During our recent master class seminars on trusts, one specific issue that was addressed related to updating family trusts after the Bamford decision and related legislation.
The post today is the 4th and final one in this series of posts via the following video link under the heading ‘Wholesale deed updates post Bamford’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
The third idea is the ‘wholesale update’ approach.
The providers around are saying for $x you can go and get all of your deeds across the board 2012 compliant, really adopting the same approach that you do with an SMSF trust deed. People accept that with an SMSF, you're going to have to update it every 5 years probably. That’s just the life that you lead running an SMSF.
We would argue that people have never really had that attitude with family trusts. Whether that’s right or wrong is another question. But by and large, people have not really had that wholesale approach. We'll speak about Clark and why that may be the case from a resettlement perspective.
What we're saying with the third option is that you just go and do the update for all clients. Are you running the risk that you'll have to go and do that again in 3 or 4 years’ time? Absolutely you are. But in the meantime, are you investing in your clients by saying you will read the deed once, make sure that every deed across the entire client base has the exact same provisions, can start getting some efficiencies in terms of resolutions, in terms of the review process.
It may be a little bit of pain upfront, however hopefully, any subsequent changes won't be too prohibitive anyway and many are saying may be this is the way to go.
Until next week.
Showing posts with label Bamford. Show all posts
Showing posts with label Bamford. Show all posts
Monday, November 5, 2012
Monday, October 29, 2012
Deed updates by exception post Bamford
During our recent master class seminars on trusts, one specific issue that was addressed related to updating family trusts after the Bamford decision and related legislation.
The post today is the 3rd instalment of 4 in this series of posts via the following video link under the heading ‘Deed updates by exception post Bamford’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
The second approach is ‘by exception’, that is you do something. So on the basis that even if you do nothing, you've got to do something; which is you've got to have someone read the deed.
The by exception approach is if it's a particularly nasty deed, or there is as particularly big capital gain this year we’re going to invest in this and we're going to look at it and we're possibly going to amend it, because of the particular circumstances.
We're going to do that, because even doing nothing, we've actually sat down and looked at the document and we understand it.
The trigger for a lot of people on that, if you're looking for a date, but don’t quote me because again not all deed providers were diligent in doing this, but by and large, any deed after 1993, from any even remotely reputable provider, will have streaming.
So if you're looking for a date to say I would hope to be basically right, you can use 1993 as the date, because that’s when streaming ruling came out or whatever it was and most deed providers across the board went through and did it. Indeed, a lot of them went and did actual updates in 1993. So even your pre-’85 trusts had gone and had that amendment in 1993.
The next post will look at the third main approach we are seeing in this area.
Until next week.
The post today is the 3rd instalment of 4 in this series of posts via the following video link under the heading ‘Deed updates by exception post Bamford’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
The second approach is ‘by exception’, that is you do something. So on the basis that even if you do nothing, you've got to do something; which is you've got to have someone read the deed.
The by exception approach is if it's a particularly nasty deed, or there is as particularly big capital gain this year we’re going to invest in this and we're going to look at it and we're possibly going to amend it, because of the particular circumstances.
We're going to do that, because even doing nothing, we've actually sat down and looked at the document and we understand it.
The trigger for a lot of people on that, if you're looking for a date, but don’t quote me because again not all deed providers were diligent in doing this, but by and large, any deed after 1993, from any even remotely reputable provider, will have streaming.
So if you're looking for a date to say I would hope to be basically right, you can use 1993 as the date, because that’s when streaming ruling came out or whatever it was and most deed providers across the board went through and did it. Indeed, a lot of them went and did actual updates in 1993. So even your pre-’85 trusts had gone and had that amendment in 1993.
The next post will look at the third main approach we are seeing in this area.
Until next week.
Monday, October 22, 2012
The “do nothing” approach to deed updates
During our recent master class seminars on trusts, one specific issue that was addressed related to updating family trusts after the Bamford decision and related legislation.
The post today is the 2nd in a series of 4 posts via the following video link under the heading ‘The “do nothing” approach to deed updates’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
There are obvious advantages to ‘doing nothing’.
