Family & Discretionary Trust

Recently clients utilising family trusts would have received two very important pieces of correspondence.  It is essential that both of these are dealt with correctly and in a timely manner.

Correspondence 1.

This correspondence was mailed to all trusts prior to the end of financial year.  Basically the ATO now require holders of trusts to nominate prior to the end of a financial year how the income will be distributed for that year. 

For example, for the financial year just ended (2010/11 financial year), beneficiaries of the trusts must be identified and an amount or percentage given to them for the share of the income, capital gain and franking credits they will receive.

This is quite confusing to a lot of people as this is the very first time it needed to be done.  This is also made more complex as many holders of trusts may not know the exact income of the trust and therefore there is a little estimating involved (basically a bit of guess work).

We have supplied all the workpapers and these should have been completed before 30th June 2011 and now retained by you (with your trust tax papers).  This will then be provided to us when you complete your 2011 trust tax return.

Correspondence 2.

This correspondence was mailed to you in early July and needs to be completed and return to us before the 26th August this year.

Once again the ATO have imposed an extra layer of complexity on trust holders, however once in place most users of trusts will have very little to do going forward.

In simple terms the ATO require the controllers of the trust to provide them (the ATO) with the particulars of any potential beneficiaries of the trust.  This needs to take place prior to the end of August each financial year.  However, once the details of beneficiaries or potential beneficiaries are provided to the ATO, they do not need to be provided again.  In reality unless a new beneficiary is introduced, no further action is required.

An example of a new potential beneficiary could be a new child.

Again, we feel this is another example of a government making a further tax grab.  While taxes are not increased at this stage further regulatory burden is being placed on taxpayers.  This will lead to things such as discussed above being overlooked by some and penalties being applied for non-compliance.

If you are a controller of the trust and do not know if you comply with the information above, please contact your accountant.