Income Tax Legislation Planning Idea Planning Stuff Rulings

More on the Small Business Rollover

Yes I am way too excited about this… But the Commissioner has produced his first two bits of guidance on using this rollover.

In the first he looks at the consequences of using the rollover. This is all pretty simple stuff (cost base transfer…) but the final example has the trick in it…

Example 6 – Indirect tax consequence – subsequent debt forgiveness


  1. Dean operates a fishing tour business through a company, where he is the sole director and shareholder. The active assets of the business include a fishing boat, which cost the company $300,000.
  2. In January 2017, a discretionary trust is set up, Dean is one of the beneficiaries and a family trust election is made with Dean as the primary individual. The termination value and adjustable value of the boat is $260,000 at this time.
  3. The company transfers the boat to the trust for $260,000 as consideration, payable within 60 days. Both the company and the trust choose to apply the SBRR.
  4. The trustee does not pay at that time and enters into a written loan agreement that complies with the requirements of section 109N of the ITAA 1936.
  5. In June 2018, the company executes an effective deed to forgive the loan.

Other tax consequences are recognised

  1. A transfer of an asset has no direct income tax consequences, except as provided for under Subdivision 328-G. Related rollover relief for depreciating assets is available under section 40-340.
  2. The subsequent application of Division 7A to the loan, which was created in connection with the transfer of the assets, is an indirect consequence of the transfer and is not turned off by section 328-450. The forgiveness of the loan or failure to make minimum yearly repayments may give rise to a deemed dividend under Division 7A.

So a simple transfer of assets out of a company to a trust can lead to a big DIV 7A issue… But maybe not. Have a look at paragraph 1.65 of the EM to the Bill that introduced the rollover…

1.65 Consistent with the object of allowing small business owners flexibility to change their legal structure, the roll-over does not require that market value consideration, or any consideration, be given in exchange for the transferred assets. A transferor and transferee may, for example, agree to transfer the assets at cost in order to eliminate any future unrealised gains on membership interests held in the transferor entity. Where an asset transfer is made at other than market value, decreases and increases in the market values of any interests that are held in the transferor and transferee can result.

So if you transfer the assets for no consideration you get no debt to forgive and no Division 7A issues. The accountants scream “how do I account for this???” I say “work it out because if we transfer it at book value to make your accounting easy we have the company making a loan to the trust and that is much worse than your accounting problem!”

So beware of Division 7A traps when transferring out of a company using the rollover – especially as they are very easily fixable (if fixable is a word?).

In the second document the Commissioner considers what is a ‘genuine restructure of an ongoing business’? Remember that if we don’t have one of these genuine restructures we can’t use the rollover. SO what is a genuine restructure?

The following features indicate that a transaction is, or is part of, a ‘genuine restructure of an ongoing business’:

It is a bona fide commercial arrangement undertaken in a real and honest sense to facilitate growth, innovation and diversification, adapt to changed conditions, or reduce administrative burdens, compliance costs and/or cash flow impediments.

It is authentically restructuring the way in which the business is conducted as opposed to a ‘divestment’ or preliminary step to facilitate the economic realisation of assets.

The economic ownership of the business and its restructured assets is maintained.

The small business owners continue to operate the business through a different legal structure. For example, there is continued use of the transferred assets as active assets of the business, continuity of employment of key personnel and continuity of production, supplies, sales, or services.

It results in a structure likely to have been adopted had the small business owners obtained appropriate professional advice when setting up the business.

And if this is too vague (which it definitely is) the law provides a safe harbour rule…

To provide certainty to small businesses using the roll-over, a ‘safe harbour’ rule is included. A small business will be taken to satisfy the requirement that the transaction is, or is a part of, a genuine restructure of an ongoing business where, for three years following the roll-over:

There is no change in the ultimate economic ownership of any of the significant assets of the business (other than trading stock) that were transferred under the transaction;

Those significant assets continue to be active assets; and

There is no significant or material use of those significant assets for private purposes.

But in this document the Commissioner applies this rule to examples. He states that restructures that achieve substantially better asset protection, or allow employees to buy in, or allow new capital, or simplify complex affairs are all genuine restructures

But he goes on to say that transferring assets from a company to an individual and waiting 12 months to get the CGT discount on those assets is not a genuine restructure.

Neither is succession planning where the assets of one company are split into two companies to allow Dad to give a company each to his two sons a genuine restructure (unless Dad meets the safe harbour above by waiting three years).

