Taxpayer Urgent Alert



Many clients have structured and are trading through one or more trusts. A trust structure is common and may have been established for various purposes including such considerations as asset protection, retaining access to capital gains tax discounts, as well as flexibility in allocating the net income of the trust.

Due to draconian administrative practice now being forced by the ATO, a large change in the level of documentation required as at each 30th June has occurred. As a result many trustees will need to do more by or on Saturday 30th June, 2012 than they may have been used to in the past. The ATO has also advised that they will be randomly selecting trusts for evidence of written resolutions or notes during July 2012.

The reason is that there have been various court decisions regarding Trust and Tax law during the year and as a result of one such case the Australian Taxation Office (ATO) has removed a pre-exiting administrative concession given to trustees allowing them extra time after year end to record their resolutions for the distribution of the income of the trust.

Not all trusts are affected. Many trusts are fixed trusts or unit trusts whereby the income is distributed automatically in accordance with fixed entitlements or unit-holding. However many trusts are discretionary trusts or family trusts whereby the trustee must actively make a resolution to distribute the income of the trust, and many trust deeds are different to each other.

If income has not been distributed by the required date (usually 30th June) in accordance with the trust deed, then a later attempt to distribute it may be ineffective, and there is a risk that the income will be taxed in the hands of the trustee at the top marginal rate.

In the past clients may have been used to having a verbal meeting of trustees that is recorded formally at a later time so as to record the decision of the trustee/s. For this year and future years it will be necessary to go further. Whilst the ATO acknowledges that the final formal meeting minutes may not have been prepared on 30th June, they advise that for the majority of trust deeds there should be at least a written note or record to evidence the decision of the trustee as made on 30th June (or the relevant required time under the trust’s specific deed).

To assist clients we will be writing to specific clients for whom we know trustee resolutions are required and assisting them with a template and other advice.

Nevertheless we would ask all clients to:-
- be aware of the change;
- to review whether they have a trust in their structure;
- to refresh their memory of the terms of their own trust deeds and the requirements mandated of the trustee therein;
- to look out for our additional materials to be sent to specific clients shortly;
- to prompt us if they do not receive the materials and they have a relevant trust;
- to follow the instructions in the specific material issued; and
- ensure that they have held the appropriate meeting and recorded the written note as evidence of the meeting and relevant trust distribution prior to or as at 30th June, 2012.

Whilst things change and important administrative responsibilities may arise, this does not affect the basic purposes for which trusts are created and their uses for business and family activities.

If you have any queries please contact our office for further clarification or advice.

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