Use of tax losses and debt deductions may be restricted where the tax benefits would be transferred to other entities.
- Change in ownership or control – consequences
- Income injection schemes – consequences
- Which tests to apply
- How to apply the trust loss tests
This information is for trustees who want to use a tax loss to reduce the net income of their trust.
A tax loss of a trust can be carried forward and used to reduce the trust's net income in a later year, subject to certain tests. These tests are contained in the trust loss provisions in Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936).
These tests restrict the use of tax losses and debt deductions. The tests apply to the following two types of arrangements under which the tax benefit of trust losses and debt deductions could otherwise be transferred to other entities:
- a change in the ownership or control of the trust
- use of an income injection scheme.
Different tests apply to different types of trusts.
The trust loss provisions generally don't apply to trusts that have validly elected to be a family trust. This is except for the income injection test, which applies in certain circumstances.
The trust loss provisions don't apply to capital losses.