Finally he states that having a trust that transfers assets to a company to pay of a UPE and then having the company transfer it back at no consideration is not a genuine restructure as it just wipes out the UPE.

Getting the CGT discount and succession planning will come to your mind when planning a small business restructure but it cannot be the main reason you did it!

1 July 2016 is almost here and the Small Business Restructure Rollover is almost available…

Income Tax Legislation Planning Idea Planning Stuff

Small Business Restructure Rollover and Stamp Duties

I have discussed this rollover before so if you have no idea what I am talking about have a look at these links first.

The rollover is very broad, applying to CGT assets, revenue assets, trading stock and depreciable assets. But it does not cover all the taxes that may be rolled over under these restructures.

Clearly this does not cover State and Territory taxes, like stamp duty.

So does this mean that any restructure that we do is still going to cost us a whole lot of tax.

Remember, that stamp duty can be large. In NSW the current rate is $8,990 plus $4.50 for every $100, that the value exceeds $300,000. So restructure an inexpensive business premise of say $600,000 to a better entity (say out of a company and into a discretionary trust) then you end up with stamp duty of $22,490.

Ouch. But can we avoid this tax?

In NSW, as duty on the transfer of business assets or a declaration of trust over ‘business assets’ (other than land) will be abolished from 1 July 2016 you could consider keeping the land and buildings in the current structure and moving the “business” out of the current structure to another entity. Of course this would mean the land and buildings still sit in the old structure, which if it is a company may mean no access to the CGT concession and no income splitting on the earnings from the land and buildings….

At this point we need to ask ourselves is the future access to possibly the CGT concessions on the land and buildings and income splitting from the income of the land and buildings worth paying $22,490 of stamp duty today (using the $600,000 example above)? Get a spreadsheet out and do the maths!

But perhaps there is another way to avoid the stamp duty all together.

In most jurisdictions there are “corporate restructure” relief rules in the respective Duties Act. And if we were happen to forgo the income splitting benefits that we get from rolling assets into a discretionary trust, then we might be able to avoid the stamp duty on the sale of the property from the Company to a trust.

If the trust that we roll the land and building to was a unit trust, not a discretionary trust, then all the units in the unit trust have to be owned by the same underlying economic owners. This would be the case if the company from which we intend to roll the assets out of owns all of the units in the unit trust.

In NSW, section 273B of the Duties Act 1997 states:

Duty under this Act is not chargeable on a transaction if the Chief Commissioner is satisfied, on application by a party to the transaction, that:

(a) the transaction is a corporate reconstruction transaction, and

(b) the transaction, or the series of transactions of which the transaction is a part, is undertaken for the purpose of either or both of the following:

(i) changing the structure of a corporate group,

(ii) changing the holding of assets within a corporate group, and

(c) the transaction, or the series of transactions of which the transaction is a part:

(i) is not undertaken for a purpose of avoiding or reducing duty under this Act on another transaction, and

(ii) is not undertaken for the sole or dominant purpose of avoiding or reducing a liability for tax, other than duty under this Act, under a law of an Australian jurisdiction.

Note, that to get this you need to apply first to the Commissioner in each state or territory and there are different processes and timeframes for this approval in different jurisdictions.

Also note that while the term “corporate” is used in the definition about, a unit trust that is wholly owned by a company can be a part of a “corporate group” in the NSW Duties Act.

So would the Commissioner of Taxation in NSW agreed that rolling the land and buildings from a company to a unit trust where the units are all owned by the company is an exempt “corporate reconstruction” under Part 1 of Chapter 11 of the Duties Act 1997 (NSW)?

There is only one way to find out. Ask him. And if he says yes you can now use the small business restructure rollover without paying any taxes at all and get the land and building that are in a company into a trust that can access the 50% discount (as long as the trust holds the land and buildings for 12 months).

Choice (as my New Zealand friends say)!

Income Tax Legislation Tax Policy

Property transactions and clearance certificates

The Tax and Superannuation Laws Amendment (2015 Measures No 6) Bill 2015 is now law (just awaiting Royal Assent).

I don’t like it at all…

But we now need to understand that from 1 July 2016 a purchaser of certain CGT assets, being asset valued at $2 million or more that are taxable Australian real property or an indirect interest in Australian real property, will need to withhold 10% of the purchase price and remit it to the Commissioner if the seller does not provide a “clearance certificate” from the Commissioner.

I should also acknowledge this withholding does not apply to transactions listed on an approved stock exchange or whether the foreign resident vendor is under external administration or in bankruptcy.

