Recently ATO legislation has been passed by Parliament to enable trusts to stream franked dividends and capital gains for tax purposes.  It applies to the current 2010-11 and later income years. The legislation is contained in Tax Laws Amendment (2011 Measures No. 5) Bill 2011.

The aim of this amendment was to:

  • Better align the concept of “income of the trust estate” with “net income of the trust estate”
  • Enable the streaming of capital gains and franked dividends to various beneficiaries

Certainty about Taxation of Trust Distributions

This legislation is designed to give greater certainty to taxpayers and their advisers about how trust distributions are made by the trustees of discretionary trusts.

How does this affect the administration of Discretionary Trusts?

Firstly, the legislation gives greater clarity to how trusts can distribute different types of income (interest, dividends, capital gains, other income) and a better understanding of how the differences between “income of the trust estate” and “net income of the trust estate” is treated.  Greater discretion will be available as to whether trust income is distributed on a proportional basis, or different types of income are streamed to specific beneficiaries.

It should also help the Taxation Office administer the law.  Professional advisers also will have more clarity about what is able to be done under the law.  Hopefully, this will reduce the amount of case law which has surrounded this area in the past.

Updating of Trust Deeds

One important measure arising from this change in the legislation is whether or not the trusts Trust Deed needs to be updated to allow streaming of income as the legislation now allows.  It is important that Trust Deeds be updated by a Lawyer where necessary, ensuring that the changes do not constitute a re-settlement of the trust.

For more information

If you require an upgrade of your trust deed or would like to find out more, pleasecontact WLM Financial Services.