BJT Legal - Ballarat lawyers + legal services

'Controlling Individuals', 'Control' and 'Connected with' for Discretionary Trusts

It is relevant to determine whether there is a controlling individual for a Discretionary Trust:

If a capitals gain is made in relation to a CGT event occurring in relation to an interest in the Trust; For the Trust to be eligible for the retirement exemption; For a Trust to be eligible for the fifteen year exemption.

A Trust satisfies the controlling individual test if it has at least one controlling individual immediately before the CGT event.

For a Discretionary Trust, an individual is a "controlling individual" if just before the CGT event, the individual was entitled to at least 50% of all:

Income distributions made in the year the gain was made; and Capital distributions made in the year the gain is made.

If a Discretionary Trust makes a loss, it need only make a distribution of capital to one beneficiary (even as little as one dollar) to have a controlling individual.

If an entity "controls" a Discretionary Trust, that entity and the Discretionary Trust will be "connected" with each other. This is relevant:

For applying the maximum net asset value test; and In determining whether an asset is an active asset.

An entity controls a Trust if:

It is the Trustee of the Trust; or In any of the four years preceding the CGT event, the entity or its small business CGT affiliate received: 40% or more of the total distributions of income; or 40% or more of the total distributions of capital; or If in any of those years the Trust had a tax loss, the entity was one of a maximum of four entities nominated by the Trustee as controllers of the Trust.

For more information any matters relating to taxation and business, contact our Business Law Team.