In a recent interview, an ATO senior counsel outlined the ATO view on trusts and the changes implemented by the ATO for the 2012 income tax year. Some points of note from the interview are outlined below.Jane Tu, Thomson Reuters
The ATO says it has removed the concessional practice of allowing trustees to elect beneficiaries presently entitled to income for any financial year by 31 August. This practice will not be reinstated. Therefore, for the 2011-12 income year, trustees will need to make a relevant beneficiary presently entitled to the trust income by 30 June 2012.
However, the ATO says trustees will still have until 31 August to make beneficiaries specifically entitled to capital gains as long as another beneficiary is not already presently entitled to that gain.
Further, the ATO says trustee resolutions do not have to specify an actual dollar amount in order for the resolution to be effective in making a beneficiary presently entitled to trust income. Instead, it says a resolution would be effective if it prescribes a clear methodology for calculating the entitlement (eg the entitlement can be expressed as a specified percentage of income).
The ATO says it will be conducting "relatively small scale" compliance activities aimed at educating trustees regarding the 2012 trust changes. It says it intends to write to a group of around 1,200 trustees advising them of the need to make resolutions by 30 June to distribute trust income.
Further, the ATO says it may then select a limited number of those trustees for follow-up compliance activities after 30 June, where the trustees will be asked to provide details of their resolutions.
The ATO says it is planning to issue a ruling on the proportionate approach. It says the proposed Taxation Determination will contain a number of practical examples applying the proportionate approach to a particular set of facts.
The ATO says for the 2011-12 income year, when trustees make beneficiaries entitled to income, they will need to consider whether they have lodged a TFN report in respect of those beneficiaries.
Where a beneficiary has not provided the trustee with a TFN, the trustee must typically withhold tax from the beneficiary's share of the trust's taxable income at the highest marginal rate plus Medicare levy, the ATO says.
According to the ATO, the beneficiary then has to lodge an income tax return to claim a credit for the amount withheld by the trustee. It says there are no other options available for refund of the amount withheld.
Further, the ATO says even where the beneficiary has quoted a TFN to the trustee, the trustee must still lodge a TFN report with the Commissioner setting out the beneficiary's details. It says the report is due by the last day of the month following the quarter the TFN was quoted by the beneficiary to the trustee.
Where a TFN report is lodged with beneficiary details not matching ATO records, the ATO says it will send a letter to the trustee. It says if the trustee does not provide a revised TFN report, the beneficiary will be taken not to have quoted their TFN.
The ATO says transitional arrangements for the TFN report existed for the 2010-11 year whereby the details provided on the 2010 trust return could be taken as a TFN report for the 2010-11 income year. However, it advises that the transitional arrangements do not apply to the 2011-12 year and a separate TFN report must be lodged.
The ATO says it has implemented 4 important changes to the trust income tax return which require trustees to disclose additional information including:
Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please:
You can read earlier Clearlaw articles on a wide range of trusts topics here.
Andrew is a lawyer in the Maddocks Tax & Revenue team.
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His advice covers both direct and indirect tax considerations.
Prior to joining Maddocks, Andrew was a tax consultant at a Big 4 Chartered Accounting Firm.
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