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Trust Planning This Year Needs To Be Done Carefully

Trust Planning This Year Needs To Be Done Carefully

In order to prepare your trust for the end of the financial year, there are multiple obligations that you need to fulfil as a trustee. Planning for your trust’s future is just as important as tax planning or business planning, so it’s encouraged that you take an active role.

Trust Deed

Make sure that there is a complete original copy of the trust deed, including any amendments. You will need to be sure that any resolution that is made to distribute the income from the trust or the capital is consistent with the terms of the deed. A lost trust deed can cost well over $10,000 to rectify.

Trust Distributions

The simplest way to look at trust distributions is to understand that this process is about working out who is getting what and when from the trust.

Generally, discretionary trusts (and some fixed trusts) are required to prepare and execute distribution minutes prior to 30 June for each financial year. This is to explain in detail how the income of the trust will be distributed to beneficiaries for the relevant financial year and must detail any use of income streaming. These minutes must be prepared in accordance with the trust deeds.  Failure to do these resolutions by 30th June will result in the trust paying 47% tax on ALL of its earnings.

When preparing the trust distribution minutes, it may be an idea to retain a nominal amount in the trust for the 30 June 2022 income year. This will assist with generating a notice of assessment for the trust and effectively limiting the amendment period to 4 years (or 2 years for trusts that are considered a small business entity) from the date of that notice.

Broadly, the amendment period is a period of time that the ATO and taxpayer are able to review and amend tax forms to where their taxable income needs to be changed. The period is determined from the date of the relevant notice of assessment.

Where there is no retention of income, trusts are generally not taxable and therefore do not receive notices of assessment. As such, without completing the distribution minutes and retaining a nominal amount in the trust by 30 June 2022, the amendment period will be greater than 4 or 2 years.

Compliance Concerns

A commonly recommended structure for investment and business, family trusts income distributions are a concern for the Australian Taxation Office (ATO)  when it comes to compliance. Recent rulings around trust distributions could complicate the way your trusts are operated and structured and will come into effect on 1 July 2022.

Work together with us to ensure that your trust is compliant with their requirements and that you have met your obligations as a trustee. This is the easiest way to approach your trust planning at the end of the year.

 

The information contained in this publication is for general information purposes only, professional advice should be obtained before acting on any information contained herein. The receiver of this document accepts that this publication may only be distributed for the purposes previously stipulated and agreed upon at subscription. Neither the publishers nor the distributors can accept any responsibility for loss occasioned to any person as a result of action taken or refrained from in consequence of the contents of this publication.


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