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1 Can the Trustee vary the family trust election (FTE) pursuant to subsection 272-80(5C) of Schedule 2F of the Income Tax Assessment Act 1936 (ITAA 1936) to specify Person A as the test individual whose family group is taken into account in relation to the election?

1 Yes. Question 2 If, the answer to Question 1 is yes, can the FTE variation to be on the 20XX income tax return which has not yet been lodged? Answer Yes. This ruling applies for the following period : Year ended 30 June 20XX The scheme commenced on: 1 July 20XX

1.              The Trust was settled in XXX 20XX. 2.              At the time of settlement Person A and Person B were the principal beneficiaries, who were married but now separated. 3.              The trustee of the Trust is a corporate trustee (the Trustee). 4.              At the time of incorporation of the Trustee, Person A and Person B were equal directors and shareholders. 5.              There have been no changes to the Trustee since the Trust was established. 6.              Person A has been appointer of the Trust since settlement. 7.              Trust Deed provided a clause which outlined the rights of the appointer to remove the Trustee. Elections made by the Trust 8.              The Trust made an FTE in the income year of settlement which specified Person B as the test individual. 9.              The Trust made an interposed entity election (IEE) in a later income year for Trust D. 10.          The test individual specified for Trust D's FTE is Person C. 11.          Person C is the sibling of Person A's parent. Financial Agreement 12.          Person A and Person B entered into a financial agreement pursuant to sections 90C and 90D of the Family Law Act 1975 .

13.          The financial agreement outlined the spousal maintenance, property division and other financial matters. 14.          The following orders were made in respect of the Trustee and the Trust: •                Person B will resign as director from the Trustee. •                Person B will transfer their shareholdings in the Trustee to Person A. •                Any credit loan in the Trustee and Trust that Person B maybe have will be assigned to Person A. •                Person B will have no further claim against the Trustee, the Trust or Person A in relation to the Trustee or the Trust and any entitlement that Person B may have in the Trustee or the Trust will vest in Person A. •                Person A will indemnify Person B in relation to any and all liabilities of the Trustee and Trust. •                At the expense of Person A, they will provide Person B proof of release from any and all loans/liabilities/guarantees. •                Person B will sign all documents at Person A's expense in relation to the removal of Person B as beneficiary of the Trust. 15.          Pursuant to the orders, Person B:

a.              Resigned as the director of the Trustee and transferring their shareholdings to Person A. b.              Removed themselves as beneficiary of the Trust by signing a deed pool to that effect. c.              Agreed that they would have no further claim against the Trust or Person A in relation to the Trust and their entitlement in the Trust would vest in Person A. Other relevant information 16.          The Trust has not lodged an income tax return for the year ended 30 June 20XX.

Income Tax Assessment Act 1936 section 272-80 Income Tax Assessment Act 1936 subsection 272-80(5A) Income Tax Assessment Act 1936 subsection 272-80(5B) Income Tax Assessment Act 1936 subsection 272-80(5C) Income Tax Assessment Act 1936 subsection 272-80(5D) Income Tax Assessment Act 1936 subsection 272-80(3) Income Tax Assessment Act 1936 subsection 272-80(8) Income Tax Assessment Act 1936 subsection 272-87(2) Income Tax Assessment Act 1997 subsection 126-5(1)

Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1936 . A trust is a family trust at any time when a family trust election (FTE) for the trust is in force. Generally, an FTE is in force from the beginning of the income year specified in the FTE (the election commencement time). Section 272-80 of Schedule 2F contains the rules regarding FTE's. Among other things, the FTE must specify an individual as the person whose family group is taken into account in relation to the election (subsection 272-80(3)). Variation of the test individual Under subsections 272-80(5A) and 272-80(5B) of Schedule F, the test individual specified in the FTE may be varied, once only, if the following conditions are met: •                the new test individual was a member of the original test individual's family at the time the FTE began; and •                throughout the period the FTE has been in effect, no present entitlements or distributions of income or capital from the trust (or any entity covered by an IEE) have been made to anyone outside the new test individual's family group.

Further, under subsection 272-80(5C) of Schedule F, the trustee may change the test individual named in the FTE if, as a result of an agreement or a court order made in relation to a marriage breakdown, control of the trust passes to the new individual or a group comprising the new individual and the members of that individual's family. Specific guidance on varying the FTE as a result of a marriage breakdown is contained in Explanatory Memorandum Tax Laws Amendment (2007 Measures No. 4) Bill 2007 as follows:

8.38 The test individual may also be varied if, as a result of a family law obligation arising from a marriage breakdown, the control of the trust passes to the new test individual and/or his/her family members. Specifically, if an order, agreement or award of a kind mentioned in paragraphs 126-5(1)(a) to (f) of the ITAA 1997 results in the control of the trust passing to the new individual and members of the new individual's family, the test individual specified in the family trust election may be varied. The new individual or a group comprising the new individual and members of the new individual's family have control of the trust for this purpose if any of the paragraphs in paragraphs 272-87(2)(a) to (g) are satisfied in relation to a group consisting of the new individual or the new individual and members of the new individual's family. For example, if the group is able (directly or indirectly) to control the application of the capital or income of the trust, or if the group has more than a 50 per cent stake in the income or capital of the trust. [Schedule 8, item 2, subsections 272-80(5C) and (5D)] Timing

Subsection 272-80(8) of Schedule 2F provides that to vary or revoke an election under subsection 272-80(5A) or subsection 272-80(5C) the variation or revocation must be made in the trust's return of income for the income year from which the variation or revocation is to be effective. Application to your circumstances In this case Person A is the sole director and shareholder of the Trustee therefore we accept that a group with Person A as the primary individual controls the Trust for the purposes of subsection 272-87(2)(a) to (g) and section 272-80(5D) of Schedule 2F. The order of the Federal Court of Australia in relation to the marriage breakdown of Person A and Person B is an order mentioned in subsection 126-5(1) of the ITAA 1997. We accept that the relevant condition of subsection 272-80(5C) of Schedule 2F have been satisfied to allow the Trustee of the Trust to vary the election so that Person A can replace Person B as the test individual of the Trust. The Family Trust Election variation can be made on the Trust's 20XX income tax return which has not yet been lodged.