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Australian Farmers Will Benefit From Changes To Trust Laws

Tuesday, December 21, 2010

In what will be very welcome news for approximately 23,000 farmers who have trusts, the Australian Government plans to introduce amendments before June 30, 2011 so that beneficiaries can continue to use the primary production averaging and farm management deposits provisions in a loss year.

The recent High Court decision in Commissioner of Taxation v Bamford highlighted ongoing discrepancies between the treatment of trust income by trust laws, on the one hand, and by the tax system on the other. Tax outcomes for beneficiaries of trusts often do not match the amounts they are entitled to under trust law and the trust deed. This can result in unfair outcomes as well as opportunities for taxpayers to manipulate their tax liabilities.

As well as farmers, thousands of family businesses will enjoy more certainty as the Gillard Government today made a commitment to update Australia's trust taxation laws.

There are also major uncertainties after Bamford, especially about the extent to which amounts derived by trustees retain their character (for example, as capital gains or franked dividends) when they flow through to beneficiaries.

To address these issues, the Assistant Treasurer, the Bill Shorten, announced on December 16 a public consultation process as the first step towards updating the trust income tax provisions in Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) and rewriting them into the 1997 Act.

“In developing an initial consultation paper for release in the first part of 2011, Treasury will draw heavily on the expertise of the private sector, particularly through the established Tax Design Panel process and the Board of Taxation,” said Mr Shorten.

“The options to be canvassed in public consultation will be developed within the broad policy framework currently applying to the taxation of trust income,” he said.

Any options will seek to ensure that net taxable income of a trust is assessed primarily to beneficiaries. Trustees will continue to be assessed only to the extent that amounts of net taxable income are not otherwise assessable to beneficiaries. The options will not include the taxation of trusts as companies, which would be a major departure from the current law.

“Based on advice I have sought from the Board of Taxation, I will also consider further whether there are any issues that must be addressed in this current tax year,” said the Assistant Treasurer.

The development of these options and the updating and rewriting of the trust income tax provisions responds to Recommendation 36 of Australia's Future Tax System review, which was conducted by an independent panel chaired by Treasury Secretary, Dr Ken Henry.

“Trust tax law has been an ongoing issue for some time and it is important to simplify the system, rewrite the rules and give more certainty to the many thousands of small businesses and farmers who use trusts. I encourage all interested stakeholders to make a submission to the consultation,” Bill Shorten said.

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The Report

Offshore Trusts Guide: Introduction

The History of Offshore Trusts
Development of Professional Competence in the Jurisdictions
What Future for the Trust?
The New Age of Transparency
The Swiss Association of Trust Companies
The Society of Trusts and Estates Practitioners

Offshore Trusts Guide: Jurisdictions

Bahamas

Bahamas: Legal Framework and Formation Rules and Fees
Bahamas: 2006 Private Trust Companies Legislation

Barbados

Barbados: Legal Framework and Formation Rules and Fees
Barbados: Supervisory and Licensing Regime and Fees

Bermuda

Bermuda: Legal Framework and Formation Rules and Fees
Bermuda: Supervisory and Licensing Regime and Fees

British Virgin Islands

British Virgin Islands: Legal Framework and Formation Rules and Fees
British Virgin Islands: Special Trusts Act 2003
British Virgin Islands: The Trustee Act 2003
British Virgin Islands: :Supervisory and Licensing Regime and Fees
British Virgin Islands: New Laws on Private Trust Companies
British Virgin Islands: New Private Trust Company Regulations

Cayman Islands

Cayman Islands: Legal Framework and Formation Rules and Fees
Cayman Islands: Supervisory and Licensing Regime and Fees

Cook Islands

Cook Islands: Legal Framework and Formation Rules and Fees
Cook Islands: Supervisory and Licensing Regime and Fees

Cyprus

Cyprus: Legal Framework and Formation Rules and Fees
Cyprus: Supervision, Licensing and Tax

Gibraltar

Gibraltar: Legal Framework and Formation Rules and Fees
Gibraltar: Legislation, Regulation and Supervision

Guernsey

Guernsey: Legal Framework and Formation Rules and Fees
Guernsey: Trusts Law 2007

Isle of Man

Isle of Man: Legal Framework and Formation Rules and Fees
Isle of Man: Supervisory and Licensing Regime
Isle of Man: Uses Clients and Tax Treatment

Jersey

Jersey: Legal Framework and Formation Rules and Fees
Jersey: Supervisory and Licensing Regime
Jersey: Trusts Amendment Act 2006
Jersey: Foundations

Liechtenstein

Liechtenstein: Legal Framework and Formation Rules and Fees
Liechtenstein: Regulation Supervision and Transparency
Liechtenstein: Characteristics of Liechtenstein Trusts
Liechtenstein: Foundations

Madeira

Madeira: Legal Framework and Formation Rules and Fees

Malta

Malta: Legal Framework and Formation Rules and Fees
Malta: The Trust and Trustees Act 2004

Mauritius

Mauritius: Legal Framework and Formation Rules and Fees
Mauritius: Characteristics of the 2001 Trusts Act
Mauritius: Additional Provisions of the 2001 Trusts Act
Mauritius: Tax Treatment

Monaco

Monaco: Legal Framework and Formation Rules and Fees

Nevis

Nevis: Legal Framework and Formation Rules and Fees

Panama

Panama: Legal Framework and Formation Rules and Fees
Panama: Requirements for Acting as Trust Company in Panama

Seychelles

Seychelles: Legal Framework and Formation Rules and Fees

Turks & Caicos

Turks & Caicos: Legal Framework and Formation Rules and Fees
Turks & Caicos: The Voidable Dispositions Ordinance

Vanuatu

Vanuatu Legal Framework and Formation Rules and Fees




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