• Control test

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

    The control test applies to non-fixed trusts. Where a group begins to control a trust between the beginning of the loss year and the end of the income year in which it seeks to claim the deduction (the test period), the trust’s tax losses and debt deductions can’t be deducted.

    Whether a group begins to control a trust in the test period is a question of fact, depending on the circumstances of each individual trust – particularly taking into account the powers conferred on various entities under the trust deed.

    The following factors should be checked when determining whether there has been a change in the group controlling the trust in the test period:

    • changes in trustees
    • changes in the appointor or guardian
    • changes in the shareholders or directors of the corporate trustee
    • the appointment of new beneficiaries
    • the amendment of the trust deed
    • a change in unit holdings
    • other unusual changes.

    Special circumstances where control won't be taken to have changed

    Where a group (the original group) ceases to control a non-fixed trust only because of the death, incapacitation or breakdown in the marriage or relationship of the individual comprising, or an individual included in, the control group, the control test won't be failed for that reason alone.

    Broadly, this special treatment applies where:

    • another group (the replacement group) begins to control the non-fixed trust within one year of the death, incapacitation or breakdown in the marriage or relationship, or such longer period as the Commissioner determines
    • if the original group consisted only of the individual who died, became incapacitated or experienced the breakdown in the marriage or relationship – the replacement group consists of one or more individuals who are members of that individual’s family (as defined in section 272-95 of Schedule 2F to the ITAA 1936)
    • if the original group consisted of more than the individual who died, became incapacitated or experienced the breakdown in the marriage or relationship – the replacement group consists of one or more individuals who are members of that individual’s family (as defined in section 272-95), together with all of the members of the original group (other than the individual who died, became incapacitated or experienced the breakdown in the marriage or relationship)
    • the replacement group began to control the trust only because of the death, incapacitation or breakdown in the marriage or relationship of the individual
    • there are no changes in the beneficiaries of the trust apart from the individual who died, became incapacitated or experienced the breakdown in the marriage or relationship and one or more individuals who are members of that individual’s family (as defined in section 272-95).

    Other circumstances where control won't be taken not to have changed

    Under subsection 269-95(4) of Schedule 2F to the ITAA 1936, the Commissioner also has the discretion to treat a group as not beginning to control a trust where, having regard to the identity of the beneficiaries of the trust and all other relevant circumstances of the case, the Commissioner considers it reasonable to do so.

    This allows tax losses to be deducted where, because of the particular circumstances of the case, it is not fair and reasonable to treat the control of the trust as having changed. For example, it may be appropriate for the discretion to be exercised in some cases of retirement where those who can benefit under the trust have not changed.

      Last modified: 22 Apr 2016QC 18663