Submission on Exposure Draft legislation and Explanatory Material to improve the taxation of trusts

On 29 April 2011, the Institute lodged a submission on the Exposure Draft legislation and Explanatory Material to improve the taxation of trusts. The Exposure Draft legislation contains proposed amendments to:

• clarify the rules for the streaming of franked distributions and capital gains and
• integrity rules to deal with concerns relating to distributions to exempt entities.

The amendments are intended as an interim measure pending a broader review of the trust provisions in Division 6 and their rewrite into the 1997 legislation.

In our submission we reiterate our preference, which was first expressed in the Joint Accounting Bodies submission on Treasury’s earlier discussion paper, for the proposed amendments to effectively codify TR 92/13. We see this as a simpler mechanism to allow streaming than the mechanism adopted in the Exposure Draft legislation.

In relation to the proposed amendments themselves, in addition to detailed comments on mechanical aspects of the proposed provisions, we make the following points:

• Neither the proposed provisions nor explanatory material should be drafted on the premise that streaming is not possible under the current law given that there is little case law that supports whether a trustee can or cannot steam trust income
• Given the limited consultation period, it will be inevitable that the provisions will need fine tuning after they are enacted. In these circumstances, the Assistant Treasurer should acknowledge in a media release when the legislation is introduced the Government’s preparedness to make such changes, consistent with the policy intent of the provisions as evident from the legislation and explanatory memorandum
• The provisions need to be supported by a well-developed explanatory memorandum that sets out the purpose of the amendments and unambiguously explains how the provisions apply in a range of common scenarios
• As part of the proposed interim amendments the Commissioner should be given a discretion to deal with failure to adhere to the letter of the law where taxpayers have made a ‘best efforts’ attempt to comply with the interim provisions and/or have not engaged in inappropriate attempts to reduce the tax payable on the net income of a trust.
  

Article last updated 5 May 2011