Trust streaming
Trust streaming measures enacted
The long awaited trust streaming measures were enacted as part of Tax Laws Amendment (2011 Measures No. 5) Bill 2011. The Tax Institute is pleased that these measures have been enacted following consultation between Treasury, The Tax Institute, other professional bodies, tax advisers and taxpayers.
ATO guidance
The ATO has announced concessional administrative arrangements that will be adopted for the 2011 income year. You will find the full details of the arrangements on the ATO's website. Broadly, the ATO will be adopting a similar practice to that outlined in IT 328 and 329 for present entitlements - that is, trustees with a usual 30 June balance date will be given until 31 August 2011 to make records to satisfy the “specifically entitled” requirement for franked distributions in s.207-58.
The ATO will not be selecting cases for review or audit in respect of the 2011 income year for the sole purpose of determining whether the purported streaming of capital gains or franked distributions by a trustee is effective. However, the ATO will be taking compliance action in cases where there has been a deliberate attempt to exploit weaknesses or deficiencies in the law.
Reactions
Most practitioners agree that the measures are complex, and at times unwieldy. The measures were enacted following a tight consultation period on a Discussion Paper and an Exposure Draft of the legislation. Although complex, the measures achieve the policy aim of allowing streaming of capital gains and franked distributions for the 2011 and later income years. The provisions are an interim solution to deal with the fallout from Bamford, and have been achieved without amending Division 6 itself (which could have led to unintended consequences and even greater uncertainty).
We are very pleased that in his second reading speech and in the explanatory memorandum to the Act, the Assistant Treasurer reaffirmed the government's commitment to reforming the whole of the income tax law for trusts. We see this wider review of Division 6 as being an opportunity for not only clarity, but also for simplicity in the tax treatment of trusts.
Future amendments
Despite the intense consultative process and hard work of Treasury, there may be scope for unintended consequences arising from the new provisions. The Assistant Treasurer clearly stated in his second reading speech that the Government will act to retrospectively amend the provisions to ensure that the policy intent is achieved.
Ongoing consultation
The Tax Institute will continue to consult with the ATO about the administration of the law, and with Treasury about broader reforms for the taxation of trusts. If you would like to share your thoughts about the new measures or trust reform generally, please leave your comments on our blog or email taxpolicy@taxinstitute.com.au.
Education
We know that many members will be eager to learn about the new measures and the impact on their clients. The new measures are complex, and we have developed a number of products to help you come to grips with the new environment. The new edition of Discretionary Trusts Distributions, which covers the new measures, is available in print and online. The recent Trust Streaming seminar video and paper by Ken Schurgott outlines the new measures and is available for purchase.
