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).
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