Fusion Partners Central Coast - accountants, business advisors, financial planners Institute of Chartered Accountants

2012 Discretionary Trust Distributions


How the ATO has changed the rules

 

created by Lisa Cahill - Fusion Partners Central Coast

08 June 2012

 

The trustee of a discretionary trust generally distributes the income of the trust to its beneficiaries, however, you may not be aware that there are important recent changes this year that are time sensitive.

 

The ATO has historically provided a concession to allow trustees to distribute the income by 31 August, however, the ATO has now removed that concession and is requiring all trustee’s to resolve to distribute its income by 30 June each year. 

 

This means that the historical approach adopted by many trustees to make the resolution to distribute the income of the trust by 31 August, when the financial statements were struck is no longer available.  Where the deed does not provide for default income beneficiaries and no resolution is made by the trustee, the income of the trust is taken to be accumulated in the trust and taxed at the highest marginal tax rates.  This means that trustee’s will need to resolve to distribute income before 30 June to avoid paying tax at the highest marginal rate.

 

The ATO has indicated that compliance activities will be undertaken in respect of trust resolutions whereby the ATO will be looking to obtain copies of the relevant distribution minutes and matching them to the tax returns lodged. 

Furthermore, some of these resolutions will be reviewed to ensure they are effective.

 

In order to mitigate the impacts of the above change, we will be reviewing all discretionary trust deeds, to identify a number of key issues, such as the identity of default beneficiaries and the trust deeds definition of income, which will have an impact on how we can address the practical implications of the changes.

 

We will be in touch with you over the next two weeks if you run your business, or hold your assets through a discretionary trust, to outline the steps we need to take before 30 June 2012.

 

 

Disclaimer

This article has been prepared for clients of Fusion Partners Central Coast (FPCC) ABN 37 113 405 218 and others on request.

The article is based upon generally available information and is not intended to be, or to replace specialist advice in the areas covered but rather, the article is intended to be informative and educational only.

Although the information is derived from sources considered and believed to be reliable and accurate, FPCC, its employees, consultants, advisers and officers to the maximum extent permitted by the law disclaim all liability and responsibility for any opinion expressed or for any error or omission that may have occurred in this document.

This article may contain general advice which is defined in the Corporations Act to mean that we have not taken into account any of your personal circumstances, needs or objectives. It is therefore imperative that you determine, before you proceed with any investment or enter into any transactions, whether the investment or transaction is suitable for you in consideration of your objectives, financial situation or needs and you must therefore, before acting on any information included in this article, consider the appropriateness of the information having regard to your personal situation. FPCC recommends that you obtain financial and tax or accounting advice based on your personal situation before making an investment decision.

All investments should be made with consideration of risk after reading the FSG and PDS of the product provider, and after obtaining professional advice from a financial planner.

This article was created by John Cahill, based on legislation in place at the time.  Legislative changes may mean that this information is no longer current.  You should speak to your financial adviser.