House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 10 - Income injection test

Overview of the income injection test

10.1 Division 270 deals with schemes to take advantage of tax losses and other deductions. The purpose of this Division is to prevent the use of deductions by a trust to shelter assessable income from tax where:

•

the assessable income is derived under a scheme involving the provision of benefits to and from the trust; and

•

either of those benefits are calculated with reference to the use of the deduction.

10.2 The test that is applied under this Division is referred to as the income injection test. The test operates objectively and does not have a tax avoidance motive as one of its elements.

10.3 The test operates to limit the trust's capacity to deduct prior year losses or current year deductions in certain circumstances, even though a trust has satisfied any relevant tests set out in Divisions 266 and 267 (e.g. it satisfies the continuity of ownership test). This is where the benefit from the allowance of the deductions flows to persons (or certain associates) who have, in effect, given a benefit to a trustee or beneficiary of a trust (or associates of those persons) in return for the benefit of the deductions.

10.4 The income injection test does not apply to income injection schemes that take place wholly within a family group. It also does not apply to complying superannuation funds, complying approved deposit funds, pooled superannuation trusts, fixed unit trusts all of whose direct or indirect unit holders are exempt from income tax, and deceased estates within a reasonable administration period (see paragraph 272-100(c)).

When does the income injection test apply?

10.5 The following flow chart outlines, in broad terms, the circumstances in which the income injection test will apply.

What are the elements of the income injection test?

10.6 There are a number of elements that need to be met before the test applies. These are explained below.

The trust must have an allowable deduction

10.7 The first element is that the trust must have an allowable deduction in the income year being examined. This can include a deduction for a prior year loss as well as current year deductions. [Paragraph 270-10(1)(a)]

There must be a scheme under which certain things happen

10.8 For the test to apply there also has to be a scheme under which the things set out below happen.

•

The trust must derive assessable income in the income year. This is referred to as the 'scheme assessable income'. [Subparagraph 270-10(1)(b)(i)]

•

A person not relevantly connected with the trust (the outsider) must directly or indirectly provide a benefit to the trustee or a beneficiary (or their associates). The terms 'benefit' and 'outsider' are defined in the Bill (see the discussion below). [Subparagraph 270-10(1)(b)(ii)]

•

The trustee or a beneficiary (or associates) must directly or indirectly provide a benefit to the outsider or an associate of the outsider. However, if the test is being applied to a family trust and this return benefit is being provided only to an associate who is not an outsider to the trust, this element will not be satisfied. This ensures that the test will not apply where benefits only flow from the family trust to members of the family group. [Subparagraph 270-10(1)(b)(iii)]

There must be a connection between the deduction and one or more of the things that happen under the scheme

10.9 The final element is that it must be reasonable to conclude that any one or more of the following is the case:

•

the scheme assessable income has been derived wholly or partly, but not merely incidentally, because the deduction is allowable; or

•

the benefit has been provided to the trustee or beneficiary (or their associates) wholly or partly, but not merely incidentally, because the deduction is allowable; or

•

the benefit has been provided by the trustee or a beneficiary (or associate) wholly or partly, but not merely incidentally, because the deduction is allowable. [Paragraph 270-10(1)(c)]

10.10 Whether a benefit has been provided merely incidentally because a deduction is allowable to the trust depends on the particular facts and circumstances surrounding the scheme entered into.

What if a person who was an outsider before the scheme ceases to be one as part of the scheme?

10.11 Where a person enters into a scheme so that the person becomes the trustee of the trust or a person holding fixed entitlements in the trust, with the consequence that the person is no longer an outsider to that trust, the person will, in effect, be taken to be an outsider for the purposes of subsection 270-10(1). [Subsection 270-10(2)]

10.12 Subsection 270-10(2) ensures that the income injection test cannot be easily avoided by, for example, the simple expedient of giving an outsider a fixed entitlement in the trust.

What are the consequences if the test is failed?

