Document ID: chunk:federal_register_of_legislation:C2025C00029:section:5:p12
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 5 (pt 12/13)
Character Range: 6114989–6117622

that could be distributed tax free at the joining time.
The increase in the step 1 amount takes account of the settled capital that could be distributed tax free.
Note 1: As a result, the settled capital that could be distributed tax free is treated in a way that is analogous to the group's cost of acquiring the trust: see subsection 705‑10(2).
Note 2: Paragraph (1)(b) reflects the position that a distribution in respect of a unit or interest in the trust is generally covered by CGT event E4 and so is not tax‑free: see section 104‑70.
 (2) The step 1 amount worked out under section 705‑65 is increased by the amount worked out under the following method statement if, at the joining time, there are *membership interests (the discretionary interests) in the trust each of which satisfies these conditions:
 (a) it is neither a unit nor an interest in the trust;
 (b) the entity that owned it at the joining time began to own it only because money or property was settled on the trust;
 (c) it either has no *cost base or it has a cost base of nil.
Note: If a membership interest has a cost base greater than nil, the cost base is already taken into account in working out the step 1 amount under section 705‑65.

      Method statement
           Step 1. Add up:

                (a) each amount settled on the trust before or at the joining time; and
                (b) the *market value of each item of property settled on the trust before or at the joining time, worked out as at when the item was settled;

            except to the extent that that amount or market value forms part of the *cost base of a *membership interest in the trust that was taken into account in working out the step 1 amount under section 705‑65.
           Step 2. Work out how much of the step 1 amount would have been paid in respect of the discretionary interests if, at the joining time:

                (a) the entire trust capital and trust income had been realised and distributed; and
                (b) the trust had ended.

                  Note: This may involve determining how a power of appointment would have been exercised. Section 713‑50 lists matters to have regard to in determining this.
           Step 3. Reduce the step 2 amount by so much of it as:

                (a) would have been included in the assessable income of any *member of the trust who owned any of the discretionary interests at the joining time; or
                (b) would have been taken into account in working out a *capital gain or *capital loss made by such a member.

           Step 4. Work out how much of the step 1 amount consists