or
(iv)
you are a * complying superannuation entity or a statutory fund of a * life insurance company.
(It does not matter whether the trust income or trust capital is included in your assessable income for the income year that is or includes that period.)

Extension—nominee and bare trust situations

(3) In determining, for the purposes of subparagraph (1)(b)(iii), how many persons hold units in a unit trust, if:

(a)
another trust (the holding trust ) is a unit holder in the unit trust; and

(b)
the holding trust is a trust of the kind covered by subsection 45-280(6); and

(c)
the beneficiary's or beneficiaries' absolute entitlement exists at all times while the holding trust is in existence;

the beneficiary or beneficiaries count as persons who hold units in the unit trust, and the trustee of the holding trust does not.

45-287 When trusts are disqualified due to concentrated ownership

Concentrated ownership

(1) This section applies to a trust if an individual holds, or up to 20 individuals hold between them directly or indirectly and for their own benefit, interests in the trust:

(a)
carrying fixed entitlements to:

(i)
at least 75% of the trust's income; or
(ii)
at least 75% of the trust's capital; or
(b)
if beneficiaries of the trust have a right to vote in respect of activities of the trust—carrying at least 75% of those voting rights.

Single individual

(2) Subsection (1) operates as if all of these were a single individual:

(a)
an individual, whether or not the individual holds interests in the trust; and

(b)
the individual's * associates; and

(c)
for any interests in respect of which other individuals are nominees of the individual or of the individual's associates—those other individuals.

Concentrated ownership—potential due to possible variation of rights etc.

(3) This section also applies to a trust if, because of:

(a)
any provision in the trust's constituent document, or in any contract, agreement or instrument:

(i)
authorising the variation or abrogation of rights attaching to any of the interests in the trust; or
(ii)
relating to the conversion, cancellation, extinguishment or redemption of any of those interests; or
(b)
any contract, * arrangement, option or instrument under which a person has power to acquire any of those interests; or

(c)
any power, authority or discretion in a person in relation to the rights attaching to any of those interests;

it is reasonable to conclude that the rights attaching to any of the interests are capable of being varied or abrogated in such a way (even if they are not in fact varied or abrogated in that way) that, directly or indirectly, the trust would be disqualified under subsection (1).

Tracing

(4) In applying this section:

(a)
if a * complying superannuation fund, * approved deposit fund or * foreign superannuation fund has more than 50 members and has, directly or indirectly, a fixed entitlement to any of the trust's income or capital—that entitlement is taken to be held by more than 20 individuals for their own benefit; and

(b)
if a complying superannuation fund, approved deposit fund or foreign superannuation fund has 50 or fewer members and has, directly or indirectly, a fixed entitlement to any of the trust's income or capital—each of the members is taken to have a share of that entitlement, in equal proportions, for his or her own benefit.

45-288 Resident investment trusts for beneficiaries who are absolutely entitled
This section covers a trust if:

(a)
the trust is a resident trust within the meaning of section 102Q of the Income Tax Assessment Act 1936 ; and

(b)
the trust is of the kind covered by subsection 45-280(6) in this Schedule; and

(c)
the requests or directions that beneficiaries may give the trustee are limited to requests or directions as to which of the activities listed in the definition of eligible investment business in section 102M of the Income Tax Assessment Act 1936 the trustee should engage in; and

(d)
all of the trust's beneficiaries became beneficiaries as a result of a public offer to invest in the trust; and

(e)
either:

(i)
the trust has 50 or more beneficiaries; or
(ii)
if the trustee of the trust is also the trustee of one or more other trusts that satisfy paragraphs (a), (b), (c) and (d) of this section—all those trusts together have a total of 50 or more beneficiaries.

3 Subsection 45-290(3) in Schedule 1

Omit " * life insurance entity or * registered organisation", substitute " * life insurance company".

4 Subsection 45-290(3) in Schedule 1

Omit "the * CS/RA class of its assessable income", substitute "the * complying superannuation class of its taxable income".

5 Application of amendments

The amendments made by this Schedule apply to the 2000-2001 income year and later income years.


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