We have been recommending that clients amend their trust deeds
to clarify a number of issues of uncertainty arising from recent
cases and changes in the ATO position on trusts.
Our objectives have included ensuring, as far as possible, that
there is a definition of distributable income of the trust that
accords with the Bamford decision. At the same time the
definition needs to allow the trustee flexibility to adopt a
different concept of income if this will provide a better outcome.
We also make a number of other important changes.
The government has announced it will undertake a review of the
tax laws relating to trusts but only after a public consultation
process, which means any amendments could be a long way off.
Our view has been that clients should therefore review their
deeds now. Failure to do so could result in serious adverse
consequences under the current law and there is no way of knowing
when the proposed re-write of the tax legislation will occur and
what changes will actually be made. For example, if there is a
change of government, the review may not go ahead.
The government released a discussion paper on 4 March indicating
it will now make some limited amendments to the legislation to deal
with two areas of uncertainty arising from the Bamford decision and
that these amendments will apply in the 2010/2011 financial
That discussion paper indicates several alternatives that the
government is looking at in relation to how income should be
defined and to ensure that capital gains and franked dividends can
be streamed to different beneficiaries.
If these amendments are introduced before 30 June it may mean
that some of the amendments we have recommended to trust deeds will
then be covered by the legislation.
As our trust reviews also cover a number of other tax issues and
update the trust powers to reflect current requirements of
financiers we suggest clients still consider the value of a trust
review to deal with other important tax related issues such as:
removing the requirement to distribute income by 30 June;
ensuring the trustee has the power to stream categories of
income other than franked dividends and capital gains;
ensuring the trustee has the power to make distributions out of
gross income (rather than net income) to provide for the
possibility of being able to claim franking credits even where the
trust has a net loss.
Removing the 30 June requirement is particularly important. In
our experience, the ATO have taken a strict line and have been
arguing that unless distributions are made by that date (where the
deed has a 30 June requirement) the trust distributions are
This can pose serious problems for clients who are not in a
position to make trust distributions by 30 June.
Cooper Grace Ward was named Best Australian Law Firm in the BRW
Client Choice Awards 2010 - Revenue < $50m. Joint Best
Australian Law Firm in the BRW Client Choice Awards 2009 - Revenue
The firm has also been named as the fastest growing law firm in
Australia for 2009 by The Australian.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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The income tax treatment of any property lease incentive will vary, depending on the nature of the inducement provided.
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