Submission on improving the taxation of trust income

On 21 March 2011, the Institute and the other professional bodies (the Joint Accounting Bodies) lodged a joint submission with Treasury on the discussion paper entitled Improving the taxation of trust income.

Our comments contained in the submission take into account the issues discussed with Treasury and the ATO at the consultation meeting held on 16 March 2011.

The key points in the submission include:

• The Joint Accounting Bodies welcome the initiative of the government to address short term concerns with the taxation of trusts, prior to the review of the trust provisions contained in Division 6 of the Income Tax Assessment Act 1936 (the ITAA 1936) and their re-write into the Income Tax Assessment Act 1997 (the ITAA 1997)
• The Joint Accounting Bodies can only support appropriate changes to the meaning of income of the trust if they are applied on an elective basis
• There is a lack of uniformity in the terms of discretionary trust deeds and in our view, this makes it difficult (if not impossible) to adopt robust across-the-board solutions to trust issues in the short-term
• Any significant change to current practice would be impossible to implement and administer in the short-term
• We have concerns with the three options provided in the discussion paper for dealing with income of the trust
• Dealing with all of the issues associated with the income of a trust is one which we consider would more appropriately be dealt with as part of the broader review of the trust provisions
• We believe that it would be possible to deal with a number of problems in the short term by codifying the past administrative practice of the ATO and rectifying the law where necessary to reflect the policy intent
• The Joint Accounting Bodies do not condone tax avoidance. However, we have reservations with the introduction of a specific anti-avoidance provision within Division 6 of the ITAA 1936 in conjunction with any short term option which does not provide a systemic solution to avoidance opportunities
• In relation to the treatment of dividends, we support the amendments that will provide certainty on the operation of the provisions and the removal of any double taxation related issues
• We also highlight that a number of issues could be overcome if the relevant CGT discounts were not applied at the trustee level
• We recommend that the proposed amendments be applied on an elective basis for managed investment trusts and fixed trusts
• While we support the elective date of effect being 1 July 2010, we highlight that it may not be appropriate to apply these measures to taxpayers with a substituted accounting period.

Article last updated 5 April 2011