10.13 Where the income injection test is failed, no deduction is allowable in the income year being examined against the scheme assessable income, with the result that the net income of the trust for the income year is increased to equal the full amount of the scheme assessable income. In addition, to the extent the deduction of the trust may be appropriately related to the derivation of the scheme assessable income, the deduction is not allowable. However, for all other purposes, any deduction not related to the derivation of the scheme assessable income is still allowable to the trust. For example it can be deducted against other assessable income derived in the income year being examined or can be deducted in a later year of income in the form of a tax loss. [Section 270-15]

Example

10.14 A trust has a current year deduction of $120,000 in relation to which the income injection test is failed. This deduction is not related to the derivation of the scheme assessable income. The scheme assessable income of the trust is $100,000 and the non-scheme assessable income of the trust is $20,000. In the absence of the income injection test, the net income of the trust would be $0 ($120,000 assessable income less the $120,000 deduction). Under paragraph 270-15(b), the net income of the trust is increased to $100,000. In addition, in accordance with paragraph 270-15(c), the trust has a carry forward loss under section 79E, or section 36-10 of the ITAA 1997, of $100,000 ($20,000 non-scheme assessable income less the $120,000 deduction).

10.15 If the $120,000 deduction mentioned above had instead been a prior year loss, in accordance with paragraph 270-15(d), $100,000 of that loss would have been available for carry forward to future years.

Terms used in the income injection test

What is a scheme?

10.16 For the purposes of this test the term scheme takes on the same meaning as in Part IVA of the ITAA 1936 (see paragraph 13.106 and 13.107 below). [Definition of "scheme" in section 272-140]

What is a benefit?

10.17 The term benefit is broadly defined and will include any benefit or advantage within the ordinary meaning of those expressions. However, it is defined to specifically include money or other property (whether tangible or intangible), rights or entitlements (whether proprietary or not), services and the extinguishment, forgiveness, release or waiver of a debt or other liability.

10.18 The doing of anything that results in the derivation of assessable income by the trust is also specifically defined to be a benefit. For example, if the scheme assessable income is derived by the trust as a result of the transfer, under an agreement, to the trustee of an interest from which assessable income will be derived, the person who transferred that interest to the trustee will have thereby provided a benefit to the trustee, even if the interest is not a benefit other than by reason of satisfying paragraph 270-20(e). [Section 270-20]

10.19 A benefit is intended to include all means whereby value is transferred between the relevant parties.

What is an outsider?

10.20 The income injection test will only ever apply where the person who has provided directly or indirectly a benefit to the trustee or beneficiary of the trust (or an associate), is an outsider to the trust. The meaning of outsider depends on whether or not the trust is a family trust.

Outsider to a family trust

10.21 An outsider to a family trust is any person other than those individuals and entities that can be described as being in the same family group as the family trust. It is by this means that the income injection test does not inhibit income injection schemes that take place wholly within a family group.

10.22 The persons who are not outsiders to a family trust are as set out in Table 10.1.

Outsider to a non-family trust

10.23 In the case of any trust that is not a family trust, an outsider is a person other than the trustee of the trust acting in their capacity as such or a person with a fixed entitlement to income or capital of the trust. [Subsection 270-25(2)]

Examples of how the income injection test applies

10.24 The following examples illustrate the application of the income injection test. Each example contains a diagram to give an overview of the facts for that example. Also, the references in each example to a trust doing a thing is a reference to the trustee of the trust doing that thing.

Example 1

10.25 The same group of natural persons (A, B and C) control and are capable of benefiting (as discretionary objects) from two discretionary trusts, neither of which is a family trust. One of the trusts (Loss Trust) has incurred a loss in a previous year under section 36-10 of the ITAA 1997. The other trust (Income Trust) is profitable and is expected to continue to derive trust income and net income under Division 6 of Part III of the ITAA 1936 in the future.

10.26 The Loss Trust is added to the class of persons who are capable of benefiting under the Income Trust. The trustee of the Income Trust exercises its discretion to allocate net income of the Income Trust to the Loss Trust equal in amount to the amount of the prior year loss incurred by the Loss Trust (sheltered income). The distributable income of the Income Trust which represents the net income allocated to the Loss Trust is not paid to the Loss Trust, but is converted into a loan from the Loss Trust to the Income Trust. The terms of the loan are not evidenced in writing. The terms of the loan are that interest is chargeable at a nominal 1% rate and that interest is payable and principal is repayable at the times to be agreed between the parties in the future.

