Bamford driven review of Tax Act

While I had flagged there would be no further post this year, the Government has made a mid December announcement yesterday worth noting.

As you will read elsewhere, it has been confirmed that there will be a full review of the way in which trusts are taxed.

Relevant extracts of Bill Shorten's announcement are set out below.

While there is obviously a long way to go, it is reassuring that the rumoured revisiting of the entity taxation regime has been expressly ruled out.
1. There are major uncertainties after Bamford, especially about the extent to which amounts derived by trustees retain their character (for example, as capital gains or franked dividends) when they flow through to beneficiaries.
2. A public consultation process (has been announced) as the first step towards updating the trust income tax provisions in Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) and rewriting them into the 1997 Act.
3. "In developing an initial consultation paper for release in the first part of 2011, Treasury will draw heavily on the expertise of the private sector, particularly through the established Tax Design Panel process and the Board of Taxation," said the Assistant Treasurer
4. "The options to be canvassed in public consultation will be developed within the broad policy framework currently applying to the taxation of trust income".
5. Any options will seek to ensure that net taxable income of a trust is assessed primarily to beneficiaries. Trustees will continue to be assessed only to the extent that amounts of net taxable income are not otherwise assessable to beneficiaries. The options will not include the taxation of trusts as companies, which would be a major departure from the current law.
6. “Based on advice I have sought from the Board of Taxation, I will also consider further whether there are any issues that must be addressed in this current tax year".
7. "Trust tax law has been an ongoing issue for some time and it is important to simplify the system, rewrite the rules and give more certainty to the many thousands of small businesses and farmers who use trusts. I encourage all interested stakeholders to make a submission to the consultation".

Final blog for 2010

With the annual leave season starting in earnest over the next couple of weeks and many advisers taking either extended leave or alternatively taking the opportunity to catch up on things not progressed during the calendar year, last week’s blog will be the final formal blog until 2011.

Similarly, the Twitter postings will also take a hiatus until the New Year.

Very best wishes for Christmas and the New Year period and thank you to all of those advisers who have read and the many advisers who have taken the time to provide feedback in relation to the blog postings.

Unpaid present entitlement warning

There can be a number of traps in relation to the provisions of a trust deed in the context of the Tax Office’s approach in relation to unpaid present entitlements (UPEs).

Arguably, the most concerning trust deed provision that we have seen in recent times is a clause in the deed of one provider that on a plain reading of the deed seems to automatically cause any UPE to become a loan at call.

Obviously, this provision can have significantly adverse consequences, particularly for those clients wishing to 'quarantine' UPEs that existed as at 16 December 2009.

Until next week.