Monday, June 18, 2012

Discretionary trust deeds health check

Over time, View Legal has developed a 'trust review checklist' that outlines some of the key issues which should be considered as part of a general ‘health check’ of a discretionary trust deed to ensure it aligns with the constantly evolving legal requirements regarding trusts and tax implications.

An adviser after reading the document made contact in relation to the potential outcomes in the event a trustee fails to make a resolution. 

We confirmed that there are the two main potential outcomes; namely that the trustee is taxed or the default beneficiaries are taxed.  Which of the two outcomes applies will depend on how the trust deed is crafted.

In this regard, the leading case in this area is Ramsden. 

The deed in Ramsden provided that a purported default distribution did not actually operate on its face and therefore the trustee was taxed at the top marginal rate.  This can be a particularly poor outcome where there are capital gains given there is no entitlement to the 50% discount.

Conversely, we have seen many situations where the default provisions apply such that all distributions are made to a corporate beneficiary.  To the extent that there are capital gains that would otherwise be entitled to the 50% discount, this outcome will trigger adverse (and unnecessary) tax costs.

One other issue to be aware of, which again reinforces the importance of reading a deed, is that the actual timing of the resolution must be in accordance with the deed, even if legislation or Tax Office practice otherwise permits a later date.

For those interested to review the abovementioned summary, go to the 'core services' section of the View Legal website (

The next post will look at the Tax Office Determination released last week on trust variations.