No more trust streaming after June 2010

[Francesco]

CPA has advised that ATO Practice Statement PS LA 2010/1 prohibits trustees from streaming different classes of income (e.g. capital gains) to different beneficiaries from 1 July 2010. Further, from that date any distribution of a capital gain will have to be included in an income beneficiary’s share of net income even where the amount is actually distributed as part of trust accounting income to separate capital beneficiaries.

Anyone knows whether this includes Hybrid Discretionary Trust?

 

[bene313]

Hmm not sure about that Francesco. Can you post the CPA advice? Doesn't sound right. I didn't read the PS as prohibitting streaming.

A discretionary trust (or HDT) may stream different classes of income as it's deed allows.

 

[Francesco]

Hmm not sure about that Francesco. Can you post the CPA advice? Doesn't sound right. I didn't read the PS as prohibitting streaming.

A discretionary trust (or HDT) may stream different classes of income as it's deed allows.

At item 14:

http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/tax-tips-30-june-2010.pdf

 

[coastymike]

The ATO have removed their support for streaming of capital gains from other income from 1 July 2010. HDT's are no different, nor have they been in my opinion. There is a case coming up this year that might change things so will be an interesting year.

 

[alexlee]

Say a family trust makes 7,000 in fully franked dividends, and 2,000 in capital gains. Previously, the trust could distribute 7,000 dividends + franking credits to beneficiary 1, and 2,000 in CG to beneficiary 2.

So from 1 July 2010, the distribution can only be proportionate, e.g. one beneficiary gets 80% and another 20%? Or 5,600 fully franked divs + 1,600 capital gains, and the other 1,400 fully franked divs and 400 capital gains? Or whatever combination as long as it's proportionate?

 

[Francesco]

Say a family trust makes 7,000 in fully franked dividends, and 2,000 in capital gains. Previously, the trust could distribute 7,000 dividends + franking credits to beneficiary 1, and 2,000 in CG to beneficiary 2.

So from 1 July 2010, the distribution can only be proportionate, e.g. one beneficiary gets 80% and another 20%? Or 5,600 fully franked divs + 1,600 capital gains, and the other 1,400 fully franked divs and 400 capital gains? Or whatever combination as long as it's proportionate?

I thought this proportionate rule of distribution of capital gains had always applied to discretionary trust regardless of what the trust deed specified. My tax accountant had applied this method in my tax returns years ago. This is why it is puzzling to me that this props up now. What else new is it supposed to apply to?

 

[MattR]

The Bamford case seemed to pretty well set the proportionate approach. However it leaves questions and its probably going to require more test cases to obtain full clarity or at least some degree of certainty by trustees.