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Rethink on trust distributions

Publication date: 25 Sep 09 | Source: THE TAX INSTITUTE

Australia's premier professional tax body, the Taxation Institute of Australia, welcomes the decision by the Commissioner of Taxation to reconsider recent indications from the Australian Taxation Office (ATO) that changes will be made to the tax treatment of trust distributions which are declared but not paid to private companies (ie unpaid present entitlements).

Comments by a Deputy Commissioner of Taxation in February and March this year indicated that the ATO was seeking to change the tax treatment of unpaid present entitlements (UPEs) and tax UPEs as loans. These comments shocked the tax profession and the level of concern grew with the release of a confidential discussion paper in July this year outlining the ATO's proposed new approach.

Trusts are a long standing and legitimate entity structure chosen by many families and businesses for their convenience, flexibility and asset protection advantages. UPEs have also been around for a long time. The issue of whether an UPE could be treated as a loan has been discussed since as far back as 1996 and the overwhelming view is that UPEs were not intended to be treated as loans.

Following the release of the ATO paper in July, the Taxation Institute and other professional bodies have been involved in many consultations with the ATO to discuss and resolve this issue.

Based on a meeting held today with the ATO, "it appears that the Commissioner has listened to, and taken into account, the concerns expressed by the professional bodies and will reconsider their view regarding taxing UPEs on the basis that they are loans" said President of the Taxation Institute, Joan Roberts.

Ms Roberts considers that the progress made in relation to this issue so far illustrates the importance of the professional associations working together and providing frank and practical comments to the Commissioner with a view to improving taxation administration and taxpayer certainty through greater transparency and consistency in the application of taxation laws.

Although this issue is not yet fully resolved, Ms Roberts stated that she expects that "the matter will be satisfactorily resolved with the ATO in the coming months".

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Media Contacts:

Joan Roberts, President - Taxation Institute of Australia on 0419 308 141
Angie Ananda, Tax Counsel - Taxation Institute of Australia on 02 8223 0011