Edited version of private advice

Authorisation Number: 1051657665592

Date of advice: 17 April 2020

Ruling

Subject: Shares in the Company

This ruling applies for the following period:

1 July 2019 to 30 June 2020

Question 1

Will the splitting of shares in the Company result in a capital gains tax event arising?

Answer

No

Question 2

Is the cost base of the split shares determined by apportioning the cost base of the original shares?

Answer

Yes

Question 3

Will the transfer of shares by the legal personal representatives to the shareholder testamentary trusts of the Company give rise to a CGT event but to which a roll-over under Division 128 of the Income Tax Assessment Act 1997 (Cth) (ITAA97) applies?

Answer

Yes

Question 4

Are retained earnings distributed to the shareholder testamentary trusts of the Company in the course of the members' voluntary winding up included in the assessable income of the shareholders under subsection 47(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA36) for the purposes of section 44 of the ITAA36?

Answer

Yes

Question 5

To the extent distributions from the pre-CGT capital profits reserve are made to the shareholder testamentary trusts of the Company in the course of members' voluntary winding up, are those distributions excluded from being assessable income of the shareholders under subsection 47(1A) of the ITAA97 for the purposes of section 44 of the ITAA36?

Answer

Yes

Question 6

When CGT event C2 in section 104-25 of the ITAA97 happen on the cancellation of the shares in the Company following the member's voluntary winding up, will a capital gain or loss arise, and will the discount capital gain provisions in Division 115 apply?

Answer

No

Question 7

Does CGT even G1 occur in respect of payments received from the liquidator?

Answer

No, provided the Company ceases to exist within 18 months after the payment (see Question 6)

Question 8

Are any distributions made to the shareholder testamentary trusts of the Company in the course of the member's voluntary winding up taken to be deemed dividends under Division 7A of the ITAA36?

Answer

No

Question 9

If franked dividends, received by the three shareholder testamentary trusts of the Company (each having made a family trust election) under XYZ's will, are distributed to the ABC Services Trust, will the ultimate beneficiaries of the franked distributions be entitled to claim the franking credits relating to the franked distributions through each of those testamentary trusts, if any?

Answer

Yes

Question 10

Will the franking credits still be available even though the dividend income received by the ABC Services Trust may be offset by losses of the ABC Services Trust?

Answer

Yes

This ruling applies for the following period:

30 June 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

D Investments Pty Ltd was registered. From registration and at all times the shareholders in the company have been STU and XYZ each holding 1 ordinary share.

STU died May 2017 and you provided a copy of his will dated September 2015 which has been signed and witnessed. XYZ died January 2009 and you provided a copy of her will dated October 2008 which is also signed and witnessed.

Under STU's will:

(i)

(A)  The "XYZ Fund assets" (as defined in clause 5.3 of STU's will to include shares held by STU, an interest in a partnership with XYZ, personal interests in plant and equipment and debts owing to STU personally) and shares held by STU in Stereotype No 242 Pty Ltd were to be held upon trust during XYZ's lifetime on the terms set out in clause 5 of STU's will (note that the JE Sutherland Fund assets include STU's shares in the Company);

(B)  after XYZ's death, these SYZ Fund assets were held by the executors of STU's estate on the trusts set out in clauses 8 to 12 of STU's will;

(ii) The trusts set out in clauses 8 to 12 of STU's provided for:

(A)  Child D providing consent to an exercise of discretion by the executors of STU's estate to divide the residue of her estate as set out in clause 10.4 of STU's will, within 30 days after the date of XYZ's death;

(B)  If Child D did not provide consent within the specified time, Child E providing consent to an exercise of discretion by the executors of STU's estate to divide the residue of her estate as set out in clause 10.5 of STU's will, within six months days after the date of XYZ's death;

(C)  If Child D and Child E did not provide consent within the relevant specified time, Child C providing consent to an exercise of discretion by the executors of STU's estate to divide the residue of her estate as set out in clause 10.6 of STU's will, within nine months days after the date of XYZ's death;

And if any one of these consents was provided within the specified timeframe, the trusts in clause 10.3 of STU's will would be displaced (which trusts provided for the residue of STU's estate to be held on trust by the executors of STU's estate to give that residue to the trustees of the Sutherland Will Fund);

(iii) after XYZ's death, Child D, Child E and Child C did not provide consent within the timeframes required under clauses 10.4 to 10.6 of STU's will and accordingly, trusts under clause 10.3 of STU's will were ot displaced and the executors could not exercise any discretions under clauses 10.4 to 10.6 of STU's will.

