Changes to Trusts

Dated: May 2011

The High Court decision in the Bamford case caused a cascade of issues to emerge in relation to how the tax laws apply to trusts. Many of these issues remain unresolved, and a source of consternation for many tax practitioners and people who use trusts as a legitimate part of their financial strategy.

On 4 March 2011 Assistant Treasurer, Bill Shorten announced the Federal Government’s intention to address particular uncertainties relating to discretionary trusts that were caused by the Bamford decision.

The Government has released a discussion paper which proposes the adoption of two recommendations from the Board of Taxation:

1. Better alignment of the concept ‘income of the trust estate’ with ‘net income of the trust estate’; and

2. Enabling the streaming of capital gains and franked distributions.

Mr Shorten commented that these proposals are “interim steps to ensure greater confidence and certainty in trusts”.

We are encouraged by the Government’s initial commentary as we believe discretionary trusts continue to be a legitimate business/income tax structure.