House of Representatives

Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997

Family Trust Distribution Tax (Primary Liability) Bill 1997

Family Trust Distribution Tax (Primary Liability) Act 1998

Family Trust Distribution Tax (Secondary Liability) Bill 1997

Family Trust Distribution Tax (Secondary Liability) Act 1998

Medicare Levy Consequential Amendment (Trust Loss) Bill 1997

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 3 - Purpose and date of effect

Purpose of the amendments

3.1 Schedule 1 of the Bill will insert rules into the ITAA 1936 to restrict the recoupment of prior year and current year losses and debt deductions [F2] of trusts in order to prevent the transfer of the tax benefit of those losses or deductions. The tax benefit of a loss is transferred when a person who did not bear the economic loss at the time it was incurred by the trust obtains a benefit from the trust being able to deduct the loss.

Date of effect

3.2 Subject to certain transitional arrangements, the measures will apply to the transfer of the tax benefit of prior and current year trust losses from 7.30 pm Eastern Standard Time (EST) and the equivalent time elsewhere on 9May1995.

3.3 However, the pattern of distributions test (see paragraphs 7.12 and 7.13), one of the tests that applies to non-fixed trusts for prior year loss purposes, will apply from the date of introduction of the Taxation Laws Amendment Bill (No. 4) 1995 (the 1995 Bill) into the Parliament on 28 September 1995.

3.4 Also, the debt deduction provisions, which were not included in the 1995 Bill, will apply to the transfer of the tax benefit of debt deductions from 7.30 pm EST, 20 August 1996. This was the date that the decision was announced in the 1996-97 Budget.

3.5 The narrower definition of the family (see paragraph 5.40) will apply from 7.30 pm EST, 13 May 1997. This was the time of the 1997-98 Budget when the changes to the income injection test as it applies to family trusts were announced.

3.6 The provisions which apply to prevent the transfer of the tax benefit of quarantined foreign losses of trusts will apply from the date of introduction of this legislation into Parliament.

3.7 There are various application and transitional provisions which affect how various aspects of the measures will operate. These are discussed in Chapter 15.


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