Question:
Assessable trust distributions - beware!
Answer:
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
An interpretive decision on trust distributions received by an insurance company has worrying implications for trust beneficiaries because it states that the beneficiaries’ income from the trust distributions may include amounts that were nontaxable in the trust.
Trust beneficiaries are taxed on their trust distributions generally in accordance with Division 6 of the 1936 Tax Act. Recent amendments to that Division purportedly allow for the streaming of capital gains and franked dividends (see Finalise trust distribution minutes by 30 June in September taxInsight).
The Tax Office does not consider this Division to be an exclusive code for the taxation of trust distributions.
Although the vast majority of trust distributions are assessed under this Division, apparently, it is not the only way. In this decision, the Tax Office says that amounts included in cash trust distributions received that
were not Section 95 income, exempt income or non-assessable nonexempt income may still be assessable as income according to ordinary concepts.
This decision was about an insurance company which is not only in the business of receiving insurance premiums but also … the investment of funds is as much a part of the
business as is the collection of premiums. The Tax Office quotes a number of court cases from the 1960s in support of their assertion that …Whether or not a particular
receipt is income depends upon its quality in the hands of the recipient.
The non-taxable amounts inside the trust that may be affected include:
+ Deductible building allowances;
+ Unrealised gains on assets recorded in an asset revaluation reserve; and
+ The discount component of a realised capital gain.
Although this decision was about an insurance company it has significant and broad implications. Trustees as well as beneficiaries should take great care in characterising the distribution of non-taxable amounts.
We advocate strictly recording the income of a trust in accordance with the taxable income. Accordingly, distributions of non-taxable amounts should also be characterised specifically as capital distributions.
ATO ID 2011/58, NTAA Voice No. 207, p10