10.27 The requirements of paragraph 270-10(1)(b) are met because, under a scheme:

•

the Loss Trust has derived assessable income (because of the allocation of net income by the Income Trust);

•

the Income Trust (the outsider) has provided a benefit to the Loss Trust by allocating net income to the Loss Trust (this has given a right to the Loss Trust and is also something that has resulted in the Loss Trust deriving assessable income); and

•

the Loss Trust has provided a benefit to the Income Trust by loaning back an amount equal to its income allocation.

10.28 The requirements of paragraph 270-10(1)(c) are satisfied on the basis that the net income allocation has been made to the Loss Trust so that income tax will not be payable on that net income. The Income Trust has retained use of the income through the low interest loan on terms that are not commercial. It is reasonable to conclude that the assessable income was derived by the Loss Trust, and the benefits provided by the two trusts to each other, wholly or partly because of the prior year loss deductions in the Loss Trust. The connection is more than merely incidental.

10.29 The income injection test operates to increase the net income of the Loss Trust to equal the amount of the net income allocation from the Income Trust.

10.30 Even if the loan back of the net income allocation was on commercial terms, the scheme could still be one that is subject to the income injection test if it is the case that the distribution has been made by the Income Trust to the Loss Trust wholly or partly, but not merely incidentally, because a deduction is allowable to the Loss Trust for the losses (e.g. so that income tax would not be payable on the income of the Income Trust).

Example 1A

10.31 The facts are the same as in Example 1 except that the allocation of net income to the Loss Trust is actually paid to the Loss Trust and is used to fund a distribution of income to A, B and C by the Loss Trust. This scheme is also one that is subject to the income injection test. Although a benefit has not been provided directly to the outsider (the Income Trust), a benefit has been provided to associates of the Income Trust (A, B and C). It is reasonable to conclude that the assessable income has been derived, and the benefits provided, wholly or partly, but not just incidentally, because the Loss Trust has prior year losses available for deduction. The scheme is effectively a means of distributing the income of the Income Trust to its beneficiaries in a tax free form by passing that income through the Loss Trust.

10.32 If the income from the Income Trust had not been distributed by the Loss Trust to A, B and C but had instead been accumulated in the Loss Trust, the income injection test would not apply. This is because there would be no benefit given to the outsider or an associate of the outsider (including any takers in default of appointment in relation to the Loss Trust). However, if a benefit did subsequently flow out of the Loss Trust under the same scheme, the income injection test may apply. This would occur, for example, if A, B and C are takers in default of appointment in relation to the Loss Trust and they accessed that income. Also, if a beneficiary of the Loss Trust had a fixed entitlement in the Loss Trust, there could be said to be a benefit provided to that beneficiary because of the increase in value of the beneficiary's interest in the trust.

Example 1B

10.33 The facts are the same as in Example 1 except that:

•

the Loss Trust is a family trust which has specified A as the individual; and

•

the Income Trust has made an interposed entity election to be included in the family group of A.

10.34 The income injection test does not apply in this case. This is because the Income Trust is not an outsider to the Loss Trust.

Example 2

10.35 Trust A is a discretionary trust (i.e. a non-fixed trust for the purpose of the Bill) in which no person has a fixed entitlement to income or capital of the trust. The trust incurred a $1M loss in a prior year. Under a scheme involving the trust and B (who did not have a fixed entitlement to income or capital of the trust prior to entry into the scheme), the following things occur:

•

B leases an income producing property to the trust; and

•

B is made a discretionary object of the trust.

10.36 Distributions from Trust A to B are intended as a substitute for lease payments for the lease of the property. These distributions could be income according to ordinary concepts in the hands of B and thus assessable to B under section 6-5 of the ITAA 1997. This is because the distribution represents a return on the property owned by B under a profit making scheme. The analysis below shows the consequences under the income injection test on the assumption that the distribution is not income according to ordinary concepts in the hands of B.

10.37 Disregarding the operation of the income injection test, the net income of Trust A does not reflect the assessable income derived by the trust from the holding of the property because it is offset by the deduction allowable for the whole or part of the $1M prior year loss in the income year(s) in which the assessable income is derived. The trustee of Trust A exercises its discretion to distribute income of the trust to B in successive years in accordance with the scheme until such time as all of the $1M prior year loss is deducted by the trust in calculating its net income under Division 6 of Part III of the ITAA 1936.

