Trust reform delayed another year
The government’s broad reform of the taxation of trust income has been delayed yet again, from July 1, 2013, with a likely commencement date of July 1, 2014, which would coincide with the intended commencement date for a new tax system for managed investment trusts.
A landmark High Court case highlighted the legality or otherwise of the streaming of trust income, and the fact that amounts on which a beneficiary is assessed for tax may not always match the amounts they are entitled to under trust law. The mismatch led to unfair outcomes and opportunities for tax manipulation, according to the Tax Office, so amending legislation was put in place to allow for capital gains and franked distributions to be streamed to beneficiaries (where permitted by a trust deed) by making them ‘specifically entitled’.
Other key issues at stake in trust law reform are fixed trusts and managed investment trusts (and the ability or not to admit further unit holders, and at what value) and the entitlements of beneficiaries under the general trust laws, including where there is no beneficiary presently entitled, disability trusts and child maintenance trusts.
While extending the deadline for proper trust law reform could be viewed as prolonging a good measure of uncertainty for many trustees, it is also appropriate, given the importance and complexity of trusts, that informed consultation and more considered solutions are adopted, which will hopefully result in better outcomes. We will advise of further developments as they occur.