Trustee Resolutions

[Rob G.]

If you are going to commit a tax fraud, there is not time limit for the Commissioner to amend an assessment.

Advisers are subject to a higher duty of care and consequently subject to more severe penalties.

If just one trustee of a particular "adviser" is audited and found to have falsified their resolutions, then the chances are that all their clients will be treated as "high risk" by the ATO.

Trustees are also subject to a higher duty of care under trust law, and leave themselves personally liable to actions by beneficiaries, as well as ASIC (if corporate).

This thread started off being educational.

Cheers,

Rob

 

[a.adams]

I don't think anyone is misunderstanding the ATO's stance on resolutions. The ATO position is actually quite clear and simple to understand. However it is rather a question of trust law, its practicalities with tax law, and the inefficiencies of certain aspects of its application.

The question really is, if the ATO requests for a trustee to demonstrate a resolution was made before 30 June (whether verbal, written, or in another form) there is little stopping the trustee amending the details of the evidence (if made at all) to make it more tax effective in light of more recent information.

 

[Rob G.]

The question really is, if the ATO requests for a trustee to demonstrate a resolution was made before 30 June (whether verbal, written, or in another form) there is little stopping the trustee amending the details of the evidence (if made at all) to make it more tax effective in light of more recent information.

That is what the thread has degenerated to ... whether to commit fraud or not.

I would not expect an adviser to recommend that a trustee should falsify a statutory declaration (the tax return), or at least allude that it most likely would not be discovered if done in a specific way.

I would not expect the adviser's insurance company to be too sympathetic, nor their professional association.

The last thing we want is even more compliance regulation because of poor or illegal practice.

This issue is nothing to do with trustee resolutions, but is merely a 'how likely am I to get caught' issue.

There are a number of ways that an effective distibution can be made before the actual quantity is known.

Cheers,

Rob

 

[Ausprop]

would be interesting to know (but we never could) how many resolutions are actually made before June 30. I would guess in the order of 1 to 5%?

 

[NedKelly]

I am sure that from now the figure will be 100%.

 

[Terry_w]

Usually in a small family you would know who is going to get any distributions from the trust. Usually each kid would get the first $416 (so no tax payable), and then each non working spouse would get the next $20,400 or so any trust income over this would still probably go the the non working spouse up to a certain amount and anything over that distributed equally between spouses or to a family company.

Something like this would be easy to do a resolution for on June 30, or even July 12 months before the end of the tax year.

I can't imagine any adviser would be telling clients they can change things around after 1 July.

 

[coastymike]

Ato will easily be able to launch cases where the distributions are exact amounts to two or more different beneficiaries instead of percentages.

E.g. Betty gets 2,450, terry gets 11,286. Funnily the resolution matched exactly to the distributed amount which uncannily equals the trust tax distribution. Ato asks how you knew the exact profit when things like depreciation etc hadn't been calculated. Then not only a trustee assessment but up for tax evasion, penalties and interest.

A distribution that said Betty gets 25% and terry the remainder or Betty gets 2,450 and terry the remainder isn't such an issue. You and your adviser should be doing some tax planning before 30th June to determine these amounts. Otherwise advisers will need to apply the law and the trustee will be assessed.

 

[coastymike]

would be interesting to know (but we never could) how many resolutions are actually made before June 30. I would guess in the order of 1 to 5%?

Then 95 to 99 per cent of trusts will be taxed at the trustee level. If found during audit to have committed tax fraud your penalties will be 75 per cent plus a potential 20 per cent uplift penalty. You will also face possible criminal prosecution.

I have done a number of offshore voluntary disclosures to know that people better get this right or the ato will be asking a lot of questions during audit. By that time your adviser will have left you in the dark and your only recourse will be a professional indemnity insurance claim which could take 2 or more years to resolve.

 

[coastymike]

For those reading this thread who haven't done their trust resolution then you have 6 days to do some quick tax planning.

Do an estimate of the trust profits. Then do estimates of the tax position of the potential beneficiaries. This will give you an excellent idea who should receive a trust distribution for tax planning purposes. If it is obvious the wife should get everything then do a resolution stating she will receive 100 percent of trust income.

If children are involved then again make sure they receive a tax effective amount.

It actually isn't that hard. It means a little bit of planning which in the past has been done restrospectively. This has now changed.

 

[Ausprop]

For those reading this thread who haven't done their trust resolution then you have 6 days to do some quick tax planning.