10.38 In each income year in which income is distributed to B, B is not presently entitled to any net income of the trust under Division 6 of Part III, since the assessable income derived by the trust from the holding of the property is sheltered from tax by the deduction to the trust of the whole or part of the prior year loss. The distributions are less than the market rent for the property because they will not bear tax in the hands of B. Trust A retains the difference between the income it receives from the property and the distributions made to B, effectively as a fee for the use of its losses. In some cases, such a fee could take another form, e.g. deductions allowable to Trust A in connection with holding the property.

10.39 The requirements of paragraph 270-10(1)(b) are met because, under a scheme:

•

Trust A has derived assessable income from the holding of the property;

•

B (the outsider) has provided a benefit to Trust A by leasing the property to the trust; and

•

Trust A has provided a benefit to B by distributing income of the trust to B.

10.40 The requirements of paragraph 270-10(1)(c) are satisfied on the basis that either or both of the following is the case.

•

The scheme was entered into so that B could derive income from the property in a tax free form by leasing that property to Trust A. In this case, it would be reasonable to conclude that the assessable income was derived by Trust A, and the benefits between Trust A and B were provided, because of the prior year loss deductions in Trust A.

•

The lease by B of the income producing property to Trust A was for a price (i.e. the distributions) which was calculated with reference to the availability of the deduction to the trust of the prior year loss. That is, the amount of the distribution to B is lower than the market rent of the property because the distribution will not bear tax in the hands of B. There was, therefore, a benefit provided to B wholly or partly because the deduction for the prior year loss was allowable to the trust.

10.41 In neither of the above cases could it be said that the connection between the deduction and the assessable income and benefits was merely incidental.

10.42 The income injection test operates to increase the net income of Trust A to equal the amount of the assessable income derived by the trust from the holding of the property. Also, any deductions of Trust A in connection with the derivation of income from the leased property are not allowable to Trust A in calculating its net income or tax loss for that year.

Example 3

10.43 A discretionary trust has prior year losses. It also has surplus cash from trading profits which it invests in units in a widely held property trust by subscribing to those units. The units in the property trust can be subscribed for by the public at the price paid by the discretionary trust for the units. The discretionary trust subsequently receives distributions of income in respect of its units. All unit holders in the property trust receive the same distribution per unit.

10.44 Although it could be said that there is a scheme under which the discretionary trust derives assessable income and benefits are provided between that trust and the property trust (an outsider), this is a case that is not affected by the income injection test.

10.45 It is not reasonable to conclude that the benefit provided by the discretionary trust to the property trust (the subscription price of the units) is provided wholly or partly because the discretionary trust has losses. This is because the price paid by the discretionary trust for the units is what would be paid by a person who did not have any prior year loss or any other allowable deduction. The investment was made in the units because the discretionary trust has available funds to invest. The fact that the after tax return to the discretionary trust on the investment will be greater because of the prior year losses in the discretionary trust does not alter this conclusion.

10.46 The benefits provided by the property trust to the discretionary trust (the units and the distributions of income) are given without any regard to the losses of the discretionary trust. This is because the value of the units and the income distributed in respect of the units would be the same if the units had been held by a person who did not have any allowable deduction in the income year for which the distribution was made by the property trust. It cannot, therefore, be reasonably concluded that the benefits are given, or that the assessable income is derived, wholly or partly because of the losses in the discretionary trust. The connection between the deduction and the assessable income and benefits is merely incidental.

Example 4

10.47 Trust A, a discretionary trust which is not a family trust, has a net income under Division 6 of Part III of the ITAA 1936. It is issued with a small number of units in a unit trust (Loss Trust) which has incurred a loss in a previous year under section 79E, or a tax loss under section 36-10 of the ITAA 1997. The other units of the Loss Trust are held by Trust B which is also a discretionary trust. The only income Trust B has derived is distributions it has previously received from the Loss Trust.

10.48 The Loss Trust is added to the class of persons who are capable of benefiting under Trust A. The trustee of Trust A exercises its discretion to allocate an amount of net income to the Loss Trust equal to (or less than) the amount of the prior year losses incurred by the Loss Trust. This income is sheltered from tax using the losses. The trustee of the Loss Trust distributes some of the sheltered income back to Trust A and the rest is transferred back to Trust A through a non-arm's length transaction. The trustee of the Loss Trust distributes the rest of the sheltered income to Trust B (this represents a fee paid for the use of the losses in the Loss Trust).

