Announcement on Trust Taxation Amendments (Bamford)

The Assistant Treasurer and Minster for Financial Services and Superannuation, the Hon Bill Shorten MP, addressed the National Convention of the Taxation Institute of Australia in Brisbane this morning.

In doing so, he made a number of specific announcements regarding the Government’s policy and intentions with respect to income tax law, particularly the taxation of trusts and trust beneficiaries.

His opening remarks, whch included the legislative policy announcements, were of particular interest in light of the uncertainties that have surrounded the taxation of trust income following the High Court’s decision in FCT v Bamford; Bamford v FCT [2010] HCA 10 (High Court; French CJ, Gummow, Hayne, Heydon and Crennan JJ; 30 March 2010)1.

Specifically, the Assistant Treasurer announced that the Government will be adopting two recommendations from the Board of Taxation in an effort “to simplify the tax law for over 600,000 trusts” by addressing “two key areas of uncertainty for trusts”, by seeking to amend the Income Tax Assessment Act 1936 (Cth) [ITAA36] in order to:

1. clarify the definition of “the income of a trust estate” – a clear reference to section 97(1) of ITAA36 – to address situations where the tax burden falls on a beneficiary despite not having received the economic benefit …;

2. enable the streaming of capital gains and franked distributions to beneficiaries.

Moreover, the Minister implied that streaming would be allowed in respect of all forms of trust income (not just capital gains and franked distributions, which he noted specifically), by adding:

“Obviously, before the Bamford case, trusts commonly streamed income to particular beneficiaries, and we want to ensure that this flexibility can continue to apply.”

These proposed legislative changes are to apply in respect of the 2010/11 and subsequent years of income, and will be covered in more detail in a discussion paper to be released by Government today.

Importantly, the Assistant Treasurer emphasised that the Government does not equate trusts to corporations, nor will it seek to tax trusts in the same manner as companies.

The Assistant Treasurer closed the main section of his address regarding taxation of trust income by noting that “[t]here’ll be more to come in terms of the taxation of trusts”, that “the Gillard Government remains committed to updating and rewriting trust laws more broadly” and that, whilst there were “no easy answers” to all the issues raised in Bamford, he considered these legislative changes “interim steps to ensuring greater confidence and certainty in trusts”.

“[W]e’re going to actually apply some common sense to the system, in terms of the treatment of trusts”.

The Assistant Treasurer also, encouragingly, acknowledged the remarks of one Convention attendee, highlighting the need for amnesty from the perils of trust resettlement in order to enable trust deeds to be brought into line with any such legislative amendments.

We will provide further updates on the proposed changes to trust taxation as developments occur.

1. See also Donaldson Walsh Taxation & Revenue Article November 2009, ‘The Buzz Surrounding Bamford’, for a discussion of the relevant issues in light of the Full Federal Court’s decision, as upheld by the High Court, attached. See also:

For more information, please contact:
Sandy Donaldson

Sandy Donaldson
p.  +61 8 8124 1954
e.  Email me

This communication provides general information which is current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Should you wish to discuss any matter raised in this article, or what it means for you, your business or your clients' businesses, please feel free to contact us.

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