Trustees who distribute the income of a Trust through a resolution to beneficiaries must do so before the end of the financial year for the resolution to be effective in determining who is to be assessed on the Trust’s income. It is essential that the Trustee makes a resolution prior to 30 June 2017.
In the absence of a resolution regarding the distribution of income, the taxable income of the Trust can be assessed against the Trustee at the highest marginal tax rate or against the default beneficiary in accordance with the Trust Deed.
2017 TRUST MINUTE UPDATE
Trust Minute is a consequence of the application of the ‘Trust Streaming’ provisions and the intersection of trust law and tax law. The inconsistencies between these two areas of law can result in a tax distribution outcome which was not intended by the Trustee and which negatively impacts the tax position of either the Trustee or beneficiaries.
In order to reconcile these two positions, the Trust Minute lists a number of resolutions designed to combine the trust and tax law positions into a single minute, thereby avoiding these unintended outcomes. To achieve this the Trust Minute relies on the definition of income found in Section 95(1) of the Income Tax Assessment Act 1936 to apportion the Income of the Trust Estate.
Since 2011, Trusts have been limited in the flexibility of their distributions for tax by the ‘Trust Streaming’ measures. These measures restrict the discretion of the Trustee to specify different distributions for separate classes of income, which is called streaming. As the measures now stand, the Trustee may only stream Capital Gains and Dividends while all other income must be distributed as a single class.
Trust Minutes must be prepared to specify the present entitlement to each listed beneficiary according to these streaming rules. Additionally, under certain circumstances the Trust may also be required to issue a Capital Distribution in order to enact the streaming wishes of the Trustee, also requiring a separate consideration.
ATO POSITION ON TIMING TRUST RESOLUTIONS
Following the decision in the case of Colonial First State Investment vs FCT, and the withdrawal of earlier taxation rulings on the matter, it is clear that the Trustee must now resolve to distribute the current year’s income on or before the year end to ensure the beneficiary is presently entitled to Trust income.
The processes followed at Vicca Chartered Accountants is to provide by post the minutes documenting the resolution and then receiving the signed minutes before 30 June 2017. This process will support our taxpayer clients’ case that the resolution was indeed made in compliance with the ATO’s guidelines.
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