Review family trust deeds before June 30 after ATO crackdown

Beef Central, 14/06/2012

Leanne Matthewson of Murdoch Lawyers says its critical to review your trust deeds before 30 June or you could risk paying thousands of dollars of extra tax.A recent tax office crackdown on family trusts could catch many people out if they don’t update their trust deeds and make appropriate distributions before 30 June.

Solicitor Leanne Matthewson of Murdoch Lawyers is urging businesses that use discretionary trust structures to have a qualified solicitor review their deeds urgently in relation to how they make their annual decisions about distributing income.

At the end of each financial year, the trustees of the trust should make a resolution in writing to record how they wish any profits made by the trust to be distributed to the beneficiaries of the trust.  Otherwise, the Tax Office can issue to the trustee an assessment notice adopting the highest marginal tax rate. This could result in thousands of dollars of additional tax to be paid.

“Since 1980s the ATO has been lenient about the timing of this resolution – offering an extra window of two months to make their decision,” Mrs Matthewson said.

“This worked well for family trusts who were awaiting the final figures and calculations of their income and expenditure to be reviewed after the end of June, before deciding precisely how to distribute income.  This is a 30-year practice that allowed businesses to do legitimate tax planning.”

However, she said a ruling made by the tax office last year, and new information from the tax office released in the past few weeks makes it clear that this extra time is no longer an option.

Mrs Matthewson said the new arrangements would particularly affect trusts who wish to distribute franked dividends or capital gains because a beneficiary’s present entitlement to that trust income must be created prior to the end of 30 June.

“It’s important to make sure that your trust deed gives you maximum flexibility when it comes to distributing income.

“We recommend that your trust deeds include specific powers to do things such as  include and exclude particular income or gains which will allow the income of the trust estate to be determined and distributed as flexibly as possible.”

Mrs Matthewson said that to have a trust deed properly reviewed and updated might cost a few hundred dollars, depending on the complexity of your documents, but the initial outlay far outweighed the risks.

“Spend a little now to get it right, or you could risk paying  thousands more in  tax .

“We strongly urge people to get advice from both their accountant and solicitor to make sure they are following the rules, while still giving themselves maximum flexibility when it comes to tax planning.”


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