Change in ownership or control – consequences
The tests dealing with changes in ownership or control (50% stake test, same business test, pattern of distribution test and control test) apply so that, if certain events occur, a trust:
- may be prevented from deducting its tax losses from earlier income years
- may have to work out its net income and tax loss for the current income year in a special way
- may be prevented from deducting certain amounts in respect of debts (for example, bad debts) incurred in the current or earlier income years.
This doesn't apply to excepted trusts, including trusts that validly elected to be family trusts.
For fixed trusts, the above consequences apply if there is no continuity of majority beneficial ownership in the income and capital of the trust, as determined by the 50% stake test.
Ordinary fixed trusts have to test ownership continuously – that is, on every day of the test period (from the beginning of the loss year until the end of the income year in which the trustee seeks to claim the relevant deduction).
Widely held unit trusts only have to test ownership when there is abnormal trading in their units or, in some cases, when an income year ends.
Where the 50% stake test is failed, listed widely held trusts can still avoid these consequences if they pass the same business test.
The above consequences will also apply to a non-fixed trust if:
- there is a 50% or greater change in the pattern of distributions of the income or capital of the trust, or
- control of the trust changes during the test period.
The 50% stake test only applies to a non-fixed trust where, at any time in the test period, individuals have more than a 50% stake in the income or capital (or both) of the trust.