Taxation of fixed trusts

August 2012

Treasury has released a discussion paper (PDF) on proposed changes to the taxation of fixed trusts.

This comes as part of a larger reform to the taxation of trusts regime. The discussion paper proposes changes to the current definitions of 'fixed trust', 'fixed entitlement' and 'vested and indefeasible'.

The proposed rules are aimed at broadening the definition of 'fixed trust' to allow more trusts to satisfy the definition. This will be a positive change to taxpayers utilising trust structures. Among others, it may make it easier for trustees to claim losses incurred in prior years and improve the ability to utilise franking credits that flow through these trusts.

The proposed rules will broaden the definition of fixed trust but will ensure that 'hybrid trusts' will still be considered non-fixed trusts for the purpose of the rules. The Government believes that hybrid trusts have been inappropriately treated by some taxpayer's as fixed trusts to benefit from the more favourable tax treatment.

These rules ensure that hybrid trust structures are treated as non-fixed trusts for taxation purposes. Treasury is seeking submissions by 14 September 2012.

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Last updated August 2012. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.