• 50% stake test

    (Subdivision 269-C of Schedule 2F to the ITAA 1936.)

    The 50% stake test is used to determine whether there has been a change in the underlying ownership of a trust with fixed entitlements. An alternative version applies where 50% or more of fixed entitlements to the income or capital of an ordinary fixed trust are held by non-fixed trusts – other than family trusts.

    The 50% stake test doesn't apply to family trusts and other excepted trusts.

    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.

    The 50% stake test applies by determining if there are individuals who between them have, directly or indirectly, and for their own benefit, fixed entitlements to:

    • a greater than 50% share of the income of the trust, and
    • a greater than 50% share of the capital of the trust.

    The individuals with fixed entitlements to income and those with fixed entitlements to capital don’t have to be the same individuals.

    The 50% stake test applies independently to both income and capital.

    50% stake test – alternative version

    The alternative version of the 50% stake test applies where 50% or more of fixed entitlements to the income or capital of an ordinary fixed trust (which is governed by Subdivision 266-B of Schedule 2F) are held by non-fixed trusts (other than family trusts).

    In this situation, the 50% stake test can’t be satisfied by the fixed trust (as it is impossible to trace through to individuals), and an alternative version of the 50% stake test must be applied.

    The alternative version of the 50% stake test also applies to an ordinary fixed trust (which is governed by Subdivision 266-B of Schedule 2F). This applies where non-fixed trusts (other than family trusts) hold fixed entitlements to 50% or more of the income or capital of a company or a fixed trust (the holding entity), and the holding entity holds, directly or indirectly, all of the fixed entitlements to income and capital of the ordinary fixed trust that is seeking to pass the 50% stake test.

    These fixed entitlements must have been held at all times during the test period (that is, the test period for the 'normal' 50% stake test).

    The alternative version of the 50% stake test is passed where:

    • interests in the fixed trust are held directly by non-fixed trusts and there are no changes in the individuals directly holding fixed entitlements to the income and capital of the fixed trust or the percentage of their interests
    • interests in the fixed trust are held, directly or indirectly, by a holding entity, and there are no changes in the individuals directly holding fixed entitlements to the income and capital of the holding entity
    • at the beginning of the test period, individuals have not had more than a 50% stake in the income or capital of the fixed trust
    • every non-fixed trust (that is not a family trust or other type of excepted trust) that holds fixed entitlements in the fixed trust, directly or indirectly, satisfies the relevant tests that apply to non-fixed trusts as if they stood in place of the fixed trust that is seeking to deduct a tax loss or other amount.
      Last modified: 22 Apr 2016QC 18663