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30 Jun 11 Trust streaming and anti-avoidance rules

On 4 March 2011, the Government released a discussion paper that canvassed options to:

  • better align the concept of “income of the trust estate” with “net income of the trust estate”, and
  • enable the streaming of capital gains and franked distributions.

The Government has decided to defer consideration of the income alignment proposal until the broader update and rewrite of Division 6 of Pt III ITAA 1936.

In the meantime, legislation to enable the streaming of franked dividends and capital gains for tax purposes, as well as targeted anti-avoidance rules, was introduced into Parliament as part of the Tax Laws Amendment (2011 Measures No 5) Bill 2011. On 23 June 2011 that Bill was passed by the Parliament without amendment. As at 30 June 2011, it is awaiting Royal Assent. The proposed law changes are intended to apply to the 2010-2011 and later income years.

ATO administrative treatment for 2010-2011

The ATO recognises that the passage of this legislation so close to the end of the income year in which it is to apply will cause practical difficulties for both tax advisers and trustees. Hence, the Commissioner will put in place two administrative arrangements.

  1. The first will extend the time for trustees to record a beneficiary's entitlement to a franked distribution for the purpose of the new legislation.
  2. Also, the ATO will not select cases for review or audit in respect of the 2010-2011 income year for the sole purpose of determining whether the purported streaming of capital gains or franked distributions by a trustee is tax effective.

More information on these arrangements, including the new timeframes, will be available on the ATO website from the afternoon of Friday 1 July 2011, and will be reported in TaxVine.

 For more information go here and here.