Trusts granted two more months to get up to speed with new income streaming laws

Trustees have been granted an extra two months by the Tax Office to get their trust deeds up to speed with new laws regulating the streaming of franked dividends. 

The announcement ends more than a year of discussion about the streaming of franked dividends, after the High Court found streamed income may not be granted to certain individuals unless they are specifically named in a trust’s deed.

However, PKF tax partner Sharon Burke says the act has some more complexities, and trust managers will need to read the legislation carefully.

“The change will allow trustees to distribute streamed income to beneficiaries, but the law goes through a complicated example of how that will work. It’s not necessarily straight-forward.”

Assistant Treasurer Bill Shorten introduced a bill into parliament earlier this month which clarifies whether trusts are able to stream capital gains and franked dividends.

That bill has now been granted royal assent, but the ATO says trust managers now have an extra month to get up to speed.

The move has been welcomed by the Tax Institute, which says it will allow 600,000 trusts the ability to become familiar with the legislation before being subject to it.

“The ATO guidance follows consultation by the ATO with the Tax Institute and other professional associations,” senior tax counsel Robert Jeremenko said in a statement. “It is good to see the ATO taking on board the profession’s concerns and adopting a practical approach.”

The new law states that in order for a trust to distribute capital gains and franked dividends to beneficiaries, those trustees must be explicitly defined in the trust deed itself. This was highlighted in last year’s Bamford decision in the High Court, which created confusion over whether trusts were allowed to stream that income at all.

Now, the Tax Institute says trust managers have until August 31 to make sure their records satisfy for the “specifically entitled” requirement for franked distributions.

“Whilst the ATO will not be selecting cases for audit solely to determine whether trustees have complied with the law, they will be investigating cases where there has been a deliberate attempt to exploit weaknesses or deficiencies in the new provisions,” the institute warns.

Jeremenko says the ATO’s message is clear, and “trustees must play by the rules and conform to the intent of the policy”.

But Burke says trust managers will need to read the legislation carefully, as there are some quirks that could apply to certain individuals.

“It’s not straight-forward, and you still need to take what is called a proportionate approach. It would be worthwhile for trustees to read the legislation and the examples of what is involved.

“The devil is in the detail.”