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Trusts are generally known to have a flexibility that can achieve favourable tax outcomes, whether used as a vehicle for operating a business or as the entity to hold investments. Yet their flexibility shouldn’t be lost to the complications that can arise when administering a trust. This paper covers some tips and traps regarding the use of trusts, including:

• Trustee resolutions:

  • what does the deed say?

  • present entitlement requirements

  • streaming capital gains or franked distributions

• The differences between accounting income and taxable income

• How the tax applicable to a trust distribution depends on the status of the beneficiary

• In what situations can the trustee be assessed?

• Practical examples of effective and ineffective trustee resolutions for income distributions

• What is a section 100A reimbursement agreement?

• What to consider if a beneficiary is a non-resident?

• What are family trust elections and interposed entity elections and when should they be considered?

Legislative references are to the Income Tax Assessment Act 1936 (ITAA 1936), the Income Tax Assessment Act 1997 (ITAA 1997), the Taxation Administration Act 1953 (TAA 1953), the Taxation Laws Amendments (2011 Measures No 5) Act 2011 (TLAM No 5 2011) and the Corporations Act 2001 (CA 2001).

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