If you are involved in a Family Trust (also known as a Discretionary Trust ), whether it be for asset protection or tax planning, you must be aware of the requirements needed to be completed before the end of financial year. This knowledge is important to consider to avoid any further tax implications or scrutiny from monitoring bodies.
Recent Changes in Taxation Laws Affecting Your Tax Obligations
Prior to the recent changes in 2012, the Australian Taxation Office (ATO) allowed for some choice in regards to when a distribution of income was to be made to beneficiaries. However, from the end of the 2011/2012 financial year and thereafter, Trustees who distribute income through a Trust and to Beneficiaries are required to do so before the end of financial year (June 30th). This requirement is in place to ensure beneficiaries are to be examined as part of the Trusts income.
If this requirement fails to be complied with, the consequences may mean that the Trustee may be examined by the (ATO) about the Trust income at the highest tax rate (usually 45%) instead of the intended Beneficiaries tax rate which can be significantly lower.
Following some recent cases, the ATO now requires that Trustees must now distribute the current year’s income before the end of financial year. This strict requirement is in place to ensure Beneficiaries can be entitled to the trust income.
What do you need to do as a member under a Family Trust?
It is required that all Trust members’ income is to be provided for the current financial year and usually an estimated income statement for the upcoming financial year. An accountant can then review the best options for the Family Trust. This will usually be done in the most tax efficient way in distributing any income. A distribution form must then be signed and completed before the end of the current financial year.
If you’re unsure about your obligations under a Family Trust before the end of financial year is upon us, it is important to make time to understand issues sooner rather than later for your own satisfaction. Action taken before the end of financial year may just save you unnecessary time and additional tax payments.
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