New legislation for trusts has been introduced that will have the ATO looking squarely at how trust income is determined and when distributions are resolved. This legislation has the potential to create some tax pain for trustees who don't have their affairs in proper order.
The ATO has signaled its intent to scrutinise some 12,000 trusts, which are likely to be examined as part of the ATO's commitment to integrity and enforcing the new legislation. Trustees must know where they stand if they want to be precise on how income distributions are managed.
While the ATO is far from finished in addressing its concerns over the taxation of trusts these new trust measures require a number of actions by trustees now to ensure that they are compliant with the new measures.
Bates Cosgrave will be in touch with trustees to ensure that their documentation is up-to-date, however to ensure your trust is compliant before June 30, you should be aware of:
- The profit of your trust
- The tax profiles of trust beneficiaries, including those overseas
- A clear understanding of where your income comes from - both simple and complex investment structures
- Ensuring you have any dividend decisions properly documented to avoid unintended tax
- consequences of deemed dividends under the Division 7A rules
The following decisions must be made and put into action prior to 30 June and include:
- Payment of existing unpaid present entitlements since December 2009
- Documentation of positions including loans
- Determine and distribute net income of the trust
Get it right, and you'll likely stay on the good side of the ATO. Get it wrong and the consequences may include:
- A higher marginal tax rate on the income tax for trust beneficiaries
- Potential for tax penalties for trusts that may extend as high as 76.5% if the wrong decisions are made concerning dividend policies
Fundamentally, the more proactive you are in understanding the profile of the trust and trust beneficiaries, the more tax effective you can be in managing group tax profiles.
This is an inherently complex area of trust management, particularly if your trust has international income and non-resident beneficiaries.
As we work extensively with trusts, we have the expertise to ensure that your trusts or beneficiaries don't get caught out or suffer unnecessary tax pain.
Contact us on 02 9957 4033 for a confidential discussion.
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Last updated June 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.
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.