This will be a process nightmare so lets step through how this SHOULD work in practice

A resident vendor…

A vendor goes to (should be up and running before 30 June 2016) and submits an online application called the clearance certificate application.

Once the application for a clearance certificate is lodged there will be an automated process for the issue, or rejection, of a clearance certificate. Where the Commissioner has all the required information to assess if the vendor is a resident, it is expected that clearance certificates will be provided within days of being submitted.

However, where there are data irregularities or exceptions, the clearance certificates will be provided within 14 to 28 days. In addition, the Commissioner states that higher risk and unusual cases may take longer than 28 days.

This clearance certificate can be applied for before the property is listed for sale and the clearance certificate will be valid for 12 months.

A non resident vendor making a small or no capital gain (exempt asset) or making a capital loss

This is where the second form at (should be up and running before 30 June 2016), called the variation application, comes into play.

Where the vendor is not entitled to a clearance certificate because they are a non-resident, but they believe a withholding of 10% is inappropriate, the vendor can apply for a variation.

The vendor completes this on-line form requesting a lesser withholding rate be determined by the Commissioner. The Commissioner may then issue a notice of variation and this should be provided to the purchaser before settlement to ensure the reduced withholding rate applies.

Every seller of assets greater than $2 million

If you are provided with a clearance certificate by settlement – nothing changes.

If you are not – withhold 10% of the amount and only pay the vendor 90%. Where an amount is withheld, the purchaser is required to complete an online form, called the Purchaser payment notification, to provide details of the vendor, purchaser and the asset being acquired. Again this can be found at at (should be up and running before 30 June 2016). The purchaser will then receive a payment reference number, with various methods to make the payment of the withheld amount.


The penalty for failing to withhold is equal to the amount that was required to be withheld and paid. So make sure the contracts require the vendor to provide a clearance certificate or agree that the amount to be paid to them is only 90% of the contract price.

Not a final withholding…

Remember, this withholding is not a final withholding tax, so the seller will still need to include any capital gain in their tax return and claim a credit for the amount withheld.

I don’t like it at all…

Income Tax Tax Policy

The end of tax depreciation schedules

I don’t know if the Quantity Surveyors have worked it out yet, but they have the most to lose from the changes to negative gearing that are currently being discussed.

Screen Shot 2014-05-21 at 8.37.30 pm

Labor is promising to remove negative gearing from all purchased buildings that are not new buildings from 1 July 2017.

And the Government is considering a cap on deductions, which will include deductions on rental properties.

So either way, it looks like you and I won’t be able to claim all the current deductions on most rental properties soon.

If Labor win, after 1 July 2017, the only people who will want a tax depreciation schedule will be:

  • The buyers of new properties – but it is pretty easy to ask for the information from the seller, especially the construction costs and even the depreciable assets are easy to value as they are new.
  • Buyers who are not negatively geared.

Under the Labor model, if the interest costs, rates, management fees on the rental property washes out most or all the rent, I won’t want a tax depreciation schedule as my deductions cannot go above my rent (It cannot be negatively geared).

If the Coalition win and they cap deductions (The plan is to cap work related deductions and rental property deductions to a percentage of the taxpayer’s income), then there will also be a reduction in the need for tax depreciation schedules.

All my deductions other than those on tax depreciation schedules, like work related deductions, or interest, or rates, or management fees, or… are easy to work out what they are by just looking at bank accounts or invoices. So if I am going to go near or above the cap, the deductions I won’t claim are the ones that are hardest, and most costly, to assess – being the deductions in a tax depreciation schedule.

It looks like that either way the election go, the need for tax depreciation schedules is going to reduce.

Income Tax Legislation Planning Idea Planning Stuff

The Small Business Restructure Rollover is now before the Parliament!

Its almost law!!!!

Under this Bill, from 1 July 2016, small businesses can roll-over “active assets” that are CGT assets, trading stock, revenue assets and depreciating assets as part of a genuine restructure of a small business from one entity to another.

In Summary, here is how it works:

Subdivision 328-G creates an optional roll-over where a small business entity transfers an active asset of the business to another small business entity as part of a genuine business restructure, without changing the ultimate economic ownership of the asset.

Genuine restructure

In the EM the Treasury makes it clear that they could not come up with a solution to all the tax savings ideas that this rollover could create so they have added the “genuine restructure” rule. As they state in the EM:

“The genuine restructure principle distinguishes genuine restructures from artificial or inappropriately tax-driven schemes. This acknowledges that while tax considerations are significant factors in small business structuring, a minority of taxpayers and advisers may try to manipulate the operation of a ‘black letter’ provision of the tax law to achieve an inappropriate or uneconomic tax outcome.”

