Monday, July 18, 2011

Small i Income

A number of posts over the last 18 months have touched on various aspects of the Bamford decision.

One issue that comes up more frequently than otherwise might be assumed is the way in which the word 'income' is used throughout a trust deed.

At times we have seen in deeds a definition of ‘Income’ and the word defined is mentioned in the definition section in a capitalised sense – that is the word income will start with a capital I.

When reference is then had however to the distribution of income provisions, the deed drafter has not in fact used the 'big I' income definition, but rather has simply referred to 'small i' income. This will generally mean that the defined term will not apply and ‘income’ (for the purposes of the relevant clause) will simply have its ordinary meaning.

Obviously, there are a number of potentially complex trust and tax law interpretation issues that can arise in this regard. This said, it is arguably going to be quite clear what position the Tax Office will take to the extent a trustee has misunderstood the trust deed, particularly given the recently released trust distribution legislation.

Until next week.