New laws for taxation of trusts

Key Points

• Changes to legislation will allow trusts that make a capital gain, or receive a franked distribution, to be able to ‘stream’ that income to specific beneficiaries
• A more comprehensive review into the taxation of trusts is expected later in 2011
• Members are invited to share their thoughts ahead of the taxation of trusts review via email or our website.

The federal government has introduced changes to legislation that will allow trusts that make a capital gain, or receive a franked distribution, to be able to ‘stream’ that income to specific beneficiaries for the 2010-11 income year and beyond.

The Institute’s Tax Counsel, Yasser El-Ansary, said the purpose of the amendments is to ensure that capital gains and franked distributions that are streamed to beneficiaries are effective for tax purposes so that the distributions retain their character in the hands of the beneficiary.

'Trusts are an important component of the financial landscape in Australia. The government’s amendments are a good precursor to a major reform of trusts tax law,' Mr El-Ansary said.

The changes are likely to be passed through federal parliament by the end of June 2011. Mr El-Ansary anticipates further amendments to be proposed for the tax laws surrounding trusts, and advised members to be prepared for change.

'The government will soon be starting a more comprehensive review into the taxation of trusts as part of the re-write and modernising of the Division 6 laws governing trust income,' he said.

More information is available in Mr El-Ansary’s blog, Taxing Issues. The Institute will be participating in discussions surrounding any proposed new legislation surrounding trusts, and invites member to share their views.

Article last updated 6 February 2012