ATO ID 2005/276: Trust Losses - Control Test - Resignation of one director of corporate trustee
Date of decision: 4 October 2005
Year of income: Year ended 30 June 2005
Business line: Private Groups and High Wealth Individuals

Issue
Does a group begin to control a non-fixed trust for the purposes of section 267-45 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) where a person ceases directorship of the corporate trustee but continues to control the trust as part of the original group?

Decision
No. Provided the cessation of directorship does not trigger the materialisation of a 'new' group that begins to control the trust directly or indirectly.

Facts
A and B are the joint directors of the corporate trustee of a non-fixed trust. As directors of the trustee company, A and B comprise the 'group' that controls the trust as defined by subsection 269-95(1) of Schedule 2F to the ITAA 1936 immediately prior to the test period. During the test period, B resigns directorship of the trustee company leaving A as the sole director. B continues to exercise the same amount of control of the trust before and after ceasing directorship of the corporate trustee. The control of the trust by the group remains unchanged in every aspect, notwithstanding this, the validity of the trust is preserved.

Reasons for decision
Summary: Section 267-45 of Schedule 2F to the ITAA 1936 provides that a group must not begin to control the trust directly or indirectly during the test period (from the beginning of the loss year until the end of the income year). A group controls a non-fixed trust pursuant to subsection 269-95(1) of Schedule 2F to the ITAA 1936. Group is defined in subsection 269-95(5) of Schedule 2F to the ITAA 1936 as a person, or a person and one or more associates, or two or more associates of a person. As B continues to exercise the same amount of control of the trust before and after ceasing directorship of the corporate trustee, a group as defined by subsection 269-95(5) of Schedule 2F to the ITAA 1936, which differs from the original group, has not formed upon the resignation of B. Accordingly, no group begins to control the trust during the test period and section 267-45 of Schedule 2F to the ITAA 1936 will not apply.

Legislative references: Income Tax Assessment Act 1936 Schedule 2F section 267-45 section 269-95 subsection 269-95(1) subsection 269-95(5)
Subject references: Change in control Control of a non fixed trust test Trust loss tests Trust losses