Add:

Modification if joining entity is a trust

(4)

If the joining entity is a trust, a ^* membership interest in it is not taken into account under paragraph (3)(a) unless the membership interest is either a unit or an interest in the trust.

Omit "finally,", substitute "next,".

Add:

; and (d) finally, if the leaving entity is a trust—for each membership interest in the trust that satisfies these conditions:

(i)

it is neither a unit nor an interest in the trust;

(ii)

the member of the old group that held it began to hold it only because money or property was settled on the trust;

(iii)

it either had no ^* cost base or it had a cost base of nil;

reducing the result under paragraph (c) to nil.

Note: Compare the treatment of such interests when an entity joins a group: see section 713-20.

Add:

Modification if leaving entity is a trust

(8)

If the leaving entity is a trust, a ^* membership interest in it is not taken into account under this section unless the membership interest is either a unit or an interest in the trust.

Repeal the link note, substitute:

Modification if leaving entity is a trust

(6)

A ^* membership interest in a trust that is one of the multiple exit entities is not taken into account under this section unless the membership interest is either a unit or an interest in the trust.

[The next Division is Division 713.]

Insert:

Table of Subdivisions

713-A Trusts

Table of sections

Working out a joined group's allocable cost amount for a joining trust

713-20 Increasing the step 1 amount for settled capital that could be distributed tax free in respect of discretionary interests
713-25 Undistributed, realised profits that accrue to joined group before joining time and could be distributed tax free in respect of discretionary interests—step 3 in working out allocable cost amount

Determining destination of distribution by non-fixed trust

713-50 Factors to consider

(1)

The object of this section is to increase the step 1 amount worked out under section 705-65 (for the purpose of working out the joined group's allocable cost amount) if:

(a)

the joining entity is a trust; and

(b)

some or all of the ^* membership interests in the trust are neither units nor interests in the trust; and

(c)

some or all of the trust capital is settled capital that could be distributed tax free at the joining time.

The increase in the step 1 amount takes account of the settled capital that could be distributed tax free.

Note 1: As a result, the settled capital that could be distributed tax free is treated in a way that is analogous to the group's cost of acquiring the trust: see subsection 705-10(2).

Note 2: Paragraph (1)(b) reflects the position that a distribution in respect of a unit or interest in the trust is generally covered by CGT event E4 and so is not tax-free: see section 104-70.

(2)

The step 1 amount worked out under section 705-65 is increased by the amount worked out under the following method statement if, at the joining time, there are ^* membership interests (the discretionary interests ) in the trust each of which satisfies these conditions:

(a)

it is neither a unit nor an interest in the trust;

(b)

the entity that owned it at the joining time began to own it only because money or property was settled on the trust;

(c)

it either has no ^* cost base or it has a cost base of nil.

Note: If a membership interest has a cost base greater than nil, the cost base is already taken into account in working out the step 1 amount under section 705-65.

Method statement

Step 1. Add up:

(a) each amount settled on the trust before or at the joining time; and
(b) the ^* market value of each item of property settled on the trust before or at the joining time, worked out as at when the item was settled;

except to the extent that that amount or market value forms part of the ^* cost base of a ^* membership interest in the trust that was taken into account in working out the step 1 amount under section 705-65.
Step 2. Work out how much of the step 1 amount would have been paid in respect of the discretionary interests if, at the joining time:

(a) the entire trust capital and trust income had been realised and distributed; and
(b) the trust had ended.

Note: This may involve determining how a power of appointment would have been exercised. Section 713-50 lists matters to have regard to in determining this.

Step 3. Reduce the step 2 amount by so much of it as:

(a) would have been included in the assessable income of any ^* member of the trust who owned any of the discretionary interests at the joining time; or
(b) would have been taken into account in working out a ^* capital gain or ^* capital loss made by such a member.

Step 4. Work out how much of the step 1 amount consists of one or more of these:

(a) an amount settled on the trust directly by the ^* head company of the ^* consolidated group (whether or not the group was in existence when the amount or item was settled on the trust);
(b) an amount settled on the trust directly by any other entity not excluded by subsection (3) (which covers entities that are not independent and unconnected donors to the trust);
(c) the ^* market value of an item of property settled on the trust directly by the head company;
(d) the market value of an item of property settled on the trust directly by any other entity not excluded by subsection (3).

Step 5. The step 1 amount worked out under section 705-65 is increased by the lesser of:

(a) the step 3 amount worked out under this method statement; and
(b) the step 4 amount worked out under this method statement.

(3)

This subsection excludes these entities for the purposes of step 4 of the method statement in subsection (2):

(1)

For the purposes of step 3 in the table in section 705-60, if the joining entity is a trust, the step 3 amount is the sum of the trust's realised profits, to the extent that:

(a)

they accrued to the joined group before the joining time (as defined in subsection 705-90(7)); and

(b)

as at the joining time, they have not been distributed to ^* members of the trust; and

(c)

if each of them were distributed as mentioned in paragraphs 705-90(7)(a) and (b):

(i)

they would be distributed otherwise than in respect of a unit or an interest in the trust; or

(ii)

their non-assessable parts for the purposes of section 104-70 would not be taken into account in working out whether or not a ^* capital gain had been made because of CGT event E4;

except to the extent that they recouped losses of any ^* sort that accrued to the joined group before the joining time (as defined in subsection 705-90(8)).

Note: If the joining entity, or an entity interposed between the head company and the joining entity, is a non-fixed trust, this section may involve determining how a power of appointment would have been exercised. Section 713-50 lists matters to have regard to in determining this.

Trusts not covered

(2)

Subsection (1) does not apply to a trust that is a ^* corporate tax entity at the joining time.

Note: This excludes corporate unit trusts and public trading trusts, which are covered by the imputation system.

In working out, for the purposes of this Part, how much of something a ^* non-fixed trust would have distributed to an entity, or in respect of a ^* membership interest in the trust, have regard to all relevant factors, including:

(a)

the pattern of any previous distributions by the trust; and

(b)

by whom the trust has from time to time been ^* controlled (for value shifting purposes).

[The next Division is Division 716.]