On the 30th March 2010 the High Court handed down the decision in the Bamford Case that looked at a number of areas regarding trusts. Especially significant was whether a trust deed could define what the “income” of a trust is for the purposes of the Tax Act.
Previously the ATO has regarded trust income as defined by trust law principles. The Bamford Case determined that it is in fact the trust deed that determines what constitutes the “income” of the trust. This is problematic if your trust deed does not define what constitutes income, which is the case for many older trust deeds. For example if your trust deed does not include capital gains as part of trust income then any capital gain could not be distributed to the beneficiaries and taxed at highest marginal tax rate.
Other more technical areas covered relate to treatment of unpaid present entitlements, income streaming and treatment of non-deductible expenses. It is important that any necessary changes required to your trust deed be implemented before the end of the financial year to ensure your distributions for this financial year are in order.
If your concern that your trust deed is not up to scratch, contact us for a review.
