In media release No 2010/025 issued 16 December 2010, the Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, announced that the Government plans to introduce amendments before 30 June 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 FCT 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 Government also made a commitment to update Australia's trust taxation laws.
The Assistant Treasurer said that there are 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 announced a public consultation process as the first step towards updating the trust income tax provisions in Division 6 of Part III of ITAA 1936 and rewriting them into ITAA 1997.
The Assistant Treasurer said that 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.