Consider your deed
The Bamford decision has reinforced the fundamental importance of the trust deed. In simple terms, if the power exists in the trust deed you can do it – if it doesn’t, you can’t.
So 2 things are critical:
- Read the trust deed – the trust deed must contain a power or discretion permitting the trustee to make the specific distributions intended to be made by the trustee – particularly important if the trust is to stream income;
- Trust distribution resolutions must be signed and dated on or before 30 June – they cannot be re-created after this date!
Further, to do your trust resolutions correctly your deed must have:
- A flexible income definition; and
- Flexible attribution and streaming provisions.
If you can’t confidently say that your trust deeds have these features then as an adviser it is imperative that you have the trust deed reviewed and amended. You must ensure that your resolutions, and the trust distributions that flow from them, are effective from both a tax and trust law perspective.
Failure to pass effective distribution resolutions will result in either an assessment issuing to the trustee or to default beneficiaries (if any), which is likely to impose tax at the highest marginal rate.
Many advisers have avoided amending their trust deeds because of a perceived resettlement risk. The recent Federal Court decision in Clark’s Case has virtually eliminated the resettlement risk associated with amendments to discretionary trust deeds. In fact, the Commissioner’s Statement of Principles regarding resettlement has been withdrawn. This means that now is the best time available in many years to amend your trust deeds.
The next step – it’s a simple process!
If you would like your deed reviewed, and amended if necessary, then please complete our Order Form (download here) and forward with a copy of the relevant trust deed. Your orders can be sent by email (with a scanned copy), faxed or mailed. We will typically complete an amendment within 2 to 3 business days. If you have any questions at all please call us on (07) 3223 6100.
Sample trust resolutions
As a service to you and to help you prepare your year end trust resolutions we have posted our explanatory memorandum and pro forma trust resolutions on our website – you can access them here. Please note that these documents have been created for use with standard Redchip/Acis discretionary trust deeds prepared after March 2010. If you have a non Redchip/Acis trust deed you will need to amend the resolutions to suit your circumstances.
If the trustee becomes aware of, or is required to deal with:
- Franked dividends and/or capital gains that will be streamed to particular beneficiaries;
- Current year or carry forward losses;
- Deemed capital gains (e.g. Market Value Substitution Rule);
- Capital gains in the context of the Small Business CGT Concessions;
- Trust receipts that comprise franked dividends and capital gains only; or
- Any other receipts or expenses which may require consideration in the context of trust streaming,
then expert advice should be immediately obtained.
Our trust resolutions solution and advice package starts at $385 (inc. GST). To make use of this service simply email email@example.com for a copy of our RESOLUTION CHECKLIST.
Please feel free to contact our tax team at the email above or phone (07) 3223 6100 to discuss any aspect of this bulletin or to avail yourself of our complimentary 30 minute tax consultation service.