(iv) under clause 10.3 of STU's will if the executors did not exercise the discretion under clauses 10.4 to 10.6, a testamentary trust was established under STU's will and the residue of STU's estate was held on trust for the beneficiaries of that testamentary trust, being the S Will Fund - note that the residue of STU's estate included STU's shares in the Company;

(v) Schedule 2 of STU's will sets out the terms of the S Will Fund and Part 1 of Schedule 1 of STU's will sets out the potential beneficiaries of the S Will Fund.

Under XYZ's will:

(i)    Under XYZ's will three testamentary trusts were created, being:

(A)  a testamentary discretionary trust for the primary benefit of Child C.

(B)  a testamentary discretionary trust for the primary benefit of Child E;

(C)  a testamentary discretionary trust for the primary benefit of the children of Child D;

(ii) XYZ's estate was divided as follows:

(A)  36% of XYZ's estate to the trustees of the testamentary discretionary trust for the primary benefit of Child C;

(B)  36% of XYZ's estate to the trustees of the testamentary discretionary trust for the primary benefit of Child E;

(C)  28% of XYZ's estate to the trustee of the testamentary discretionary trust for the primary benefit of the children of Child D;

XYZ's shares have been split into 100 shares to enable the transfer of the shares to be transferred, in whole numbers, to:

(i)            The trustees of the testamentary discretionary trust for Child C which was entitled to 36% of the shares pursuant to the will of XYZ;

(ii)           The trustees of the testamentary discretionary trust for Child E which was entitled to 36% of the shares pursuant to the will of XYZ;

(iii)          The trustees of the testamentary discretionary trust for the children of Child D which was entitled to 28% of the shares pursuant to the will of XYZ.

STU's shares have been split into 100 shares so that the shareholding proportion was the same before the share split;

XYZ's shares in the company have been transferred in accordance with his will (36 shares to the trustees of the testamentary discretionary trust for Child C; 36 shares to the trustees of the testamentary discretionary trust for Child E; 28 shares to the trustees of the testamentary discretionary trust for the children of Child D.

The Company was the trading entity for construction services until August 2004 at which time business operations were moved to another entity in the family group.

The Company, after ceasing business operations, continued to own two parcels of real property and other fixed assets.

The fixed assets were sold over subsequent years and in respect of the real property:

(a)  5 Barney Street, Rubbletown, Queensland was acquired on or about August 1977 and subsequently sold pursuant to a sale contract dated 13 December 2015;

(b)  8 Fred Street, Wilma Valley was acquired in about 1969 or 1970 and subsequently sold pursuant to a sale contract dated 19 September 2016.

The Company's capital profits reserve of $197,999,222 in the unsigned financial statements you provided for the period ending 28 February 2019 is attributable to the accounting profit on the sale of the Barney Street property, the Fred Street property and a property at Betty Street sold before 30 June 1984.

The retained profits of $450,167.03, represents the post-CGT capital gains and profits from the sale of the fixed assets as at 28 February 2019.

The Company has sold all of its assets and, as at the date of this application, its only assets are cash and a loan made to The S Family Trust.

The equity balance in the balance sheet of the Company is entirely represented by cash, retained profits and the capital profits reserve which is derived solely from the sale of pre-CGT real property.

It is proposed by the members of the Company that the Company be wound up under a members' voluntary liquidation and a cash distribution be made to the shareholders as a liquidation dividend.

Following the liquidation of the Company an application will be made to deregister the Company and this is proposed to happen prior to the end of the 2020 financial year.

It is proposed that Acme Solvency and Forensic Accountants will be appointed as liquidator for the liquidation of the Company.

Following the liquidation of the Company, it is proposed that the testamentary trusts will make franked distributions to the ABC Services Trust, a family discretionary trust which was established on 30 November 2004.

The ABC Services Trust has revenue losses which are available for offset against taxable income of the ABC Services Trust.