From a cost perspective for a client, you would intuitively think that’s probably the best outcome for them. Our only asterisk that we would put next to that is it does put enormous amount of pressure back on your practice and your team if someone needs to be sitting down and reading the deed.
Even if you've had the same provider for many years, you can almost guarantee that they will have changed their document, and they won't necessarily be able to tell you at what point at time they changed it.
Even if they could tell you, it probably doesn't absolve you under your insurance policy to say that everyone before a point in time will have this style of deed. Someone has to sit down and look at that. Which then means, according to the Tax Office, you can't just be churning out standard resolutions. You've actually got to have a tailored resolution that fits the particular deed and the particular income profile for the particular year.
So yes, the do nothing is attractive on a number of levels, but you need to be aware that it does add compliance costs.
You will see there's a common theme to all of these 3 choices.
Ultimately, our positioning is ‘don’t shoot the messenger’. This is something that has been imposed on us from Canberra. It means the cost of running a trust is more. So first one is to do nothing.
The next post will look at the second main approach we are seeing in this area.
Until next week.
The post today is the 2nd in a series of 4 posts via the following video link under the heading ‘The “do nothing” approach to deed updates’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
There are obvious advantages to ‘doing nothing’.
From a cost perspective for a client, you would intuitively think that’s probably the best outcome for them. Our only asterisk that we would put next to that is it does put enormous amount of pressure back on your practice and your team if someone needs to be sitting down and reading the deed.
Even if you've had the same provider for many years, you can almost guarantee that they will have changed their document, and they won't necessarily be able to tell you at what point at time they changed it.
Even if they could tell you, it probably doesn't absolve you under your insurance policy to say that everyone before a point in time will have this style of deed. Someone has to sit down and look at that. Which then means, according to the Tax Office, you can't just be churning out standard resolutions. You've actually got to have a tailored resolution that fits the particular deed and the particular income profile for the particular year.
So yes, the do nothing is attractive on a number of levels, but you need to be aware that it does add compliance costs.
You will see there's a common theme to all of these 3 choices.
Ultimately, our positioning is ‘don’t shoot the messenger’. This is something that has been imposed on us from Canberra. It means the cost of running a trust is more. So first one is to do nothing.
The next post will look at the second main approach we are seeing in this area.
Until next week.
Monday, October 15, 2012
What are the options in relation to deed updates post Bamford
During
our recent master class seminars on trusts, one specific issue that was
addressed related to updating family trusts after the Bamford decision and
related legislation.
The post today is the first in a series of 4 posts via the following video link under the heading ‘What are the options in relation to deed updates post Bamford’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
What it actually means in terms of the trust variations, we think it's one of the following three things.
The first one, we're probably guess that most of the people we work with adopt this path, is to ‘do nothing at all’.
Is that still the right thing to do? The honest answer is we don’t know.
What we do know is even within the last 6 weeks, this complete review of trusts, that has been threatened forever, has already been pushed out for another year. So the earliest that we're going to have a new taxation regime for trusts is 2014.
You wouldn't want to take too heavy a bet for whether that's going to be pushed back again. I suspect there's every chance you're going to have an election before the next time around and you may well have a change of government.
So there's a whole range of things that are going to potentially happen between now and 2014 that will push that out.
The first one is to just do nothing.
The next post will look at this approach in more detail.
Until next week.
The post today is the first in a series of 4 posts via the following video link under the heading ‘What are the options in relation to deed updates post Bamford’. If you would like a link to the video please let me know.
As with other video posts, for those that do not have easy access to the streaming or would otherwise prefer to read the transcript, this is set out below -
What it actually means in terms of the trust variations, we think it's one of the following three things.
The first one, we're probably guess that most of the people we work with adopt this path, is to ‘do nothing at all’.
Is that still the right thing to do? The honest answer is we don’t know.
What we do know is even within the last 6 weeks, this complete review of trusts, that has been threatened forever, has already been pushed out for another year. So the earliest that we're going to have a new taxation regime for trusts is 2014.
You wouldn't want to take too heavy a bet for whether that's going to be pushed back again. I suspect there's every chance you're going to have an election before the next time around and you may well have a change of government.
