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Defective pattern of distributions test guarantees revenue loss usage


Most discretionary trusts will be family trusts under Australian tax law. For some discretionary trusts, though, the constraints associated with being a family trust are unacceptable. For these trusts with losses, the loss-access qualifying rules will be relevant. The rules that apply in this situation have received little attention. This article analyses the two key rules that may be relevant to a discretionary trust, namely, the revenue loss usage exclusion rule in s 95(1) where a beneficiary does not incur the related economic loss, and the pattern of distributions test (PODT) in the trust loss rules.

The conclusion of the article is that for most discretionary trusts, the s 95(1) loss usage exclusion rule will not prohibit revenue loss usage. Surprisingly, though, the design of the PODT has not taken full account of the flexibility inherent in many modern discretionary trusts. The result is that through a naturally occurring circumstance or some basic planning, the PODT will rarely cause a discretionary trust to lose access to its revenue losses.

Author profile

Dale Boccabella CTA
Dale has 18 years experience teaching a wide range of Australian taxation law courses at both undergraduate and postgraduate level including goods and services tax, fringe benefits tax, taxation of companies, tax administration and tax avoidance. Dale is currently teaching at the University of New South Wales and has also published over 70 articles on a wide range of areas of Australia’s taxation system. - Current at 01 April 2016
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