Trust distribution arrangements must be considered carefully by trustees before appointing or distributing income to beneficiaries.

Your Trust Deed

An area of concern is that trustees don’t consider the trust deed before income is appointed. The answer to what the trust can do and who it can assign income to and how, is in the trust deed.

Review Your Deed

  • Review the trust deed and amend it to ensure trustees make consistent decisions with the terms of the deed.
  • Check the trust vesting date. The trust deed will mention what happens when the trust vests. If the trust vests, the trustee might be suggested to distribute the property and income of the trusts to specific beneficiaries.
  • Check who are the intended beneficiaries and also remember that some beneficiaries could have different entitlements to income and capital under the trust deed.
  • Review the deed for any conditions and needs for trustee resolutions, including the need to have the resolution in writing and the timing when it should be made.
  • If you are looking to issue capital gains or franked distributions to beneficiaries, reviewing the trust deed doesn’t prevent this and streaming requirements have been satisfied.

Family Trust and Interposed Entity Elections

A family trust election is helpful in wrapping the trust’s workings around a particular individual’s family group. These elections can prevent trust losses, franking credits and company losses, but can also result in tax issues if they are inaccurately used.

An entity becomes a member of the family group of an individual, made by an interposed entity election. Trustees must understand the implications before deciding on distributions. Distributions of trust income outside an individual’s family group will result in family trust distribution tax at penalty rates.

Who is Likely to Receive the Benefit?

The ATO looks for arrangements where amounts are appointed to beneficiaries, but they won’t receive the real financial benefit of the distribution. If the arrangement has the effect of minimising tax paid on the trust’s income, then it will maximise the risk involved and attract the ATO’s attention.

Increased Reporting on Tax Returns

To get more information on the tax return about the way trusts distribute income, changes have been made. These include:

  • Trust Tax Return – 4 new capital gains tax labels have been added. This data must be given to beneficiaries to match what is recorded in their returns.
  • Beneficiaries – all beneficiaries of trust income will have to file a new trust income schedule. This schedule must match your distributions as set out in the trust’s statement of distribution.

The ATO is increasingly becoming strict about how trusts distribute income, and the tax affects those distributions. Trustees should get it right.

5 Million+ Struggle with Mortgage Payments

New findings from ASIC’s Moneysmart unveil that 47% of Australian adults burdened with debt, totalling 5.8 million individuals, have encountered difficulties meeting repayments in the past year. Worryingly, the research indicates that over half of those surveyed are unaware of their entitlement to request financial hardship support from their bank or lender. Only one in five respondents admitted to having sought such assistance previously. Additionally, approximately 30% expressed reluctance to approach their bank for hardship assistance, opting instead to liquidate assets or take on secondary employment.

What’s Changing on 1 July 2024?

  • Tax cuts change the threshold and minimise personal income tax rates.
  • SG increases to 11.5% from 11% – determine the effect on any salary package arrangements.
  • Super caps increase to $30,000 from $27,500 for concessional super contributions and to $120,000 from $110,000 for non-concessional contributions.
  • The luxury car tax threshold increases for fuel-efficient vehicles to $91,387 and for all others, it is $80,567.
  • The car limit increases to $69,674 for depreciation.
  • For households, a $300 energy relief credit comes into effect.
For Business
  • For small business, $325 energy relief credit starts
  • There is an extension of the $20k instant asset write-off to 30 June 2025.