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20% tracing rule in Division 6C

Under the new system for MITs, modifications were been made to the '20% tracing rule' in Division 6C of the ITAA 1936.

Last updated 23 July 2025

Under the new system for managed investment trusts (MITs), modifications have also been made to the '20% tracing rule' contained in Division 6C of the Income Tax Assessment Act 1936. Division 6C applies to a trust if it is both:

  • a trading trust (broadly, a trust that carries on activities other than holding solely passive investments such as shares, property and fixed interest assets)
  • a public unit trust.

If Division 6C applies to a trust, the trust will effectively be taxed as a company.

Previously, a trust could be treated as a public unit trust when one or more tax exempt entities or complying superannuation entities owned 20% or more of the beneficial interests in the trust (the 20% tracing rule).

Under the modifications to Division 6C, super funds and exempt entities – that are entitled to a refund of excess imputation credits – will now be exempt from the 20% tracing rule for public trading trusts.

As such, a trust will not be a public trading trust just because certain tax-exempt entities and complying superannuation entities hold more than 20% of interests in the trust.

 

QC47436