The ABC Services Trust has made a family trust election in the 2010 financial year with a commencement date of 1 July 2009 for which XYZ was the specified individual.

It is proposed that the three testamentary trust established under XYZ' will, will each make their own family trust elections in respect of the ABC Services Trust to enable the ABC Services Trust to distribute to the three testamentary trusts and avoid family trust distribution tax.

Assumptions

A valid family trust election will be made by the testamentary trusts established by the beneficiaries of STU' and XYZ' wills.

The liquidator is able to distinguish pre-CGT non assessable profits and post CGT capital gains in the accounts of D Investments Pty Ltd.

Section 100A could have application if the distributions to ABC Services Trust were part of a greater reimbursement agreement. We have not considered this because we have insufficient information to make this determination.

Relevant legislative provisions

Section 104-25 of the Income Tax Assessment Act 1997

Section 104-35of the Income Tax Assessment Act 1997

Section 112-25 of the Income Tax Assessment Act 1997

Division 128 of the Income Tax Assessment Act 1997

Division 149 of the Income Tax Assessment Act 1997

Section 207-50 of the Income Tax Assessment Act 1997

Section 207-55 of the Income Tax Assessment Act 1997

Section 207-145 of the Income Tax Assessment Act 1997

Paragraph 207-145(1)(a) of the Income Tax Assessment Act 1997

Subdivision 207B of the Income Tax Assessment Act 1997

Section 44 of the Income Tax Assessment Act 1936

Subsection 47(1) of the Income Tax Assessment Act 1936

Subsection 47(1A) of the Income Tax Assessment Act 1936

Subsection 97(1)(a) of the Income Tax Assessment Act 1936

Division 7A of the Income Tax Assessment Act 1936

Section 109NA of the Income Tax Assessment Act 1936

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or DPT tax benefit in connection with an arrangement.

If Part IVA applies the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for Decision

These reasons for decision accompany the Notice of private ruling for STU and XYZ.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Summary - Question 1

Will the splitting of shares in the Company result in a capital gains tax event arising?

No

Detailed reasoning

The splitting of the shares into a larger number will not give rise to a CGT even because there is no disposal of shares by either of the shareholders and no change to the beneficial ownership of the shares.

Section 112-25(2) of ITAA97 provides that the splitting of a CGT asset into 2 or more assets is not a CGT event.

Also, as explained in Taxation Determination TD 2000/10:

(a)  the original shares are not cancelled or redeemed in terms of the Corporations Law;

(b)  there is no change in the total amount allocated to the share capital account of the company; and

(c)   The proportion of equity owned by each shareholder in the share capital account is maintained.

In your case, the shares will not be cancelled or redeemed; there is no change in the total amount allocated to the share capital account of the company; and the shareholding proportions of XYZ and STU will be maintained.

Summary - Question 2

Is the cost base of the split shares determined by apportioning the cost base of the original shares?

Yes.

Detailed reasoning

Section 112-25 of ITAA97 sets out what happens if a CGT asset is split into two or more assets and the taxpayer is the beneficial owner of the original asset and each new asset.

Section 112-25(3) provides that the cost base of new assets is determined by:

(a)  working out each element of the cost base of the original asset as the time of the splitting event; and

(b)  apportion the cost base in a reasonable way to each new asset.

The legal personal representatives propose to apportion the cost base of the shares by dividing the cost base of the shares by the number of shares following the share split.

This method would be a reasonable way to apportion the cost base to the new asset/shares.

Summary - Question 3

Will the transfer of shares by the legal personal representatives to the shareholder testamentary trusts of the Company give rise to a CGT event but to which a roll-over under Division 128 of the ITAA97 applies?

Yes.

Detailed reasoning

To administer the estate of XYZ and the estate of STU, the shares in the Company have been transferred from:

(a)  the legal personal representatives of XYZ's estate to the three testamentary trusts under XYZ's will;

(b)  the legal personal representatives of STU's estate to the testamentary trust under STU's will.

Ordinarily the transfer of shares would give rise to a CGT event, however, Division 128 of the ITAA97 will apply.

Division 128 sets out the rules which apply upon death of a taxpayer and assets that were held just before death, in particular:

(c)   section 128-15(2) of ITAA97 provides that the legal personal representative is taken to have acquired the asset on the date of death; and

(d)  section 128-15(3) provides that any capital gain that arises in the hands of the legal personal representative on the passing of an asset to a beneficiary is disregarded.