So there's a whole range of things that are going to potentially happen between now and 2014 that will push that out.
The first one is to just do nothing.
The next post will look at this approach in more detail.
Until next week.
Topics:
Bamford,
Deed of variation,
Discretionary trust,
Trust deed
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 (viewlegal.com.au)
The next post will look at the Tax Office Determination released last week on trust variations.
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 (viewlegal.com.au)
The next post will look at the Tax Office Determination released last week on trust variations.
Monday, May 28, 2012
Void trusts
Following on from recent posts, a further issue has come up over the last few days which relates to where a discretionary trust does not have any default provisions that apply for the distribution of capital.
The issues in this regard are quite complex, however like earlier posts, the conservative position is clear – i.e. every discretionary trust should ideally have clear provisions that apply for the distribution of capital in the event that a trustee fails to make a valid distribution.
The position in relation to default provisions for income is not as clear – often where there are no fallback provisions for income, an undistributed amount will simply form part of the capital of the trust.
This said, particularly following the High Court’s decision in Bamford, we have seen a number of advisers focus very carefully on all of the core provisions of their client’s trust deeds and the complete absence of a default distribution of capital, or in some instances, a purported default distribution that does not operate effectively, can be a trigger for looking to at least minimise the assets that are acquired in a trust moving forward.
Until next week.
The issues in this regard are quite complex, however like earlier posts, the conservative position is clear – i.e. every discretionary trust should ideally have clear provisions that apply for the distribution of capital in the event that a trustee fails to make a valid distribution.
The position in relation to default provisions for income is not as clear – often where there are no fallback provisions for income, an undistributed amount will simply form part of the capital of the trust.
This said, particularly following the High Court’s decision in Bamford, we have seen a number of advisers focus very carefully on all of the core provisions of their client’s trust deeds and the complete absence of a default distribution of capital, or in some instances, a purported default distribution that does not operate effectively, can be a trigger for looking to at least minimise the assets that are acquired in a trust moving forward.
Until next week.
Topics:
Bamford,
Discretionary trust,
Trust deed,
Trust distributions
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.
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.
Monday, July 11, 2011
Lineal descendant trusts post Bamford
As touched on in a recent post, often 'lineal descendant trusts' will adopt a 'hybrid' approach whereby:
1) The capital is protected for lineal descendants.
2) The income may be distributed to a wide range of potential beneficiaries (including non lineal descendants).
We have seen a number of instances lately where trusts that were originally prepared along the lines outlined above where, following Bamford on the recent Government legislation concerning streaming, the client was wanting to redefine income and in particular allow capital gains to form part of the net income of the trust. While (as is the case in many of these areas) there are a number of competing arguments, there is a real risk that this kind of amendment to a 'hybrid' lineal descendant trust would amount to a resettlement for tax purposes.
For regular readers, you will recall that an earlier posting specifically mentions the Tax Office’s Statement of Principles and provides a link to that document.
Until next week.
1) The capital is protected for lineal descendants.
2) The income may be distributed to a wide range of potential beneficiaries (including non lineal descendants).
We have seen a number of instances lately where trusts that were originally prepared along the lines outlined above where, following Bamford on the recent Government legislation concerning streaming, the client was wanting to redefine income and in particular allow capital gains to form part of the net income of the trust. While (as is the case in many of these areas) there are a number of competing arguments, there is a real risk that this kind of amendment to a 'hybrid' lineal descendant trust would amount to a resettlement for tax purposes.
For regular readers, you will recall that an earlier posting specifically mentions the Tax Office’s Statement of Principles and provides a link to that document.
Until next 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.
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.
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.
Monday, May 23, 2011
Unpaid present entitlement warning
As those of you who sat through our webinars over the last few months in relation to unpaid present entitlements (UPEs) would know, there can be a number of traps in relation to the provisions of a trust deed in the context of the Tax Office’s approach in this area.
Arguably, the most concerning trust deed provision that we have seen in recent times is a clause in the deed of a relatively high profile provider that on a plain reading of the deed automatically causes any UPE to become a loan at call.
