Submission - Improvements to the taxation of trust income

On 16 June 2011 the Institute wrote to the Hon Bill Shorten MP highlighting three issues in relation to the streaming rules contained in Tax Laws Amendment (2011 Measures No 5) Bill 2011 (Bill). In our letter, we submit that the Bill should be amended to deal with these issues either in the Bill which is currently before Parliament or, if too late, by way of subsequent amendment to be announced before year end.

The three specific issues identified in the submission are:

• The timing by which beneficiaries’ specific entitlements to franked distributions must be recorded in the accounts or records of a trust. In summary, we point out that the requirement to physically record resolutions by 30 June 2011 could be problematic for a number of reasons. These include a lack of awareness of this requirement given that the Bill was only introduced into Parliament on 2 June and the reliance which taxpayers and practitioners traditionally place on the ATO’s administrative practice of allowing resolutions regarding the distribution of trust income to be made within two months of year end
• The treatment of losses from classes of income, other than capital gains and franked distributions. In our view the provisions contain an error which requires correction to achieve the intended outcome
• The fact that a beneficiary may be taken to have a specific entitlement to a capital gain arising from the disposal of an asset in circumstances where the beneficiary has previously benefited from a distribution from an asset revaluation reserve in respect of that asset. Our view is that it is inappropriate for distributions from asset revaluation reserves made prior to the introduction of the Bill to now create tax liabilities when that tax outcome could not have been predicted when the distribution from the reserve was made.

If you have identified any issues in relation to the amendments contained in the Bill to improve the taxation of trust income we would like to hear from you - please email the Tax Group.

Article last updated 20 June 2011