Unscrambling the egg: Current tax and trust issues in family law paper

Published on 04 Aug 09 by SOUTH AUSTRALIAN DIVISION, THE TAX INSTITUTE

Note: This paper is almost identical to the paper "Trust Busting" by Arlene Macdonald delivered at the 2009 National Convention held in March 2009.

The High Court's decision in Kennon v Spry in December 2008 affirmed the Family Court's powers to notionally divide family discretionary trust assets between spouses. It also affirmed the Court's power to set aside trustee distributions of capital and income.

This paper summarises this important case and provides an analysis of the majority decisions in order to draw out the following practical implications for tax advisers with unhappily married or recently divorced clients. In addition, the paper briefly looks at what the Family Court does with the tax debts of the spouses. In particular:

• are assets of certain types of discretionary trusts (eg testamentary trusts or parent's or children's trusts) less likely to be added to the pool for division between the spouses?
• what are the tax implications for trustees and beneficiaries where the Court sets aside prior year trustee distributions of income and/or capital (as in Kennon v Spry )?
• possible strategies for clients whose marriage is heading for divorce (or has already gone there).

Author profile

Arlene Macdonald CTA-Life

Until her recent retirement, Arlene was a Barrister at the South Australian Bar for 17 years. Prior to this she spent 8 years at the Australian Government Solicitor's Office, and several years at the ATO and the Commonwealth Ombudsman's office. At the Bar she appeared and advised in a wide range of Commonwealth and State tax disputes concerning income tax, CGT, GST, stamp duty, payroll tax, land tax and other tax issues. Arlene is experienced in acting for the Commissioner of Taxation and for the range of taxpayers who were in dispute with the revenue authorities or who needed advice on how tax law applies in their case. She has a passion for legal education, especially in tax and trust law. She was awarded life membership of The Tax Institute in 2010 particularly for her work over many years in organising, promoting and providing education through The Tax Institute. She has written a vast number of papers and articles and is a highly sought after speaker. - Current at 16 February 2015

More by Arlene MACDONALD

• Irreconcilable differences paper - 02-May-2013
• Significant trust issues in estate planning paper - 11-August-2011
• Asset protection paper - 20-May-2011
• Introduction to taxing of trusts paper - 29-March-2011
• Introduction to trusts paper - 29-March-2011
• Protecting the family assets (trusts and divorce): Part 2 - 01-February-2011
• Protecting the family assets (trusts and divorce): Part 1 - 01-October-2010
• Protecting the family assets (trusts and divorce) paper - 19-August-2010
• Tax issues in family law property divisions paper - 06-May-2010
• Introduction to taxation of trusts paper - 23-February-2010
• Lost love and lost money - An incendiary combination: Current tax and trust issues in the Family Court paper - 17-October-2009
• Tax consequences of inheriting property paper - 23-March-2009
• Trust busting, tax and the family court - Current issues for SME tax advisers paper - 12-March-2009
• Introduction to taxing of trusts paper - 25-March-2008
• Introduction to trusts paper - 13-February-2008
• The Court as a trust buster - where assets of a discretionary trust are at risk paper - 28-August-2007
• Running a tax dispute at the AAT paper - 04-May-2007
• Testamentary trusts: not just 'another' trust? paper - 23-November-2006
• Practical guide to using trust losses paper - 05-May-2006
• Bankruptcy and the family court: tearing apart the wedding cake - 01-September-2005
• Dividing matrimonial property between spouses, the ATO and other creditors paper - 18-August-2005
• Introduction to the taxing of trusts paper - 24-May-2005
• Introduction to trusts paper - 24-May-2005
• When are you able to put the tax year away? paper - 17-March-2005
• Winding up trusts seminar paper - 03-November-2004
• My Client the Deceased: When two certainties collide 'death' and 'taxes' - 04-June-2004
• My Client the Divorcee - minimising the tax liability on the division of property seminar paper - 16-September-2003
• My Client the Divorcee seminar paper - 28-March-2003
• Mass marketed schemes - 02-May-2002
• The essential principles of the law of trusts - 21-February-2002
• The GST Implications of Ending Disputes - 01-September-2001
• The GST court order and settlement maze - 01-September-2001
• Case Study: Interest Deductibility - 23-August-2001
• The Commissioner's big black dog 10 years on - practical update on Part IVA - 15-August-2001
• Dispute Resolution - GST - 04-July-2001
• The Too Hard Basket: Dealing with Old Tax Problems - 11-May-2001
• The Too Hard Basket - Dealing with Old Tax Problems - 23-March-2001
• Mass Marketed Schemes - Practitioner's View - 14-March-2001
• The GST: An update of significant amendments and analysis of practical implications - 25-February-2000
• Dying to be taxed: death and capital gains tax - 09-June-1999
• Dying to be taxed: death and capital gains tax - 01-June-1999
• CGT the case study way: death - the ultimate rollover - 24-March-1999
• Insurance, ralph interface, second hand goods, procedures when no tax invoices, ATO ruling status - 25-February-1999
• Tax and marriage - 21-August-1998
• Tax and marriage - 21-August-1998
• Section 108 - 30-April-1998
• Section 108 - the new regime - 30-April-1998
• Section 108 - 30-April-1998
• Recent tax cases & developments - 18-February-1997

Click here to expand/collapse more articles by Arlene MACDONALD.