Accordingly:

(e)  the transfer of the shares from the legal personal representatives of XYZ's estate to the three testamentary trusts will not have any capital gains tax consequences; and

(f)    the transfer of the shares from the legal personal representatives of STU's estate to the single testamentary trust will not have any capital gains tax consequences.

Summary - Question 4

Are retained earnings distributed to the shareholder testamentary trusts of the Company in the course of the members' voluntary winding up included in the assessable income of the shareholders under subsection 47(1) of ITAA36 for the purposes of section 44 of the ITAA36?

Yes.

Detailed reasoning

Distributions by a liquidator on a winding up will be deemed to be a dividend if the distribution represents 'income derived by the company' except to the extent that the payment is applied to replace the paid up capital.

The paid up capital for the Company is $2 for the 2 shares (being $1 per share). Accordingly any payment to replace the paid up capital will be minimal and the balance of the payment by the liquidator from the will be a deemed dividend under section 47 of the ITAA36.

'Income derived by a company in section 47(1A) of ITAA36 includes:

(a)  an amount (except a net capital gain) which has been included in the company's assessable income for a year of income; or

(b)  a net capital gain that would be included in the company's assessable income for a year of income calculated on the basis that the net capital gain is calculated without indexing any amount used to work out the cost base of a CGT asset and that capital losses are ignored.

In your application, you have explained that the retained earnings for the Company (as recorded in the financial statements), represent the post CGT-capital gains and profits from the sale of fixed assets by the Company and other income. Accordingly, any distributions made of the retained earnings will be included in the assessable income of the shareholders under section 47(1) of the ITAA36 as the retained earnings represent income derived by the Company.

Summary - Question 5

To the extent distributions from the pre-CGT capital profits reserve are made to the shareholder testamentary trusts of the Company in the course of members' voluntary winding up, are those distributions excluded from being assessable income of the shareholders under subsection 47(1A) of the ITAA97 for the purposes of section 44 of the ITAA36?

Yes.

Detailed reasoning

Liquidator distributions from the capital reserve account sourced from assets acquired prior to 20 September 1985 are, in some circumstances, not taxable as either a deemed dividend under section 47 of the ITAA36, or a net capital gain under section 104-25 of the ITAA97. If the assets were acquired prior to 20 September 1985 and a capital gain is disregarded, then these assets maintain the tax-free status of the distribution from the capital profits reserve account.

Archer Bros Ply Ltd (In Vol Liq) v. FCT (1953) 90 CLR 140 (Archer Bros) discusses distributions. In a joint judgement, the Full High Court of Australia in Archers Bros observed by way of obiter dicta:

By a proper system of bookkeeping the liquidator, in the same way as the accountant of a private company which is a going concern, could so keep his accounts that distributions could be made wholly and exclusively out of particular profits...or income...'

Tax Determination TD 95/10 (Paragraph 2 and 3) discusses the significance of the "Archer Brothers principle" in the context of liquidation distributions:

'These observations have given rise to what is known as the Archer Brothers principle. The principle is that if a liquidator appropriates (or 'sources') a particular fund of profit or income in making a distribution (or part of a distribution), that appropriation ordinarily determines the character of the distributed amount for the purposes of section 47 and other provisions of the Income Tax Assessment Act 1936 (the Act). Generally, we accept that a liquidator may rely on the Archer Brothers principle, except where a specific provision in the Act produces a different result...

The judicial dicta quoted above refer only to the selection of particular 'profits' or 'income'. However, if a liquidator ostensibly distributes an amount representing capital actually contributed by shareholders, we accept that the distribution is treated as a non-dividend return of capital...

(Paragraph 5)

...Although the maintenance of separate accounts makes it easier to identify the source of a distribution, and is, in our opinion, preferable from a practical point of view, we do not consider that separate accounts are essential provided the liquidator is able to identify a fund or profit from which a distribution is made. For example, if pre-CGT non-assessable profits and post-CGT capital gains have been accumulated in the same reserve, but can still be separately identified, we will accept a liquidator's nominated appropriation.'

