Wednesday, June 29, 2011

ATO gives some relief in lead up to 30 June for trust distribution resolutions

Extracted below is the announcement the ATO has made this morning confirming the transitional arrangements that will apply for 30 June 2011 in relation to trust distributions.

The comments in relation to IT 328 are particularly interesting.

Other administrative arrangements

The Commissioner recognises that the passage of this legislation so close to the end of the income year to which it will first apply gives trustees and practitioners little time to familiarise themselves with its content and to determine how it might affect the circumstances of a particular trust for that income year (that is, the 2010-11 income year).

Therefore, following representations from practitioners, and in recognition of the practical difficulties faced by them and by trustees as a result of the timing of the new law, the Commissioner will put in place the following administrative arrangements in respect of the application of the new law to the 2010-11 income year.

Specific entitlement to franked distributions

As regards the timing of recording such an entitlement for the 2010-11 income year, the Commissioner has agreed to adopt a similar approach to that set out in Income Tax Rulings IT 328 and 329 in respect of ‘present entitlement’ to trust income.

That is, for trusts with a 30 June balance date the Commissioner will accept that a relevant record made in respect of a franked distribution by 31 August 2011 meets the requirements of the new law for the 2010-11 income year in any case where ITs 328 and 329 would permit the trustee to take steps within that same period to make beneficiaries presently entitled to trust income for the purpose of Division 6.

For trusts that balance earlier than 30 June 2011 (or later than 30 June 2011 but before 31 August 2011) the Commissioner will likewise accept a relevant record made by 31 August 2011.

As the new law (if enacted as passed) will permit relevant records to be made in respect of capital gains no later than two months after the end of the relevant income year, there is no need for this arrangement to be extended to a beneficiary’s specific entitlement to capital gains.

It should be noted that the arrangement outlined above concerning a beneficiary’s specific entitlement to franked distributions will apply only for the 2010-11 income year.

Further, the Commissioner intends withdrawing ITs 328 and 329 for the 2011-12 and later income years.

Compliance action

Staff will also be instructed not to select cases for review or audit in respect of the 2010-11 income year for the sole purpose of determining whether the purported streaming of capital gains or franked distributions by a trustee is effective.

This instruction will not apply where there has been a deliberate attempt to exploit weaknesses or deficiencies in the law. In those cases we will apply the law as we understand it to operate.

We will also apply the law as we understand it to operate in any case that has been selected for review or audit for other reasons, and in preparing rulings or objections, and in arguing cases before the Tribunal or the courts.

At this stage the next post will be Monday week.

Monday, June 27, 2011

Lineal descendant trusts

One of the other queries that has been raised following the last couple of posts concerns lineal descendant trusts.

There are a number of names in the marketplace for this form of trust structure, however in very broad terms, these types of trusts involve narrowing the range of potential beneficiaries that might otherwise be expected under a family trust.

In particular, the range of beneficiaries is often limited to the direct lineal descendants of the primary beneficiaries of the trust.

As has been mentioned a number of times in earlier posts, it is always critical to read the trust deed and lineal descendant trusts are another example of this rule. One of the key issues to be mindful of in this regard is that some trusts 'reserve' only the capital for lineal descendants, while still allowing very wide distribution powers for income.

Next week, we will look at a very practical, post Bamford, implication of lineal descendant trusts that only limit capital distributions.

Until next week.

Monday, June 20, 2011

Wills post Bamford

Following last week’s post, there were some enquiries in relation to whether the Bamford decision meant that wills should be updated.

Very broadly, the position in relation to will updates post Bamford is similar  to discretionary trust deed updates, namely:

1) All wills should at least be reviewed (to the extent that they contain ongoing trust provisions).

2) Our experience is that many wills probably are going to require update. The reason for this is that traditionally wills have been crafted by specialist will lawyers, as opposed to tax specialists.

3) The significant (and very obvious) difference between trust provisions in a standard family discretionary trust and under a will, is that (in comparison) the amending of a will becomes extremely difficult following the death of the will maker.

4) While there can be pathways to achieve an amendment after death, almost without exception it is preferable to have the will document fully in order before it comes into force.

Until next week.

Tuesday, June 14, 2011

When do wills need updating?

In many cases, the need to update a will is obvious due to significant changes in tax or trust laws or a significant change in the circumstances for a client.

Some of the other reasons that a will may need changing are often not as obvious and a brief summary of the potential trigger points is as follows:

(a) there is a change of name of the will maker or anyone named in the will changes their name;

(b) an executor/trustee dies or becomes unwilling or unsuitable to act due to ill health, age or any other reason;

(c) a beneficiary dies;

(d) the family situation or that of any beneficiary changes (e.g. through marriage, divorce, matrimonial problems, children or further children, de facto relationships or interpersonal relationships);

(e) there is a material change in financial circumstances of the will maker or any beneficiary;

(f) the will maker becomes involved in a new business, company or trust.

Until next week.