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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 is an Associate Professor in the School of Taxation and Business Law, UNSW Business School, University of New South Wales. He has designed an extensive range of courses and teaching materials for both undergraduate and postgraduate courses on Australian taxation law over the past 23 years, including taxation of partnerships, taxation of trusts, taxation of companies and company distributions. Dale has published over 130 articles/papers, including 36 refereed articles, 45 technical commentaries, conference and seminar papers, media commentaries etc on Australia's tax regime(s). These publications deal with a wide range of tax areas and reflect Dale's research interests. Current at 01 April 2016 Click here to expand/collapse more articles by Dale BOCCABELLA.
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