On 24 April 2012, Ken Schurgott FTIA (Schurgott Noolan Pty Ltd) and Andrew Mills FTIA (Greenwoods & Freehills) represented The Tax Institute at a meeting of the ATO's Trusts Consultation Sub-Group. At that meeting, attendees discussed a range of issues. A short summary is set out below.
Update on ATO ID 2011/58
The Chair advised members that a draft determination about the issue dealt with in ATO ID 2011/58 (whether Division 6 is an exclusive code) was considered by the Public Rulings Panel at a meeting on 2 April 2012.
The draft ruling took the view that whether or not trust distributions were assessable under section 6-5 would depend on their character in the hands of the recipient and the usual indicators of ordinary income. However that approach does not necessarily accord with industry practice or expectation (The Tax Institute's submission to the ATO on this ruling can be accessed here).
As a result of Panel discussion, the Chief Tax Counsel, determined that the issue will be withdrawn from the public rulings program.
Trustee Resolution Compliance Project
The ATO provided members with an update on the trustee resolution compliance project. Specifically:
- An ATO letter (designed in consultation with sub-group members) will be sent to 1,200 trustees in early May 2012. The letter will be sent to the trustees at their address for service of notice which in most instances will be their tax agent’s address.
- The ATO is currently in the process of producing a fact sheet intended to provide guidance to trustees and will be consulting on the fact sheet with sub-group members prior to its release.
Trust tax return changes
The ATO provided an overview of changes to the trust tax return 2012. By way of summary, the ATO indicated that there will be:
- a new label in the trust return’s statement of distribution to record a beneficiary’s share of net franked distributions (including the franking credit gross-up) to facilitate the new streaming amendments. Formerly these amounts would have been included at the share of non-primary production income label.
- complementary labels for these amounts in the Individual’s Return as well as at Question 8 in the Trust Return
- a new label for capital gains where the trustee elects to be assessed on behalf of a beneficiary
- a new label in the trust return to separately record the distributable income of the trust estate together with a new label on the statement of distribution to record the beneficiary’s share of the distributable income to which they are entitled.
Discussion on TR 2012/D1
Members discussed the ATO's recently issued TR 2012/D1 (re the meaning of income of the trust estate in Division 6).
Members indicated that as currently drafted, the ruling is causing considerable confusion and concern amongst tax practitioners. Members provided many examples of their areas of concern, including in respect of amounts where there were timing differences between their recognition in an accounting or economic sense and their recognition for tax purposes. Concerns were also raised about the retrospective application of the ruling.
Members suggested that the ATO should not proceed with the ruling given that the issue will be dealt with as part of the broad review of trusts.
The ATO agreed that it would consider the examples provided in the context of the discussion in greater detail when deciding what approach it will take in respect of the draft TR. The Tax Institute will be making a joint submission setting out our concerns with this draft ruling. If you wish to contribute to this submission, please do not hesitate to contact us at Tax Policy.
Revised Clark Decision Impact Statement
The ATO advised members that it proposed to amend the Clark Decision Impact Statement to make it clear that the principles in case are also relevant to the question of when CGT Event E1 may happen consequent on changes being made to an existing trust. In that context the ATO accepts that the reasoning of the court in Clark has the effect that a valid amendment to a trust, not resulting in a termination of the trust, will not of itself result in the happening of CGT event E1.
The ATO also indicated that it does not plan to issue a revised Statement of principles but plans to issue a Taxation Determination to this effect.
Treasury update on trusts taxation reform
Treasury provided an update on the trusts rewrite project. Specifically, Treasury indicated that the Government is still very much committed to the reform of trust taxation although resources constraints within Treasury have meant that progress has not been as rapid as Treasury had anticipated.
In terms of timeframes Treasury indicated that:
- subject to approval from the Minister’s office, a discussion paper about fixed trusts is expected to be published in mid to late June.
- in the context of the broad review, a policy design paper is planned to be issued to provide more detail about how the models could work. The May 2012 timeframe for the release of this paper (indicated in the consultation strategy) will not be met, but the paper should be expected after the fixed trust paper.
- Treasury will be raising with government the increasingly tight timeframes that will have to be met if the Managed Investment Trusts regime is to commence, as previously indicated, on 1 July 2013.
Members who seek further detail in respect of the above are encouraged to contact us at Tax Policy.