Finally! The new measures to allow streaming of capital gains and franked distributions have been introduced into Parliament

Finally! The new measures to allow streaming of capital gains and franked distributions (including franking credits) have been introduced into Parliament. Now that they are making their way through the Parliamentary process, it is quite safe to say there will only be minor amendments, if any at all. The good news for tax practitioners is that we now have a clear idea of what we are working with, and how to achieve certainty for our clients. The bad news is, there is very little time to do it!

Here at The Tax Institute, we have been busy putting together our information and publication packages to ensure you are up-to-speed and ready to advise your clients. You can view the brochure setting out our full offering here.  There’s CPD sessions, publications, live streaming – pick and choose the option that best suits you and your practice.

We will also be running this blog, so members can have an opportunity to share ideas, reveal problems and help each other get through this testing time.

So, let’s get this show on the road. What is your reaction to the Bill? What are the challenges you are facing in your practice? What do you want from your CPD sessions?

A note on commenting: we welcome all views, but please keep it informative, constructive and practical.

Comments

  1. Some commentators have indicated a section 95 income clause will now not be sufficent?

    ReplyDelete
  2. RobynTaxTrainer16 June 2011 at 12:51

    Many trustees do not understand that the common practice of making resolutions after 30 June results in distributions not being validly made under trust law.

    This is because most trust deeds require trustees to make beneficiaries 'presently entitled' to a share of the trust income (thereby creating the vested and indefeasible entitlement of the beneficiary) by the end of the accounting period i.e. 30 June. Beware the 99A assessment where distributions are invalidly made.

    Do trustees really understand the difference between a 'minute' and a 'resolution'?

    Also, there are just 14 days left for trustees to stream franked distributions and capital gains under the new complex measures contained in Bill 5, which is still before Parliament. Time is running out!!

    NB: To stream a capital gain, the specific entitlement can be created by no later than 31 August but the present entitlement still needs to be created by 30 June per trust law.

    ReplyDelete
  3. Thanks for your comment and congratulations on being the first to do so!

    The most important thing to do is to review your trust deed and understand precisely what it is doing. If you intend to stream capital or franked amounts, it is essential that the trust deed facilitate this. The trustee must have the power to appoint or stream capital and franked amounts to specific beneficiaries under the deed. Some older deeds may not contain such a power, and in such a case, amendments to the deed may be warranted. Modern deeds would usually have a streaming clause, but it should be reviewed to ensure that it is sufficient for the new measures, and that the power works as intended.

    After ensuring there is a streaming power, the next thing to consider is the level of flexibility in the income definition in the deed. It is essential that trustees understand how the income definition works in the particular circumstances faced. Most modern deeds have flexibility about defining income, and I would have thought (but may be corrected…) that defining income by reference to s.95 would be ok. If there is a lack of flexibility in the income definition, it would be wise to consider an amendment to the deed.

    Tamera Lang
    Tax Counsel, The Tax Institute

    ReplyDelete
  4. Hi Robyn,

    Thanks for your comment! You make a really important point – tax agents need to consider these amendments as a matter of urgency. There are things to be done prior to 30 June, and that is a matter of trust law. You can’t wait until mid-August to start thinking about resolutions.

    On the progress of TLAB 5 – it is on the House of Representatives program today. Unfortunately, they have not got to it yet, and we now have Question Time… watch this space, I think they will get to it around 4pm today. Fingers crossed.

    Tamera Lang
    Tax Counsel, The Tax Institute

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  5. So where does no definition of income in a deed leave a trust, that has both ordinary income and capital gains. Are the capital gains not able to be distributed at all and taxed in the trust at top marginal rate?

    ReplyDelete
  6. RobynTaxTrainer16 June 2011 at 15:56

    Just because a deed does not define 'income' does not mean there are no income or capital beneficiaries. Such a deed would generally define who the capital beneficiaries are, to whom the net financial benefit of the capital gain can still be passed. A deed without an income definition clause just means that the capital gain does not form part of trust income, but this is not fatal to being able to stream the capital gain under the new measures.

    ReplyDelete

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