2011-12 trust changes: interview with ATO senior tax counsel

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.

Trustee resolutions

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).

Compliance activities

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.

Ruling on proportionate approach

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.

Closely held trust TFN withholding

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.

Changes to the 2011-12 trust return form

The ATO says it has implemented 4 important changes to the trust income tax return which require trustees to disclose additional information including:

• Details of the trust income - the ATO says this will enable it to determine how the taxable income should be assessed should an amendment of the taxable income be required.
• Total income of the trust estate (new label 64 in the return) - the ATO says this will enable it to confirm the calculation of the tax liability for beneficiaries and trustees.
• Share of income of the trust estate to which each beneficiary is entitled - the ATO says the changes to the statement of distribution will enable it to confirm the income of the trust estate to which beneficiaries are entitled.
• Beneficiary's share of net franked distributions (new label in the statement of distribution) - the ATO says the change will facilitate the new streaming amendments.

LTA.TaxNewsroom@thomsonreuters.com

Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please:

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More Cleardocs information on related topics

You can read earlier Clearlaw articles on a wide range of trusts topics here.

For more information about Cleardocs:

• Discretionary Trust, see here. You can order a trust online from that page.
• Unit Trusts (fixed or non-fixed), see here. You can order a trust online from that page.
• Hybrid Trust, see here. You can order a trust online from that page.

Also, you can see Guides by Maddocks dealing with:

• a comparison table of key benefits and things to be wary of in each type of trust;and
• a comparison table of the key features of each type of trust.