Taxing times – retrospective peril for trustees

In recent news on the tax front, the ATO have issued a draft ruling – TR 2012/D1 – which expresses the ATO’s view of what constitutes “income of the trust estate” in the context of Division 6 (ITAA 1936). This ruling will significantly impact trustees and in particular the way income from trusts is distributed, and is particularly timely with the end of the financial year almost upon us.

In Brief

This alert touches only the highlights of the ruling. Our tax specialists have composed an in-depth overview and analysis of the ruling, both of which are also posted on our News page for your convenience.

To comply with this ruling there are a number of important issues that trustees need to consider to ensure that income is appropriately distributed. These include:

  • The need to prepare resolutions to make beneficiaries “presently entitled” to the trust’s income by 30 June;
  • Reviewing the terms of the trust to determine what constitutes the “income of the trust”, having regard to the provisions of the deed and the Commissioner’s views as expressed in (draft) ruling TR 2012/D1;
  • The trustee’s duty to properly distribute or accumulate the income of the trust;
  • The franked distributions; and
  • If the trust has an unpaid distribution to a company, to ensure that the appropriate documentation, recording and payments comply with PS LA 2010/4 and TR 2010/3.

When finalised, the ruling will apply retrospectively and, accordingly, may apply to trust income for the current year.

What Next ?

In anticipation of the ruling being finalised we have developed a series of products and services tailored to delivering solutions to trustees and their advisers. For more information on tax solutions that suit you please don’t hesitate to contact our tax consultant Stephen Harvey at tax@redchip.com.au.

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