Obviously, this provision can have significantly adverse consequences, particularly for those clients wishing to 'quarantine' UPEs that existed as at 16 December 2009.
Until next week.
Arguably, the most concerning trust deed provision that we have seen in recent times is a clause in the deed of a relatively high profile provider that on a plain reading of the deed automatically causes any UPE to become a loan at call.
Obviously, this provision can have significantly adverse consequences, particularly for those clients wishing to 'quarantine' UPEs that existed as at 16 December 2009.
Until next week.
Monday, May 16, 2011
Business licences
The combination of the Bamford decision and the Tax Office’s attitude in relation to unpaid present entitlements have meant that we have spent a significant amount of time recently looking at optimal structures for business and investment purposes.
One approach that we have seen an increasing number of clients and advisers consider where a business is owned by a discretionary trust, is the licensing of that business to a trading company.
Obviously, there are a number of tax and stamp duty issues that need to be considered in relation to this approach.
A recent case however seems to confirm that at least in relation to the philosophical legal questions, this kind of approach is now available.
For those who are interested to learn more, a copy of the decision is at the link below. One of the most important paragraphs in the decision is number 42, which highlights the distinction between a goodwill licence and a business licence.
http://www.austlii.edu.au/au/cases/sa/SASC/2010/279.html
Until next week.
One approach that we have seen an increasing number of clients and advisers consider where a business is owned by a discretionary trust, is the licensing of that business to a trading company.
Obviously, there are a number of tax and stamp duty issues that need to be considered in relation to this approach.
A recent case however seems to confirm that at least in relation to the philosophical legal questions, this kind of approach is now available.
For those who are interested to learn more, a copy of the decision is at the link below. One of the most important paragraphs in the decision is number 42, which highlights the distinction between a goodwill licence and a business licence.
http://www.austlii.edu.au/au/cases/sa/SASC/2010/279.html
Until next week.
Monday, April 11, 2011
Government review of trusts – the journey continues
As most will know, the ongoing saga in relation to the taxation of trusts took another turn last week with Bill Shorten retracting his previous promise to ensure that post Bamford amendments would be implemented before 30 June 2011.
The government has now indicated that other than in relation to the streaming of income all other issues will not be considered further until the wider taxation review scheduled for October. This review has already been postponed once.
Practically the latest announcement may cause trust advisers to proceed with ‘core’ amendments (for example, ensuring that trustee minutes can be made after the end of a financial year) to trust deeds before 30 June 2011.
Two other important issues to note from last week in relation to trusts are that:
1. it now appears unlikely that there will be any change to the unpaid present entitlement rules released by the Tax Office before 30 June 2011.
2. the announcement that the Coalition will look to re-invigorate entity taxation (i.e. taxing trusts as companies) if they win the next election.
Until next week.
The government has now indicated that other than in relation to the streaming of income all other issues will not be considered further until the wider taxation review scheduled for October. This review has already been postponed once.
Practically the latest announcement may cause trust advisers to proceed with ‘core’ amendments (for example, ensuring that trustee minutes can be made after the end of a financial year) to trust deeds before 30 June 2011.
Two other important issues to note from last week in relation to trusts are that:
1. it now appears unlikely that there will be any change to the unpaid present entitlement rules released by the Tax Office before 30 June 2011.
2. the announcement that the Coalition will look to re-invigorate entity taxation (i.e. taxing trusts as companies) if they win the next election.
Until next week.
Friday, December 17, 2010
Bamford driven review of Tax Act
While I had flagged there would be no further post this year, the Government has made a mid December announcement yesterday worth noting.
As you will read elsewhere, it has been confirmed that there will be a full review of the way in which trusts are taxed.
Relevant extracts of Bill Shorten's announcement are set out below.
While there is obviously a long way to go, it is reassuring that the rumoured revisiting of the entity taxation regime has been expressly ruled out.
1. There are major uncertainties after Bamford, especially about the extent to which amounts derived by trustees retain their character (for example, as capital gains or franked dividends) when they flow through to beneficiaries.