If a liquidator can identify the source of funds distributed, then those funds retain the character of the source. Accordingly, a pre-CGT gain on disposal of land would remain pre-CGT when it is distributed and would therefore be tax free to the shareholders.

Section 47 of the ITAA36 specifically deems certain amounts to be dividends paid to the shareholders out of the income derived by the Company.

Specifically, subsection 47(1) of the ITAA36 provides that:

Distributions to shareholders of a company by a liquidator in the course of winding­up the company, to the extent to which they represent.income derived by the company (whether before or during liquidation) other than income which has been properly applied to replace a loss of paid-up share capital, shall, for the purposes of this Act, be deemed to be dividends paid to the shareholders by the company out of profits derived by it.

The term 'income' in subsection 47(1) of the ITAA 1936 refers to income according to ordinary concepts. It does not therefore include capital receipts.

Subsection 47(1A) of the ITAA 1936 expands the meaning of 'income' in subsection 47(1) to include amounts included in assessable income of the company for a year of income, and net capital gains that would be included in the company's assessable income for a year of income (calculated, however, by the method statement included in subsection 47(1A)).

As some assets of the company were acquired before September 1985 the gains made on disposal of those assets are neither income according to ordinary concepts, nor net capital gains that would be included in assessable income according to the ITAA 1997.

With regard to the pre-CGT capital profit reserve in the accounts of the Company, there is no aspect of the reserve that relates to anything other than a pre-CGT profit. Therefore, if the Liquidator was to appropriate the pre-CGT profit reserve it will not to be treated as income for the purposes of section 47(1) of the ITAA36.

Summary - Question 6

Will section 118-20 of the ITAA 1997 reduce any capital gains that arise from CGT event C2 (section 104-25 ITAA 1997) that happens upon cancellation of the shares?

Yes.

Detailed reasoning

CGT event C2 happens if your ownership of an intangible capital gains tax asset ends by the asset expiring or by it being released, discharged, redeemed, cancelled, abandoned, surrendered, or forfeited (subsection 104-25(1) of the ITAA97).

Taxation Determination TD 2001/27 confirms that the full amount of a final distribution made by a liquidator on the winding-up of a company constitutes capital proceeds from the ending of the shareholder's shares in the company for the purposes of capital gains or losses made on the happening of CGT event C2.

After the winding up of a company, CGT event C2 happens to the shares when the company ceases to exist in accordance with the Corporations Act (2001).

Where all or part of a final distribution made by a liquidator of a company is deemed by subsection 47(1) of the ITAA36 to be a dividend paid out of profits, and to be assessable income of a shareholder in the company under section 44 of the ITAA36, this does not prevent CGT event C2 from happening.

However, section 118-20 of the ITAA97 ensures that no part of the final liquidator's distribution is taxed both as a dividend and as a capital gain by reducing the proportion of the capital gain that is assessable as a dividend.

The assessable capital gain or loss will be the difference between the capital proceeds from the liquidator distribution and the cost base of the shares. If there is a capital gain it will be reduced by the amount of any part of the distribution deemed to be a dividend under section 47 ITAA 1936. If the capital gain does not exceed the dividend, it will be reduced to zero (subsection 118-20(2) ITAA 1997).

Summary - Question 7

Does CGT event G1 occur in respect of payments received from the liquidator?

No, provided that the Company ceases to exist within 18 months after the payment (see Question 6).

Detailed reasoning

Under section 104-135 of ITAA97, CGT event G1 occurs if:

(a)  a company makes a payment to a shareholder in respect of their shares (except for CGT event A1 or C2 happening); and

(b)  some or all of the payment is not a dividend, or an amount that is taken to be an dividend under section 47 of the ITAA36; and

(c)   the payment is not included in the taxpayer's assessable income.

Any capital gain is disregarded under section 104-135(5) and section 104-135(6) if:

(d)  the shares were acquired pre-CGT; or

(e)  the payment is made by a liquidator provided the Company will happen as soon as possible after the payment is made and within 18 months after the payment is made by the liquidator to the shareholders.

On the assumption that CGT event C2 occurs or the Company ceases to exist within 18 months of any payment from the liquidator, the capital gain that would otherwise arise under CGT event G1 will be disregarded.

