Income Tax Assessment Act 1936

PART III - LIABILITY TO TAXATION  

Division 7A - Distributions to entities connected with a private company  

Subdivision EB - Unpaid present entitlements - interposed entities  

SECTION 109XI   ENTITLEMENTS TO TRUST INCOME THROUGH INTERPOSED TRUSTS  

Entitlements through interposed trusts

109XI(1)    
For the purposes of paragraphs 109XA(1)(c) , (2)(b) and (3)(b) , a private company is taken to be or to become entitled to an amount from the net income of a trust estate (the target trust ) if:

(a) the company is or becomes presently entitled to an amount from the net income of another trust estate (the first interposed trust ) that is interposed between the target trust and the company; and

(b) a reasonable person would conclude (having regard to all the circumstances) that the company is or becomes so entitled solely or mainly as part of an arrangement involving an entitlement to an amount from the target trust; and

(c) either

(i) the first interposed trust is or becomes presently entitled to an amount from the net income of the target trust; or

(ii) another trust interposed between the target trust and the company is or becomes presently entitled to an amount from the net income of the target trust.

This section operates regardless of certain factors

109XI(2)    
For the purposes of this section, it does not matter:

(a) whether the company became or becomes entitled to the amount from the net income of the first interposed trust before, after or at the same time as the interposed trust became or becomes presently entitled to an amount from the net income of the target trust; or

(b) whether or not the company became presently entitled to the same amount as the amount to which the interposed trust become entitled.

This section does not operate to the extent Subdivision EA would otherwise apply

109XI(3)    
Subsection (1) does not apply to the extent that an amount is included in the assessable income of a shareholder, or an associate of a shareholder, of the company under Subdivision EA (as it applies apart from this section) as a result of the present entitlement of any interposed trust.

Amount of entitlement

109XI(4)    
The amount the private company is taken to be or to become entitled to from the net income of the target trust is the amount (if any) determined by the Commissioner.

109XI(5)   [ Net income of the target]  

The total amount determined under subsection (4) for present entitlements to which that subsection applies because of the same present entitlement to an amount from the net income of the target trust mentioned in paragraph (1)(c) must not exceed that amount.

109XI(6)   [ Determination of amount]  

In determining the amount of the entitlement, the Commissioner must take account of:

(a) the amount the private company is or becomes entitled to from the net income of the first interposed trust; and

(b) how much (if any) of that amount the Commissioner believes represented consideration payable to the private company by:

(i) the target trust; or

(ii) any of the interposed trusts;

for anything (assuming that the consideration payable equals that for similar transactions at arm's length).

Timing of entitlement

109XI(7)    
The company is taken to be or to become entitled to the amount from the net income of the target trust at the time the company is or becomes entitled to the amount from the net income of the first interposed trust mentioned in paragraph (1)(a).