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.