2. A public consultation process (has been announced) as the first step towards updating the trust income tax provisions in Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) and rewriting them into the 1997 Act.
3. "In developing an initial consultation paper for release in the first part of 2011, Treasury will draw heavily on the expertise of the private sector, particularly through the established Tax Design Panel process and the Board of Taxation," said the Assistant Treasurer
4. "The options to be canvassed in public consultation will be developed within the broad policy framework currently applying to the taxation of trust income".
5. Any options will seek to ensure that net taxable income of a trust is assessed primarily to beneficiaries. Trustees will continue to be assessed only to the extent that amounts of net taxable income are not otherwise assessable to beneficiaries. The options will not include the taxation of trusts as companies, which would be a major departure from the current law.
6. “Based on advice I have sought from the Board of Taxation, I will also consider further whether there are any issues that must be addressed in this current tax year".
7. "Trust tax law has been an ongoing issue for some time and it is important to simplify the system, rewrite the rules and give more certainty to the many thousands of small businesses and farmers who use trusts. I encourage all interested stakeholders to make a submission to the consultation".
As you will read elsewhere, it has been confirmed that there will be a full review of the way in which trusts are taxed.
Relevant extracts of Bill Shorten's announcement are set out below.
While there is obviously a long way to go, it is reassuring that the rumoured revisiting of the entity taxation regime has been expressly ruled out.
1. There are major uncertainties after Bamford, especially about the extent to which amounts derived by trustees retain their character (for example, as capital gains or franked dividends) when they flow through to beneficiaries.
2. A public consultation process (has been announced) as the first step towards updating the trust income tax provisions in Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) and rewriting them into the 1997 Act.
3. "In developing an initial consultation paper for release in the first part of 2011, Treasury will draw heavily on the expertise of the private sector, particularly through the established Tax Design Panel process and the Board of Taxation," said the Assistant Treasurer
4. "The options to be canvassed in public consultation will be developed within the broad policy framework currently applying to the taxation of trust income".
5. Any options will seek to ensure that net taxable income of a trust is assessed primarily to beneficiaries. Trustees will continue to be assessed only to the extent that amounts of net taxable income are not otherwise assessable to beneficiaries. The options will not include the taxation of trusts as companies, which would be a major departure from the current law.
6. “Based on advice I have sought from the Board of Taxation, I will also consider further whether there are any issues that must be addressed in this current tax year".
7. "Trust tax law has been an ongoing issue for some time and it is important to simplify the system, rewrite the rules and give more certainty to the many thousands of small businesses and farmers who use trusts. I encourage all interested stakeholders to make a submission to the consultation".
Topics:
Bamford,
Deed of variation,
Discretionary trust,
Trust deed,
Trustee
Friday, September 17, 2010
Trust deed updates - Start at the start
Due to the recent decision in Bamford, we have seen a significant increase in the number of advisers recommending to their clients that a complete review of, particularly family trusts, be done for each client.
As part of this review process, there is often a subsequent recommendation that the trust deed needs to be updated for all recent changes in the law, or at the least to make the deed 'Bamford compliant'.
Previous posts have touched on some of the issues that arise in this regard. This week, I was reminded, however, about the importance of getting the basics right in relation to any deed update.
Arguably the most fundamental issue that needs to be considered in any deed update is whether there is in fact a power to vary the document.
There are an amazing number of trust deeds that, for whatever reason, in fact do not have any power to vary under them at all.
In these situations, the only way to amend the trust deed is to apply to court – which is obviously an expensive and time consuming exercise. In some situations however, it is a step that commercially must in fact be taken.
Next week, I will try to detail two further issues that arise in relation to deed updates that should also be kept in mind.
Finally, thank you for all those who have provided feedback on last week's post about the ATO ruling on insurance trusts. I have emailed all those who have emailed me about the posting, however if there is anyone who would like further comments please let me know.
Until next week.
As part of this review process, there is often a subsequent recommendation that the trust deed needs to be updated for all recent changes in the law, or at the least to make the deed 'Bamford compliant'.
Previous posts have touched on some of the issues that arise in this regard. This week, I was reminded, however, about the importance of getting the basics right in relation to any deed update.
