Tax Laws Amendment (2004 Measures No. 1) Act 2004 (95 of 2004)

Schedule 3   Small business CGT relief and discretionary trusts

Income Tax Assessment Act 1997

4   Subsections 152-30(5) and (6)

Repeal the subsections, substitute:

Control of discretionary trust

(5) An entity (the first entity ) controls a discretionary trust if, for any of the 4 income years before the income year for which relief is sought for a *CGT event under this Division:

(a) the trustee paid to, or applied for the benefit of:

(i) the first entity; or

(ii) one or more of the first entity's *small business CGT affiliates; or

(iii) the first entity and one or more of the first entity's small business CGT affiliates;

any of the income or capital of the trust; and

(b) the amount paid or applied is at least 40% (the control percentage ) of the total amount of income or capital paid or applied by the trustee for that income year.

(6) An entity does not control a discretionary trust because of subsection (5) if the entity is:

(a) an *exempt entity; or

(b) a *deductible gift recipient.

(6A) The trustee of a discretionary trust may, for an income year for which the trust had a *tax loss and for which the trustee did not pay or apply any income or capital of the trust, nominate not more than 4 beneficiaries as being controllers of the trust.

Note: The trust might not have had the funds to make a distribution for that income year, which would prevent it from being controlled in that year. The trustee may wish to make the nomination to ensure that a relevant CGT asset is treated as an active asset (see section 152-40).

(6B) This section has effect as if each nominated beneficiary controlled the trust during the relevant income year in the way described in this section.

(6C) A nomination must be in writing and signed by the trustee and by each nominated beneficiary.