2014 Financial Year Trust Distributions – what you / your clients should do before 30 June

With 30 June fast approaching, it is time to review and plan the 2014 financial year trust distributions.

To help you prepare for June 30, here’s a summary of our recommendations as to the action you should take.

  1. Review the amount and the nature of the income that the trust is likely to have derived during the 2014 FY. This will include ordinary income such as income from business and rent and statutory income such as dividends and capital gains.
  2. Identify unusual transactions or income that will require particular attention – for example, can discounts and concessions be applied against any capital gains?
  3. Review the trust deed.

a.  Are all the intended beneficiaries actually beneficiaries or do complexities in the
     exclusion provisions in the trust deed present problems?

b.  How does the trustee determine income?

c.  How is income defined in the trust deed?

d.  Is distributable income defined as net income for the purposes of section 95 of the
     Income Tax Assessment Act 1936 (ITAA 1936) or does the trustee have the power to
     equate distributable income to net income?

e.  Has income been defined to also include non-assessable capital gains and exclude
     notional amounts?

f.  Does the trust deed include an appropriate streaming clause?

g. Does the trustee have the powers necessary to make distributions?

h.  Does the trust deed require amendment?

      4.  Determine how the outgoings and capital losses of the trust should be allocated.

      5.  Plan how the distributable income of the trust will be appointed to beneficiaries
           so as to maximise tax efficiencies.

a.  For groups with multiple trust structures, a diagram or “road map” of the
     distributions should be prepared together with a spreadsheet of the amount of the
     distribution to each beneficiary and the estimated tax liability associated with
     each distribution.

 b. Consider how the following items should be addressed:

i.      franked distributions;

ii.     dividend, interest and royalty income;

iii.    foreign source income;

iv.    exempt income;

v.     capital gains – discounted, non-discounted, indexed, and non-assessable;

vi.    allocations to trustee;

vii.   what income should be accumulated in the trust, and

viii.  the allocation of unpaid present entitlements owing to corporate
        beneficiaries or interposed trusts, to a sub-trust.

 6.  Prepare and execute appropriately drafted trust resolutions that address the above.

 7. Keep in mind that:

a.  distributions to minor beneficiaries (those under the age of 18 years) of up to $416
     each can be made tax-free;

b.  beneficiaries need to report their TFN to the trustee before 30 June;

c.  where a trust has made a Family Trust Election or an Interposed Entity Election, a
     distribution outside the “family group” will incur family trust distribution tax; and

d.  the resolutions should be drafted to address contingencies (such as an
     unexpected capital gain).

There is much to be done before 30 June!

We have written extensively on these issues (and more) for the Tax Institute’s Annual National Trusts Roadshow and in the book “Trust Structures Guide” published by The Tax Institute.

For more information on these issues please contact:

Daniel Smedley
Principal | Accredited Specialist in Tax Law
Sladen Legal
M +61 411 319 327  |  T +61 3 9611 0105
dsmedley@sladen.com.au

or

Renuka Somers
Senior Associate
Sladen Legal
M +61 407 478 592  |  T +61 3 9611 0110
rsomers@sladen.com.au

 

Daniel Smedley