Arguably the most fundamental issue that needs to be considered in any deed update is whether there is in fact a power to vary the document.
There are an amazing number of trust deeds that, for whatever reason, in fact do not have any power to vary under them at all.
In these situations, the only way to amend the trust deed is to apply to court – which is obviously an expensive and time consuming exercise. In some situations however, it is a step that commercially must in fact be taken.
Next week, I will try to detail two further issues that arise in relation to deed updates that should also be kept in mind.
Finally, thank you for all those who have provided feedback on last week's post about the ATO ruling on insurance trusts. I have emailed all those who have emailed me about the posting, however if there is anyone who would like further comments please let me know.
Until next week.
Topics:
Bamford,
Deed of variation,
Discretionary trust,
Insurance,
Trust deed
Monday, April 19, 2010
Bamford - What exactly does it mean?
As many of you will be aware, we have updated our Intensive program over the last few weeks to include some initial comments on Bamford.
The Intensives have fully booked out and we are therefore also putting on some Wednesday Night Forums shortly which will focus exclusively on Bamford and the unpaid present entitlement ruling from the end of last year.
One very practical issue that has been raised regularly over the last few weeks has been in relation to trust deeds. In this week’s post, I thought I would list out the answers to some of the most frequently asked questions in this regard.
1. Are View Legal deeds 'Bamford compliant' – every trust deed provided by View Legal is Bamford compliant.
2. Are trust deeds from other providers Bamford compliant – this is an issue that will need to be assessed on a case by case basis. Certainly the older the deed, the less likely it is to be compliant. There are also a number of non tax specialist deed providers who have not traditionally focused on some of the critical issues raised in Bamford.
3. Should we be looking to do wholesale updates of all trust deeds in our client base (similar to the recent super deed updates completed) – subject to the exact approach the ATO adopts in the decision impact statement that is due to be released shortly, we believe there is likely to be some benefit in at least conducting a full review of all deeds.
4. Are there standard distribution minutes available – as many of you will be aware, we have always been conservative in our approach to distribution minutes and strongly recommend that every trustee should independently consider both the trust deed and the exact nature of distributions on a year on year basis (in other words, not use a 'standard' minute).
Certainly given the confirmation of the proportionate approach, the crafting of minutes so that (for example) infant beneficiaries get a set dollar amount and then the balance goes in certain percentages will rarely (if ever) be appropriate.
We are already working with a number of accounting practices to develop an approach that suits the risk profiles of their clients.
Until next week.
Matthew Burgess
The Intensives have fully booked out and we are therefore also putting on some Wednesday Night Forums shortly which will focus exclusively on Bamford and the unpaid present entitlement ruling from the end of last year.
One very practical issue that has been raised regularly over the last few weeks has been in relation to trust deeds. In this week’s post, I thought I would list out the answers to some of the most frequently asked questions in this regard.
1. Are View Legal deeds 'Bamford compliant' – every trust deed provided by View Legal is Bamford compliant.
2. Are trust deeds from other providers Bamford compliant – this is an issue that will need to be assessed on a case by case basis. Certainly the older the deed, the less likely it is to be compliant. There are also a number of non tax specialist deed providers who have not traditionally focused on some of the critical issues raised in Bamford.
3. Should we be looking to do wholesale updates of all trust deeds in our client base (similar to the recent super deed updates completed) – subject to the exact approach the ATO adopts in the decision impact statement that is due to be released shortly, we believe there is likely to be some benefit in at least conducting a full review of all deeds.
4. Are there standard distribution minutes available – as many of you will be aware, we have always been conservative in our approach to distribution minutes and strongly recommend that every trustee should independently consider both the trust deed and the exact nature of distributions on a year on year basis (in other words, not use a 'standard' minute).
Certainly given the confirmation of the proportionate approach, the crafting of minutes so that (for example) infant beneficiaries get a set dollar amount and then the balance goes in certain percentages will rarely (if ever) be appropriate.
We are already working with a number of accounting practices to develop an approach that suits the risk profiles of their clients.
Until next week.
Matthew Burgess
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