Do an estimate of the trust profits. Then do estimates of the tax position of the potential beneficiaries. This will give you an excellent idea who should receive a trust distribution for tax planning purposes. If it is obvious the wife should get everything then do a resolution stating she will receive 100 percent of trust income.

If children are involved then again make sure they receive a tax effective amount.

It actually isn't that hard. It means a little bit of planning which in the past has been done restrospectively. This has now changed.

presumably get the resolution certified by a JP?

 

[Ausprop]

it's not inconceivable that trustees would get a plethora of resolutions witnessed and then tear up the non-applicable ones

 

[Perp]

If you're one of the lucky ones whose Trust will have a loss to carry forward (again ) is there any need to do anything?

 

[Terry_w]

If you're one of the lucky ones whose Trust will have a loss to carry forward (again ) is there any need to do anything?

To carry the loss forward you may need to make a family trust election.

 

[coastymike]

it's not inconceivable that trustees would get a plethora of resolutions witnessed and then tear up the non-applicable ones

So you would rather go to all the effort of committing tax fraud than spending the same time doing a little bit of planning. Guess it shows where your mind is at. Do you cut the same corners on your developments ?

 

[Ausprop]

So you would rather go to all the effort of committing tax fraud than spending the same time doing a little bit of planning. Guess it shows where your mind is at. Do you cut the same corners on your developments ?

I am talking about the general public...not sure why you are taking it personally?

FWIW I will draft up some resolutions by the weekend.

 

[Aaron_C]

I am talking about the general public...not sure why you are taking it personally?

It's OK, coastymike likes to use hyperbole to make a point. I have been a target of that zealousness before. However, 'fraud' is a very strong word with very criminal connotations that do not always apply.

 

[Rob G.]

If you're one of the lucky ones whose Trust will have a loss to carry forward (again ) is there any need to do anything?

Your trust deed might not allow it, or it might require the trustee to make a resolution about how it is to be apportioned between income and capital beneficiaries etc.

You might like to also check whether your trust has ceased to exist if you have losses and you are a $10 settled sum trust.

Might be worth checking within the next few days.

Cheers,

Rob

 

[Perp]

Your trust deed might not allow it, or it might require the trustee to make a resolution about how it is to be apportioned between income and capital beneficiaries etc.

Trust deed allows carrying forward of losses etc, but will check.

You might like to also check whether your trust has ceased to exist if you have losses and you are a $10 settled sum trust.

Have I missed something important here? What's this about?

 

[Rob G.]

It's OK, coastymike likes to use hyperbole to make a point. I have been a target of that zealousness before. However, 'fraud' is a very strong word with very criminal connotations that do not always apply.

It is my understanding that Coastymike is a practicing tax specialist with an MTax qualification which puts his professional study about 100x more comprehensive than your average 'tax agent'.

Sadly, we have a bit longer to wait until the loophole is closed that currently allows finance brokers to give tax advice. However, the scope of that loophole is quite restrictive.

The ATO has been increasingly resorting to the criminal courts, especially where any international transaction is involved because it gives much greater scope to pursue and acquire information from other governments.

Cheers,

Rob

 

[coastymike]

Thats right Rob. We have an outsourcing operation in Manila, Philippines where we do the accounting and taxation returns for Australian accounting firms. We also do a lot of SMSF back end daily administration.

I do have an MTax and a lot of practices send the work to us because they admit they are a bit behind with changes etc and know we are up to date. Thats why I am passionate about getting things right and find it frustrating when suggestions are made which put both the client and the adviser at risk.

I have no idea who RobG is or who he works for but his advice has always been incredible and extremely accurate. He is a great resource for this forum and if you were using him as your personal tax adviser you would be very well reserved. Wouldn't surprise me if he was a tax barrister or tax lawyer based on his advice to date. Now when RobG is telling people the same thing I think people should stand up and listen.

I am quite aware of the definition of fraud having dealt very closely with the offshore voluntary disclosure unit and serious non compliance and some of the suggestions being made here do constitute fraud and criminal charges would certainly apply. If you don't think it is very serious go ahead and see what happens when an experienced ATO officer from serious non compliance issues you with a Section 264 notice and you and your adviser are in a room with a tape recorder and under oath. Interesting to see what your responses might be.

And don't think the ATO isn't aware of somersoft. They are fully aware of this site and some people are posting suggestions with links to their websites and who they are.