A few months ago I started a thread reminding readers of the requirement to have trust distribution resolutions done before 30th June each year.
Hopkins v Federal Commissioner of Taxation is a recent Administrative Appeals Tribunal case where the tax payer used, to their advantage, the fact that the trustee didn't do the resolution in time and to get out of a penalty.
The discretionary trust was the owner of units in a unit trust. Some of the unit trust's deductions were disallowed and this caused the income of the unit trust to increase. This only came to light well after the end of financial year.
Because the income of the unit trust increased this meant the discretionary trust had more income than was declared in the tax return. The ATO just applied this extra income to the tax payers who had received distributions from the trust in proportion to their distribution percentage.
This lead to one individual receiving a large tax bill.
This individual protested the ATOs decision because the trustee did not make a resolution to distribute the extra income.
The trust deed in question had specific instructions on what happens to income which is not subject to a resolution to distribute before 30 June each year. The deed had a default clause which said the undistributed income was to go to the primary beneficiaries in equal portions. It turned out that there was 46 primary beneficiaries.
So had the deed been followed the tax payer would only have received 1/46th of the extra income of the trust and therefore should only be taxed on this amount.
The AAT agreed with the taxpayer that the ATO's assessment was excessive and the ATO was ordered to reconsider.
Hopkins and Anor and Commissioner of Taxation [2012] AATA 324
http://www.austlii.edu.au/au/cases/cth/aat/2012/324.html
Hopkins v Federal Commissioner of Taxation is a recent Administrative Appeals Tribunal case where the tax payer used, to their advantage, the fact that the trustee didn't do the resolution in time and to get out of a penalty.
The discretionary trust was the owner of units in a unit trust. Some of the unit trust's deductions were disallowed and this caused the income of the unit trust to increase. This only came to light well after the end of financial year.
Because the income of the unit trust increased this meant the discretionary trust had more income than was declared in the tax return. The ATO just applied this extra income to the tax payers who had received distributions from the trust in proportion to their distribution percentage.
This lead to one individual receiving a large tax bill.
This individual protested the ATOs decision because the trustee did not make a resolution to distribute the extra income.
The trust deed in question had specific instructions on what happens to income which is not subject to a resolution to distribute before 30 June each year. The deed had a default clause which said the undistributed income was to go to the primary beneficiaries in equal portions. It turned out that there was 46 primary beneficiaries.
So had the deed been followed the tax payer would only have received 1/46th of the extra income of the trust and therefore should only be taxed on this amount.
The AAT agreed with the taxpayer that the ATO's assessment was excessive and the ATO was ordered to reconsider.
Hopkins and Anor and Commissioner of Taxation [2012] AATA 324
http://www.austlii.edu.au/au/cases/cth/aat/2012/324.html
