The ATO will in the very near future announce that they will take a stricter approach to trusts. This includes discretionary or family trusts, unit trusts and hybrid trusts. We have seen massive changes of practice by the ATO in the past 2 years in relation to trusts and are awaiting on the Government to re-write the trust sections of the Tax Act.
These changes include:
- Changes in relation to distribution of net income of the trust following the Bamford case;
- Inclusion in Div 7a for unpaid entitlements to companies;
- Children under 18 years are restricted to only $416 distribution from 2012 year;
- New anti-avoidance rules in relation to distributions to tax exempt entities;
- New tax law in relation to streaming of capital gains and dividends; and
- New draft ruling (TR 2012/D1) on the ATO definition of income of the trust estate.
We also have had recently the Colonial First State Investments case which caused the withdrawal of the ATO’s administrative concession which allowed trustees of trusts to record their tax trust resolutions by 31 August after year end. As a result of this, a trustee must appoint income to beneficiaries or determine that they are presently entitled to it by the end of the trusts income year (ie 30 June).
What this practically means is that the trustees must resolve to distribute the income of the trust prior to 30 June 2012. This will require the trustees determining how much and in what proportions the income should be distributed. This will be done by the trustees determining the income of the trust prior to 30 June and completing a trust resolution minute. If the trustees do not do this the ATO will automatically deem that the trustees have not distributed the income of the trust and the trustee will be taxed at 46.5%. This is obviously the very worst case scenario.
If you have a trust your LBW Partner or Manager will be in contact with you very soon to discuss the impact of this with you.