10.49 Under subsection 270-25(2) an outsider to a non-family trust does not include a person with a fixed entitlement to a share of the income or capital of the trust. Assuming that Trust A has a fixed entitlement to a share of the income or capital of the Loss Trust it would normally not be an outsider to the Loss Trust. However, because of subsection 270-10(2) the income injection test will operate in this case.

10.50 The requirements of subsection 270-10(2) are met because:

•

the acquisition by Trust A of units in the Loss Trust is part of a scheme;

•

before the scheme was entered into, Trust A was an outsider to the Loss Trust;

•

after the scheme was entered into, Trust A was no longer an outsider to the Loss Trust because it had a fixed entitlement in the Loss Trust;

•

if Trust A had not ceased to be an outsider, the requirements of subsection 270-10(1) would have been met in relation to the scheme.

10.51 An explanation of the requirements of subsection 270-10(1) is found in paragraphs 10.6 to 10.12.

10.52 The income injection test operates to increase the net income of the Loss Trust to equal the amount of the net income allocation from Trust A.

Example 5

10.53 At the start of the year, Trust 1 carries on a retail business on a leased premises. The opportunity to purchase the premises arises and this is done through the establishment of a second trust (Trust 2). This trust is a discretionary trust and has X, Y and Z as discretionary objects. Trust 2 borrows the purchase price of the property ($1M) from A Bank at 10% (market interest). The loan is secured by a mortgage over the premises. The other costs to Trust 2 for the year are $20,000 of maintenance and administration costs. Trust 2 leases the property to Trust 1 for $80,000 per annum (market rent).

10.54 Trust 2 has assessable income of $80,000 and allowable deductions of $120,000 creating a $40,000 loss for the year under section 36-10 of the ITAA 1997. It also has a cash shortfall of $40,000 which is catered for through a loan (an overdraft facility) from B Bank at 15% (market interest). This overdraft is secured by personal guarantees by the directors of the corporate trustee of Trust 2, X and Y, and a second mortgage over the premises. The interest on the overdraft is incurred in the following year.

10.55 The income injection test does not apply to Trust 2 in relation to its deductions for interest or other costs. While it is possible to say that there is a scheme (the purchase of the property by Trust 2 and its lease to Trust 1) under which assessable income is derived (rent paid by Trust 1), and that there are benefits flowing between Trust 2 and various outsiders, it is not possible to say that the requirements of paragraph 270-10(1)(c) are satisfied.

10.56 If Trust 1 is treated as the outsider, it could not be said that either the lease of the property to Trust 1 or the payment of rent to Trust 2 are made wholly or partly because Trust 2 has allowable deductions for interest and other amounts. On the assumption that the property is leased on market terms that are not calculated with reference to the deductions of Trust 2, the benefits are provided between Trust 1 and Trust 2 without any regard to the deductions of Trust 2. In fact, the deductions are allowable to Trust 2 because the interest and other costs are incurred by Trust 2 in deriving the rental income from the property. For these reasons also, the assessable income derived by Trust 2 (the rent) is not derived wholly or partly because the trust has the deductions.

10.57 Applying the income injection test to A Bank as the outsider, it is not possible to conclude that the $1M loan or the interest payments on that loan are provided wholly or partly because the deductions for interest or other amounts are allowable to Trust 2. Assuming the loan is on market terms, the loan is made in order to fund the purchase of the property and not because of any allowable deductions Trust 2 may have in the future.

10.58 Applying the income injection test to B Bank as the outsider, it is also not possible to conclude that the $40,000 loan or interest payments are provided wholly or partly because the deductions for interest or other amounts are allowable. Assuming the overdraft is on market terms, the overdraft facility is used in order to cover a cash shortfall resulting from the liability of Trust 2 to pay the interest and other costs. It is not used because the interest and other costs are tax deductible.

Example 5

10.59 A company becomes a partner in a leveraged leasing partnership which is formed for the purpose of acquiring depreciable assets with borrowed funds and leasing the assets for a term of ten years. In the first three years of the term of the lease, the taxable income of the partnership is nil as deductions of the partnership exceed assessable income derived by the partnership (e.g. because of depreciation expenses) in those years. However, in the last seven years of the term of the lease, the assessable income derived by the partnership under the leveraged leasing arrangement will exceed any allowable deductions.

