Australia To Improve Taxation Of Trust Income
Thursday, April 14, 2011
The Australian Assistant Treasurer Bill Shorten has released for public consultation exposure draft legislation that will increase certainty for trustees and beneficiaries of approximately 660,000 trusts in Australia.
On December 16, 2010, the government announced that it would introduce amendments, before June 30, 2011, so that beneficiaries could continue to use the primary production averaging and farm management deposits provisions in a loss year. Shorten said that he expected the news to be very welcome to the 23,000 Australian farmers who have trusts.
Last month the government released a discussion paper that canvassed options to implement the recommendations made by the Board of Taxation to better align the concept of 'income of the trust estate' with 'net income of the trust estate' and enable the streaming of capital gains and franked distributions. The government received a substantial amount of feedback from interested stakeholders following the release of this paper, but Shorten said that the government had taken those concerns on board.
As announced in the Assistant Treasurer's address to the Institute of Chartered Accountants 2011 National Tax Conference on April 6, the government will defer consideration of the proposal to better align the concept of 'income of the trust estate' with 'net income of the trust estate' to the broader update and rewrite of Division 6 of Part III of the Income Tax Assessment Act 1936 (Division 6).
"However, the government is aware that if there is no change to address the alignment problem, potential opportunities for tax manipulation would exist until the rewrite becomes law," said the Assistant Treasurer.
In order to address these opportunities, the government will introduce specific anti‑avoidance rules to target the use of "low-tax entities," especially exempt entities, to reduce the tax payable on the taxable income of a trust. These rules are required to address the potential opportunities for tax manipulation that would otherwise exist until the rewrite becomes law, and will apply for the 2010-11 and later income years. They will be reviewed as part of the broader update and rewrite of Division 6.
The exposure draft legislation introducing the streaming of franked distributions and capital gains as well as the targeted specific anti‑avoidance rules is substantially, but not fully complete, Shorten said.
"I have decided to release this legislation early to ensure that interested stakeholders have the maximum opportunity to comment on the core changes proposed in this legislation," Shorten explained. The explanatory materials accompanying this exposure draft legislation will be released shortly.
"Trust tax law has been an ongoing issue for some time. These changes will provide more certainty to the many thousands of small businesses and farmers who use trusts. I encourage all interested stakeholders to make a submission," the Assistant Treasurer said.
Submissions close by April 29, 2011, to allow the introduction of the measures in the winter sittings of Parliament.