Taxation of trust income - draft law released

23 May 2011

We’ve featured a few articles recently about trusts and the Government’s intent to rewrite legislation relating to taxation of trusts.

In an update to those articles, the Government has deferred the rewrite until until a broader update of Division 6 of the Income Tax Assessment Act 1936 can be undertaken. The proposed changes were aimed at aligning the concept of ‘income from the trust estate’ (distributable income) with ‘net income of the trust estate (taxable income) under the current rules.

The changes were proposed in order to deal with the uncertainty that surrounds the taxation of trust income following a recent High Court decision.

The deferment has occurred primarily due to concerns about the costs associated with dealing with such a substantial change to the tax law in such a short period of time – which was due to to be effective for the 2011 income year.

In the meantime the Government has issued draft legislation designed to clarify the rules relating to the streamlining of franking credits and capital gains to specific beneficiaries. The draft rules also deal with the concerns that were raised in relation to primary production businesses that operate through trust structures to ensure that the beneficiaries of primary production trust can still access the averaging rules and farm management deposit rules in a loss year.

Trustees should be very wary of what investment and income realisation measures are undertaken leading up to year end as these may have a significant impact on future cash and taxation cycles.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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