So if you have a company with lots of assets and a Division 7A loan and you transfer all the assets other than the loan (which you can’t transfer according to paragraph 1.40 of the EM as it is not an active asset) for no consideration so that there is no distributable surplus left in the company so you can forgive the loan, this may not be a “genuine restructure”.

There is a safe harbour for the “genuine restructure” rule. If, for three years following the roll-over:

  1. there is no change in the ultimate economic ownership of any of the significant assets of the business (other than trading stock) that were transferred under the transaction;
  2. those significant assets continue to be active assets; and
  3. there is no significant or material use of those significant assets for private purposes.

Then you have a genuine restructure.

Small Business Entity

This is the definition we all know (carrying on a business and passes the $2 million turnover test) but also includes the affiliates, connected entities and partners of a small business.

The Ultimate Economic Ownership

This has not changed from the draft Bill. You can still roll into a discretionary trust if all the original owners are covered by a family trust election over the discretionary trust.

I do love it that the EM shows exactly how we will use this rollover time and time again in example 1.3:

“Chris and Victoria are husband and wife and are the only shareholders in Puppy Co, with each owning one share with a cost base of $2 per share.

Puppy Co has successfully carried on a puppy training school and has acquired significant assets including puppy boarding facilities, a vehicle, and goodwill.

Victoria and Chris wish to transfer the puppy boarding premises from Puppy Co to a recently settled discretionary trust, the Fluffy Trust, which will lease the premises to Puppy Co. The family trust election is made nominating Victoria as the primary individual controlling the trust. Victoria and Chris are members of Victoria’s family group.

For the purpose of the roll-over, there will not be a change in the ultimate economic ownership of the premises as a result of the transfer of the asset from Puppy Co to the Fluffy Trust. Therefore, assuming that the other requirements are also met, the roll-over would be available in respect of the transfer.”

An Active Asset

This is just like the standard rules in the small business CGT Concessions.

However, due to the Division 7A opportunities, like the one discussed above, the EM states that assets such as loans to shareholders of a company are not active assets.

“A purported transfer of such assets to the debtor shareholder, or trust liable to pay the unpaid distribution could potentially defeat the operation of Division 7A of Part III of the Income Tax Assessment Act 1936 (ITAA 1936). The roll-over cannot be used for such transfers.

Example 1.5

Mr and Mrs Smith are directors and shareholders of private company ABC Pty Ltd. They each own 50 shares in ABC Pty Ltd, which operates the family business of a milk bar.

Due to the administrative burden of operating a private company,

Mr and Mrs Smith decide to restructure their business affairs. They use the small business restructure roll-over and transfer all plant and equipment of the milk bar to a newly formed partnership.

A complying Division 7A loan for $50,000 to Mr Smith also exists in the balance sheet of ABC Pty Ltd. The Division 7A loan cannot be transferred to the partnership as it not an active asset, and the normal operation of Division 7A continues to apply in respect of the loan.”

And here are all the other bits an pieces we need to be aware of…

Tax planning

The Treasury is scared we will “misuse” this rollover. Therefore they have put in lots of integrity rules – in addition to the “Genuine restructure” rule.

The Bill makes it clear that Part IVA, containing the general anti-avoidance provisions of the taxation law, can apply to a scheme involving the application of the roll-over.

The Bill also has an integrity rule (called the loss denial rule) to ensure that a capital loss on any direct or indirect membership interest in the transferor or transferee that is made subsequent to the rollover will be disregarded, except to the extent that the taxpayer can demonstrate that the loss is reasonably attributable to something other than the roll-over transaction.

Pre-CGT assets

Pre-CGT assets transferred under the roll-over will retain their pre-CGT status in the hands of the transferee.

It’s optional

Need I say more… But I am struggling to work out why you would not want to use this… Say this is the last year you will be a small business entity due to turnover growth and you want to use the $500,000 lifetime concession so you want there to be a CGT event… There, I thought of an example!


To be eligible for the roll-over, both the transferor and the transferee of the assets must be residents of Australia.


The roll-over will not apply to a transfer to or from an exempt entity or complying superannuation entity

The CGT Discount

As soon as we looked at this law we knew it would allow us to roll a CGT asset from a company that cannot use the 50% discount, to a trust that can.

