The ATO continues to explore the limits of what constitutes “income of the trust estate” in the context of Division 6 (ITAA 1936).
Income of the trust estate
Trustees must note that the trustee’s apportionment of income between beneficiaries determines the proportionate share of the net income (section 95) of the trust to which beneficiaries are assessable. This accords with the Bamford decision and will be the subject of scrutiny by the ATO and trustee resolutions which determine those shares.
In broad terms, the draft ruling says that, notwithstanding the definition of income provided in a trust deed, in the context of Division 6, the income of the trust estate has a statutory cap. Interestingly, the High Court’s decision in Bamford made no reference to a “statutory cap”.
And a reminder – the ruling, when finalised, is intended to apply retrospectively and may apply to trust income for the current or prior years.
Other issues with implications
Be aware that there have been a number of other tax developments recently which may also have significant implications for you:
- Rewriting the rules on resettlement – particularly relevant where trustees are considering amending deeds to comply with Bamford are the recent Federal Court case of FC of T v Clark & Anor 2011 ATC 20-236 and the ATO’s recent draft ruling on re-settlements TR 2012/D4.
- Directors of Trustee companies are not employees – a recent Federal Court case held that a director of a trustee company (or any company) is not an “employee” for the purposes of the payment of the superannuation guarantee. In this case the trust was denied deductions for payments made as contributions to a director’s super fund on the basis that he did not qualify as an employee.
- Cracking down on the use of dividend access shares – the ATO has recently issued TA 2012/4, a tax alert which is primarily concerned with “dividend dumps” rather than the use of these shares for discretionary and regular dividend distributions. Notwithstanding this, there are some general matters raised by the tax alert that are of general application.
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