Summary - Question 8

Are any distributions made to the shareholder testamentary trusts of the Company in the course of the member's voluntary winding up taken to be deemed dividends under Division 7A of the ITAA36?

No.

Detailed reasoning

Section 109C of Division 7A of the ITAA 1936 provides that an amount paid by a private company to a shareholder is taken to be a dividend unless one of the exceptions in sections 109J to 109R of the ITAA 1936 applies.

Where a distribution is made by a liquidator in the course of the winding up of a private company, section 109NA of the ITAA 1936 provides that the company is not taken to pay a dividend under section 109C of the ITAA 1936.

In this case, a distribution will be made by a liquidator in the course of the winding up the Company; therefore, section 109C of the ITAA 1936 will not apply to deem a dividend.

Summary - Question 9

If franked dividends, received by the three shareholder testamentary trusts of the Company (each having made a family trust election) under XYZ's will, are distributed to the ABC Services Trust, will the ultimate beneficiaries of the franked distributions be entitled to claim the franking credits relating to the franked distributions through each of those testamentary trusts, if any?

Yes, assuming the ABC Services Trust has net income to distribute.

Detailed reasoning

45 day holding rule

Paragraph 207-145(1)(a) of the ITAA97 states that if an entity to whom a franked distribution is made is not a qualified person in relation to the distribution for the purposes of Division 1A of former Part IIIAA of the ITAA36, they are not entitled to gross up their income for the franking credit received nor claim a tax offset equal to the franking credit.

To be a qualified person in relation to a dividend, the relevant entity must hold the relevant shares or interest at risk for the relevant qualification period of 45 days (or 90 days for preference shares) excluding the date of acquisition and the date of disposal.

Despite former Division 1A being repealed effective 1 July 2002, Taxation Determination

TD 2007/11 states that it is necessary to continue to have regard to these rules in determining whether an entity is a qualified person for the purposes of section 207-145 of the ITAA97. Provided that the shares are held by the three testamentary trusts for a minimum of 45 days (excluding the acquisition and disposal dates), the 45 day holding rule will be satisfied.

Franked distributions

Subdivision 207-B of the ITAA97 sets out the effect of an entity receiving a franked distribution through one or more interposed partnerships or trusts. In certain circumstances, a franked distribution to a trust is treated as flowing indirectly to a beneficiary of the trust (or through the trust as an interposed entity).

Paragraph 207-50(1)(a) of the ITAA97 directs attention to subsection 207-50(3) of the

ITAA 1997 to determine when a franked distribution flows indirectly to beneficiaries.

Subsection 207-50(3) of the ITAA97 prescribes that a franked distribution will be taken to flow indirectly to a beneficiary of a trust in a particular income year if:

(a)  a franked distribution was made to the trustee of the trust; and

(b)  (i) during that income year, the beneficiary has a share of the trust's net income under subsection 97(1)(a) of the ITAA36 (whether or not the share amount becomes assessable income in the hands of the beneficiary); and

(c)   the beneficiary's share of the franked distribution under section 207-55 of the ITAA97 is a positive amount (whether or not the beneficiary actually receives any of that share).

It is proposed that the liquidator make a franked distribution to the trustees of the three testamentary trusts. The three testamentary trusts will then make a distribution to the ABC Services Trust.

In respect of the franked distributions received by the ABC Services Trust:

Summary - Question 10

Will the franking credits still be available even though the dividend income received by the ABC Services Trust may be offset by losses of the ABC Services Trust?

Yes.

Detailed reasoning

Section 207-45 of the ITAA97 provides:

An entity to whom a *franked distribution *flows indirectly in an income year is entitled to a '*tax offset for that income year that is equal to its '*share of the 'franking credit on the distribution if it is:

(a)  an individual; or

(b)  a corporate tax entity when the distribution flows directly to it; or

(c)   the trustee of a trust that is liable to be assessed on a share of, or all or a part of, the trust's net income under section 98, 99 or 99A of the Income Tax Assessment Act 1936 for that income year; or

(d)  [repealed}.

Under the proposed scheme, the relevant beneficiaries of the ABC Services Trust to whom franked distributions flow indirectly are trustees of trusts who meet the requirements of section 207-45(c) and are therefore entitled to a tax offset that is equal to their respective share of the franking credit on the distribution.