In the new Bill, the Treasury have tried to solve this problem by making the time period for eligibility for the CGT discount will recommence from the time of the transfer. To quote from the EM:

“This is consistent with the policy intent of the roll-over, which is to make it easier for small business owners to change the legal entity or entities that run the business in the course of a genuine restructure of an ongoing business. The policy is not to facilitate the transfer of assets to an entity that is entitled to the CGT discount shortly before the sale of the asset.”

So you can still do the roll to a trust to get the discount, you just need to do it a year in advance (and as a part of a genuine restructure as discussed above).

No longer transfer for no consideration

The draft Bill stated the transfer had to be at no consideration. However, the new Bill states that the roll-over does not require that market value consideration, or any consideration, be given in exchange for the transferred assets.

So where an asset transfer is made at other than market value, decreases and increases in the market values of any interests that are held in the transferor and transferee can result.

New membership interests issued as consideration for the transfer

Where membership interests are issued in consideration for the transfer of a roll-over asset or assets, the cost base and reduced cost base of those new membership interests is worked out based on the sum of the roll-over costs and adjustable values of the roll-over assets, less any liabilities that the transferee undertakes to discharge in respect of those assets, divided by the number of new membership interests.

Effect on 15 year CGT exemption

I am only including this as I asked for it and the Treasury said yes… For the purpose of determining eligibility for the 15 year CGT exemption for small businesses, the transferee will be taken as having acquired the asset whether the transferor acquired it.

Income Tax Legislation Planning Stuff Tax Policy

Innovation Tax Changes

Why does “innovation” have anything to do with tax changes? In the Government’s Innovation Statement most of the expenditure is making tax changes.

Tax is a revenue raising device… Not a method to change people’s actions. When you use tax policy to do anything other than raise revenue you get bad policy.

But here are the changes announced.

The “same business test” becomes the “predominantly similar business test”. This means you can still get to the losses if the business uses similar assets and generates income from similar sources. Let the loss trading begin!

Taxpayers will now be able to self-assess the tax effective life of acquired intangible assets that are currently fixed by statute. So instead of having to depreciate a patent over 20 years or in house software over 5, a taxpayer can now self assess its life.

Are you excited yet???

Early Stage Venture Capital Limited Partnerships (stay away as these are messy) will be able to get a10% non-refundable tax offset on capital invested. These partnerships can also get bigger than the current law allows before having to wind up.

Wake me up…

Lastly, certain investors will get a 20% non-refundable tax offset on investments (capped at $200,000 per investor per year) and a 10 year exemption on capital gains tax, provided investments are held for three years. Now this sounds more exciting. So what can I invest in to get these benefits?

The Government has not decided yet…. ARRRRAAAAHHHH. All we know is that these company must have been incorporated during the last three income years, not listed on any stock exchange and have expenditure and income of less than $1 million and $200,000. But in addition to this the company must be undertaking eligible activities – and no one knows what these are. This is just a perfect example of the marking coming before the policy!

Lets talk in 2016 about this

Income Tax Tax Policy

What a waste of time

It is stupid tax policy made worse…

From 1 July 2016 there will be a 10% non-final withholding tax on payments made to foreign residents that dispose of certain  property. The effect of this will be that where a foreign resident disposes of Australian property, the purchaser will be required to withhold and pay to the Australian Taxation Office 10% of the proceeds from the sale.

The reason they are implementing this is to stop non residents from just not paying any CGT on these sales. To do this we force the purchaser, not the non resident seller, to undertake the withholding.

There are a number of exclusions. But the most important is that the new withholding regime will not apply to real property transactions valued under $2 million.

Because we all said that “if a non resident is happy to not pay tax, they will also be happy to pretend they are residents to avoid this withholding” the Government has now come up with another solution… Clearance Certificates.

These certificates confirm that the withholding tax is not to be withheld from the transaction and the Government has decided that, for real property transactions valued above $2 million, the purchaser must withhold 10% of the purchase price unless the vendor shows the purchaser a clearance certificate from the ATO.

So now everyone, including residents, will have to get one of these certificates if they want to sell property greater than $2 million.

So let me get this right…

Because naughty non residents were not paying their CGT on the sale of properties… Resident sellers now have to get a clearance certificate (non- residents won’t get one because they cannot)… and resident buyers have to keep watch to see if they have to withhold 10% – and if they don’t they will still owe 10%.

To stop non residents doing naughty things, residents are given substantial extra administration.

Good policy!


Income Tax Legislation Planning Idea Planning Stuff

Newish Tax Concession For Farmers

The Government has released draft legislation that makes certain tax concessions available to farmers even better than they currently are.

