Following discussions with the NTLG Trust Subgroup, the ATO has prepared the following advice to assist taxpayers and tax agents in completing label 64 and related label 65W on the Trust Tax Return Form:
What amount is required to be shown at label 64A and 65W?
As per the trust return instructions, the amount to be included at label 64A is the total income of the trust that is legally available for distribution to trust beneficiaries for the income year (distributable income). In determining that amount careful consideration should be given to the trust deed, the trust accounts and relevant resolutions and determinations.
Label 65W records the amount of the trust's distributable income that each beneficiary was presently entitled to by the end of the income year.
Why have labels 64A and 65W been introduced?
These labels have been introduced to assist with the administration of the trust assessing provisions. For example, the figures shown at these labels will provide a starting point for the Commissioner if it becomes necessary to consider what assessments or amended assessments are required as a result of adjustments to the net income of a trust. Other matters that the Commissioner will consider are the terms of the relevant trust deed, any determinations or resolutions made pursuant to it and the trust financial statements.
While these are new labels, the income of the trust is nevertheless a figure that the trustee has been obliged (at least since Bamford) to calculate in order to work out each beneficiary’s corresponding share of the trust’s net (taxable) income and likewise is an amount that the trustee needs to know for trust purposes in order to determine what amounts can in fact be distributed to beneficiaries.
Should the distributable income shown at label 64A be based on the views expressed by the Commissioner in Taxation Ruling TR 2012/D1?
Draft Taxation Ruling TR 2012/D1 provides guidance on the meaning of distributable income. Under self-assessment, you can follow the meaning as set out in the ruling or, if you disagree with aspects of that ruling, you can apply what you understand the term to mean for the purpose of present entitlement and completing labels 64A and 65W.
The amount which you show at labels 64A should be the trustee’s honest determination of the trust's distributable income. The trustee may think that its distributable income is calculated based on one of the alternative views in TR 2012/D1, for example, according to a so-called ‘income equalisation clause’. If so, this is the amount it can include at Label 64A.
Even if the Commissioner later takes the view that the trust’s distributable income is a different amount, the trustee will have made no error in its completion of Label 64A.
What if I leave the labels blank?
We will use labels 64A and 65W to assist us in identifying what may be contrived differences between the income of the trust estate and the net/taxable income of the trust – for example, for the purposes of obtaining tax benefits. Incomplete labels may increase the likelihood of such a review.
We are aware that some trust returns that have already been lodged have not completed labels 64A or 65W. While we do not currently propose to seek that information from those trustees (solely for the purposes of ensuring those returns are complete), we may do so if we are reviewing the trust return for other reasons (including those mentioned above).
When does the ATO plan to finalise TR 2012/D1?
The draft ruling will not be finalised while the review of trust taxation is being undertaken. While the draft continues to reflect the ATO view which officers will apply, the ATO will not commence compliance activity solely with a view to applying any of the views set out in the ruling – those views will only be applied if they become relevant in the context of an audit commenced for some other reason, if we are asked to make a private ruling or in litigation.
In addition, the Commissioner notes that the draft Ruling contains a number of alternative views which in relevant cases may form the basis of a reasonably arguable position.
The ATO has also requested feedback from tax professionals as to what other advice the ATO could provide that may be useful in assisting tax agents and taxpayers to prepare Trust Income Tax Returns. Members with suggestions for advice topics should email us at Tax Policy.