Monday, October 8, 2012

‘Deriving’ trust income

This week’s post looks at a recent case from the Federal Court and is of interest for those following the ongoing debate about trust income.

The name of the case was SCCASP Holdings as trustee for the H&R Superfund v FCT (a link to the full copy of the decision is as follows –\).

In summary, the core factual background was as follows:

1    A family trust that had made a capital gain of $14 million sought to have this received by a related self managed superannuation fund (SMSF).

2    The ATO was seeking to argue that in the hands of the SMSF, the income was 'special income' and therefore taxed at 47%, as opposed to the taxpayer who argued that it was only subject to tax at the standard income tax rate for SMSFs (namely 15%).

3    The particular 'technical' argument that the taxpayer sought to rely on was that because the trustee of the family trust had not made a decision to pay or apply any amount of the capital gain, then for the purposes of the tax rules, it could not be said that the SMSF 'derived' the income.

Ultimately, the Court agreed with the Tax Office and held that the word 'derived' extended to effectively capture anything that was ultimately received by the SMSF, and in particular, extended to the concepts such as money being 'attributed' or ‘imputed’ to the SMSF.

Until next week.