In the draft legislation, the Government proposes to make the following changes to the Farm Managed Deposit scheme (and a reminder for those city slickers, the FMD scheme allows farmers to claim a tax deduction for deposits into their FMD bank account, and this means they only pay tax in the income in the year they take it out of the FMD account):

  • Increase the maximum amount that can be held in FMDs to $800,000. As many farmers are already at the $400,000 cap, this means they can take $400,000 from next years income, put it into their FMD and pay not tax on it in that year;
  • Allow primary producers experiencing severe drought conditions to withdraw an amount held in an FMD within 12 months of deposit in the income year following deposit without affecting the income tax treatment of the FMD in the earlier income year; and
  • Allow amounts held in an FMD to offset (ie. reduce the interest charged on) a loan or other debt relating to the FMD owner’s primary production business. That effectively means a farmer can decrease the interest on THEIR PRIMARY PRODUCTION BUSINESS loan (not other loans) at the cost of the meagre interest they were getting on their FMD.

This all starts on 1 July 2016 so it is worth farmers who already have a $400,000 FMD to start warehousing income so they can get the additional $400,000 deductions they can get by increasing their FMD balance to $800,000.

Also, it is worth getting ready to use the FMD as an offset from 1 July 2016.

Income Tax Rulings

How do I fix up a large UPE

I know they are not as common since December 2009, but now that we are generally paying interest on new UPEs to corporate beneficiaries (as required under TR 2010/3) these UPEs can be a real pain.

Especially if the trust that retains the cash that created the UPE is not making a lot of money and so paying the interest and/or principal can become a problem.

Well the Commissioner has an answer. In Taxation Determination TD 2015/20 the Commissioner states that generally, if the company that is owed an amount by a trust that is represented by an Unpaid Present Entitlement “forgives” the UPE so that the trust no longer has to pay the company the amount, the “forgiveness” will be a deemed dividend under Division 7A.

For the tax nerds, the Commissioner concludes that it is not a debt forgiveness as the UPE is legally not a debt but rather it is a payment – same effect but different reasoning, it is still treated as a division paid by the company to the trust.

But have a look at example 2 from the Determination…

Example 2

8. Unlucky Bob (an individual) is the trustee of Unlucky Trust, a sub-trust (within the meaning in TR 2010/3) settled in the 2011-12 income year with $1,000 of trust property to which a UPE relates. The sole beneficiary, and owner of the UPE, is XYZ Beneficiary Pty Ltd. Unlucky Bob is a shareholder of XYZ Beneficiary Pty Ltd. The subsisting UPE was not a Division 7A loan within the meaning of Taxation Ruling TR 2010/3 and was not a debt for the purposes of section 109F.

9. Unlucky Bob entered into a range of investments with the proper care and skill that a person of ordinary prudence would exercise.

10. During the 2013-14 income year, a market fall caused the value of the investments to become worthless. No amount of the loss was caused by an act or omission intentionally or negligently done, and there was no breach of trust which Unlucky Bob was required to make good to the Unlucky Trust estate.

11. XYZ Beneficiary Pty Ltd subsequently entered into a deed, by which it relinquished its entire equitable interest in the Unlucky Trust. It accounted for the released interest by making a credit entry against a ‘trust entitlement’ ledger to reflect that the interest ceased to be an asset of the company.

12. In these circumstances, the release by XYZ Beneficiary Pty Ltd confers no financial benefit upon Unlucky Bob. Accordingly, the release is not a payment within the meaning in subparagraph 109C(3)(b)(iii).

So if the trust is enough of a basket case, you can have the company forgive the UPE without Division 7A applying. Or at least some of the UPE could be written off if not all of the UPE will ever be able to be paid.

So it is possible to get the 30% tax rate in a trust and never have to given the money to the company, as long as the trust loses all of the money in bad investments.

Income Tax Rulings

Common property in blocks of units

So who owns the common property in a block of units, the strata trust or the owners. Legally it depends on the state legislation.

However, in Taxation Ruling TR 2015/3 the Commissioner simplifies this

40. Each strata title legislation is different in its description of how common property is held. Notwithstanding these differences, the Commissioner will accept, in relation to strata schemes registered under all the State and Territory Acts, that it is the proprietors, rather than the strata title body, that are entitled to the deductions under Division 40 and Division 43 of the ITAA 1997 and who are assessable on any income from common property under section 6-5 of the ITAA 1997.

So make sure the owners claim these deductions going forward.