On 21 June 2007, Tax Laws Amendment (2007 Measures No.4) Bill 2007 was issued. Amongst the changes contained in the bill, significant alterations have been proposed in relation the application of the Trust Loss rules contained in the Income Tax Assessment Act 1936.

These changes include:
- Allowing a Family Trust Election (“FTE”) and Interposed Entity Election (“IEE”) to be revoked in circumstances where:
- The trust that has previously made the FTE has not previously relied on the making of the FTE to recoup a tax loss deduction/recoup a bad debt deduction; and
- The entity that has previously made the IEE was already included within the "family group" of the Test Individual or subsequently becomes owned by the "family group" of the Test Individual (and therefore does not need to have an IEE in place).

(Note that in relation to the revocation of FTE’s and IEE’s, the bill prescribes time limits for the revocation process - there is therefore only a
limited opportunity to act!)

- Allowing the Test Individual identified in a FTE to be changed to another member of the same family group provided that this would not have resulted in distributions previously made by the trust being outside of the family group of the new Test Individual.

(Note that in relation to changing the Test Individual, the bill prescribes time limits - there is therefore only a limited opportunity to act!)
- Broadening the definition of family group to include all lineal descendants (thus removing the great-grandchild problem).

- Ensuring that the death of a family member does not prevent anyone else from being included in the family group of the Test Individual.
- Including former spouses, widows/widowers and former stepchildren within the definition of family group of the Test Individual.
- Ensuring that where 2 different trusts have each made a FTE with respect to the same Test Individual, the 2 trusts will be within the same
family groups and will not be classified as outsiders of each other for the purposes of the Income Injection Test (thus meaning that they wont have to also make IEE's with respect to each other).

All the above amendments are scheduled to apply from the income year the bill receivesroyal assent (which is anticipated to be in the year ended 30 June 2008).

If you have any further questions in relation to the proposed changes, please do not hesitate to contact Tim Olynyk on (03) 9614-4444 or
tolynyk@moorestephens.com.au