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Tax cases: Can loans to beneficiaries be taxable trust distributions?


It is not uncommon for a discretionary trust to make interest free loans to beneficiaries of the trust that are repayable on demand. These loans or payments are usually treated as loans to the beneficiaries in the accounts of the trust. Although this is common practice careful consideration should be given to the nature of the transaction recorded as a loan to determine whether it is in fact a loan. In Weyers v Commissioner of Taxation [2006] FCA 818 the Court found that approximately $1.8 million of loans to the beneficiaries of the trust were in fact assessable distributions of income. The circumstances surrounding the payment of $1.8 million to the beneficiaries indicated that there was never an intention to repay the money.

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Keith Harvey
Keith, a Principal of Ambry Legal, specialises in tax advice principally in GST and Consolidation. He has presented a number of seminars for the Tax Institute on GST and written several GST articles for Taxation in Australia. - Current at 01 May 2008
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Vanessa Ritzinger
Vanessa is a Lawyer in Madgwicks Revenue Group. - Current at 01 March 2010
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