Trustees of discretionary trusts, including typical “family” trusts, are reminded to ensure that resolutions about the distribution of the trust’s annual income are finalised by the end of each financial year.
Trustees should be aware of recent changes to the Commissioner of Taxation’s view on trust distributions to family members.
Notably, the Commissioner recently lost a case in the Federal Court (Guardian AIT Pty Ltd ATF Australian Investment Trust v Commissioner of Taxation [2021] FCA 1619) after seeking to apply s100A anti-tax avoidance provision to a trust which distributed to a bucket company where the bucket company made a fully franked dividend distribution back to the trust. The Commissioner has appealed to the Full Federal Court.
What is 100A and why is it important?
Generally, s100A deals with a trustee making a distribution to a beneficiary but another person benefits from the funds from the distribution, e.g., trustee distributes to adult child on low tax rate and parents on high tax rate keep the cash.
Section 100A does not apply to ‘ordinary family or commercial dealing’.
There is still lack of judicial guidance on the meaning of ‘ordinary family or commercial dealing’.
Until there is certainty on these issues, it is highly recommended that:
- beneficiaries who are presently entitled receive actual cash from their trust distributions;
- beneficiaries are not under an obligation to pay anyone; and
- gifting and distributions are correctly documented.
Thynne + Macartney’s taxation specialists can work with your accountant to review your taxation strategies and solve complex problems.
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