Trust Losses: whether the writing off of a trade debt by a trustee constitutes a distribution to the debtor

Can the extended meaning of 'distribution' in section 272-60 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) apply to trade debts written-off by a trustee where the debtor is not a beneficiary of the trust?

No. The extended meaning of distribution in section 272-60 of Schedule 2F to the ITAA 1936 only applies in relation to a person in their capacity as a beneficiary of the trust.

A trust which has made a family trust election operates as a trading trust and writes-off a trade debt owed by a person who is not a beneficiary of the trust nor are they associated with any beneficiary of the trust.

A trustee distributes income or capital to a person in their capacity as a beneficiary of the trust pursuant to section 272-45 of Schedule 2F to the ITAA 1936.

Section 272-60 of Schedule 2F to the ITAA 1936 provides an extended definition of 'distribution'. However, in relation to a trust, this provision only applies in relation to the things specified in paragraphs 272-60(1)(a) to 272-60(1)(e) of the ITAA 1936 to the extent that they arise in a person's capacity as a beneficiary of the trust.

Writing off a trade debt owed by a person who is not a beneficiary of the trust would not come under consideration as a distribution of income or capital under section 272-60 of Schedule 2F to the ITAA 1936.