10.60 Under a scheme, just prior to the end of the third year of the lease, the company (Assignor) assigns all of its 99% interest as a partner in the leveraged leasing partnership to a unit trust (Conduit Trust) by way of an Everett assignment in exchange for a lump sum. Under the scheme, units in the Conduit Trust are sold to other trusts (Loss Trusts) which incurred losses in previous years. The lump sum paid to the Assignor by the Conduit Trust for the leveraged lease is funded by the amounts paid by the Loss Trusts for the units. The price paid by the Loss Trusts for the units in the Conduit Trust are greater than would otherwise be expected because any income derived by the Loss Trusts from their unit holdings will be offset by the prior year losses they have. The Loss Trusts are effectively paid a fee for absorbing the assessable income of the Conduit Trust, the fee being the profit from the income they receive from holding units in the Conduit Trust.

10.61 The Assignor is not a trustee of any of the Loss Trusts and does not have a fixed entitlement to income or capital of any of the Loss Trusts. In a year or years of income (recoupment years) ending after the assignment, the Loss Trusts derive assessable income under Division 6 of Part III of the ITAA 1936 to the extent of any share of the net income of the Conduit Trust to which each of the Loss Trusts are presently entitled in accordance with their respective interests in the Conduit Trust. Disregarding the operation of the income injection test, the whole or part of the prior year losses incurred by the Loss Trusts constitute an allowable deduction to the Loss Trusts in the recoupment years with the result that they offset the assessable income so that it is not reflected in the net income of the Loss Trusts. The question is whether the income injection test applies to each Loss Trust in respect of their prior year loss deductions.

Treating the Assignor as the outsider

10.62 If the Assignor is treated as the outsider, the requirements of paragraph 270-10(1)(b) are met because, under a scheme:

•

each Loss Trust has derived assessable income from the holding of units in the Conduit Trust;

•

the Assignor (the outsider) has provided a benefit to the Conduit Trust (an associate of each Loss Trust) by assigning its interest in the leveraged leasing partnership to the Conduit Trust (it could also be said that the Assignor has indirectly provided a benefit to each Loss Trust by this means); and

•

the Conduit Trust (an associate of each Loss Trust) has provided a benefit to the Assignor by making the lump sum payment to the Assignor (it could also be said that each Loss Trust has indirectly provided a benefit to the Assignor since the lump sum is funded by the purchase price of units in the Conduit Trust).

10.63 Paragraph 270-10(1)(c) is satisfied on the basis that the scheme was entered into so that the interest of the Assignor in the leveraged leasing partnership could be sold, via the Conduit Trust, to trusts with losses. This was because the Loss Trusts could pay, indirectly, a higher price for the partnership interest because any income they received from the partnership interest could, in the absence of the income injection test, be sheltered by their losses. In this case, it would be reasonable to conclude that the assessable income was derived by each Loss Trust, and the benefits between the parties were provided, wholly or partly because the prior year loss deductions were allowable in each Loss Trust. The connection is not merely incidental.

10.64 The conclusion above would be the same if the benefit provided directly or indirectly by the Loss Trusts (or an associate of the trusts) to the Assignor (or an associate of the Assignor) was a benefit other than the lump sum paid for the assignment, for example, a management fee or the release of a debt owed by the Assignor (or an associate of the Assignor).

Treating the Conduit Trust as the outsider

10.65 If the Conduit Trust is also treated as the outsider, the requirements of paragraph 270-10(1)(b) are met because, under a scheme:

•

each Loss Trust has derived assessable income from the holding of units in the Conduit Trust;

•

the Conduit Trust (the outsider) has provided a benefit to each Loss Trust by issuing units and distributing income to each of those trusts; and

•

each Loss Trust has provided a benefit to the Conduit Trust by paying the purchase price for the units.

10.66 Paragraph 270-10(1)(c) is satisfied on a similar basis as discussed in paragraph 10.63 above. In particular, the benefit provided to the Conduit Trust by each Loss Trust (i.e. the purchase price of the units) was higher than it otherwise would have been because the income derived from the Conduit Trust could be offset by the losses. It is therefore reasonable to conclude that this benefit was provided wholly or partly because of the prior year loss deductions in each Loss Trust.

10.67 The income injection test operates to increase the net income of each Loss Trust to equal the amount of the assessable income (i.e. the net income allocations) derived by each trust from the Conduit Trust.