Example 2 builds on Example 1. It illustrates the effect of a deferred business income election on a trust with existing UPEs and nongoodwill CGT assets. Example 2 The Amortisation Model, including the business income election mechanism, is enacted with effect from 1 July 2015. The ABC Trust has pre2009 UPEs owing to Company X that are deemed to be new complying loans repayable with interest over 10 years from 1 July 2015. It also owns a portfolio of investment assets and a rental property, both held on capital account. The trustee of the ABC Trust lodges its tax returns for the income years ending 30 June 2016 and 30 June 2017 without making the business income election. In the income year ending 30 June 2017, the trustee sells the investment assets. In the income year ending 30 June 2018, the trustee the rental property and makes a capital gain. The trustee makes the business income election in the trust’s tax return for the year ending 30 June 2018. The election applies from 1 July 2017. The trustee of the ABC Trust incurs interest on the complying loans from 1 July 2015 and is assessable to Company X in the income years ending 30 June 2016 and 30 June 2017. The interest may also be deductible to the ABC Trust, depending on how the retained funds are used. In the income year ending 30 June 2017, the trustee is entitled to claim the CGT discount on capital gains from disposing of investment assets. For the income year ending 30 June 2018, interest no longer accrues on the new complying loans. Further, as the election takes effect before the milestone payment is due (30 June 2018), the trustee is not required to make any principal or accrued interest payments. However, the trustee is not entitled to claim the CGT discount on the capital gain made from disposing of the rental property.
Example 2 builds on Example 1. It illustrates the effect of a deferred business income election on a trust with existing UPEs and nongoodwill CGT assets. Example 2 The Amortisation Model, including the business income election mechanism, is enacted with effect from 1 July 2015. The ABC Trust has pre2009 UPEs owing to Company X that are deemed to be new complying loans repayable with interest over 10 years from 1 July 2015. It also owns a portfolio of investment assets and a rental property, both held on capital account. The trustee of the ABC Trust lodges its tax returns for the income years ending 30 June 2016 and 30 June 2017 without making the business income election. In the income year ending 30 June 2017, the trustee sells the investment assets. In the income year ending 30 June 2018, the trustee the rental property and makes a capital gain. The trustee makes the business income election in the trust’s tax return for the year ending 30 June 2018. The election applies from 1 July 2017. The trustee of the ABC Trust incurs interest on the complying loans from 1 July 2015 and is assessable to Company X in the income years ending 30 June 2016 and 30 June 2017. The interest may also be deductible to the ABC Trust, depending on how the retained funds are used. In the income year ending 30 June 2017, the trustee is entitled to claim the CGT discount on capital gains from disposing of investment assets. For the income year ending 30 June 2018, interest no longer accrues on the new complying loans. Further, as the election takes effect before the milestone payment is due (30 June 2018), the trustee is not required to make any principal or accrued interest payments. However, the trustee is not entitled to claim the CGT discount on the capital gain made from disposing of the rental property.
Division7a_Report.docx