Trustee Resolutions

[Terry_w]

For those of you who control trusts make sure you do your trustee resolutions by 30th of June this year.

Many trusts do not pay tax on income that is distributed to beneficiaries. But the beneficiary must receive the money or be presently entitled to the money by the end of the financial year. If this does not happen then the trustee will have retained the income. If a trustee retains income then the trustee would generally be assessed on that income at the top marginal tax rate.

Previously the ATO has allowed resolutions to make made up to a few months after the end of the financial year (contrary to the law). But this year they are not allowing any leeway.

See http://www.ato.gov.au/businesses/content.aspx?doc=/content/00318706.htm

It will be difficult for trustees to know how much money they are going to be distributing and to who if they don't have the trust tax returns completed. So make sure you get everything ready so you know how things are panning out and so that you can make the resolution as soon as you know all the income and expenses of the trust.

 

[wealth]

This is maybe a silly comment but don't people just backdate the resolution so that it complies? Or do you have to submit the resolution to the ATO by end June aswell?

 

[Terry_w]

This is maybe a silly comment but don't people just backdate the resolution so that it complies? Or do you have to submit the resolution to the ATO by end June aswell?

Not a silly comment but a practical one.

Of course it would amount to fraud if you are back dating legal documents. It may also look a bit suspicious if your accountant holds 200 meetings in his office on the 30 of June each year.

 

[jrc77]

Yet the ATO say in the linked page you can make the determination on the 30th June but formalise it afterwards.

Thanks for the heads up Terry - I'll do a bit of pre work to ensure all the relevant figures are available for the 30th June.

Jason

 

[Aaron_C]

This is maybe a silly comment but don't people just backdate the resolution so that it complies? Or do you have to submit the resolution to the ATO by end June aswell?

This conversation never happened....

 

[NedKelly]

Thanks for the heads up. No point in making a rod for them to beat you with!

 

[Terry_w]

I've just stumbled on this excellent podcast interview which discusses the ATO view on resolutions and other trust related matters. Well worth a listen

2012 trust changes - A CPA Australia interview with ATO senior tax counsel Fiona Dillon
http://www.ato.gov.au/businesses/content.aspx?doc=/content/00320345.htm

MP3 and transcript available

 

[Player]

Thanks for sharing that link Terry and for your info in this thread.

 

[bennido]

And the relevant Q&A to this particular forum topic ...

Question

Many accountants don't get around to working out a trust's income until well after the end of an income year. Does the change in practice mean that they will have to have the trust accounts prepared by 30 June?

Response

No certainly not. Trustee resolutions do not have to specify an actual dollar amount in order for the resolution to be effective in making a beneficiary presently entitled to trust income. Instead, a resolution is effective if it simply prescribes a clear methodology for calculating the entitlement, the result of which will not be known until the accounts are drawn.

For example, the entitlement can be expressed as a specified percentage of the income - whatever that turns out to be. Alternatively, if the trustee knows that the income of the trust will be at least a certain amount, but how much beyond that amount is unknown, it may choose to make one or more beneficiaries presently entitled to the certain amount, and other beneficiaries entitled to the balance - whatever that turns out to be.

Great find Terry !

 

[Mry]

Currently organising this at my office as well, trying to put out draft resolutions, default distribution resolutions and minutes as well to allow for all this.

With many different trust deeds out there authorizing income distributions, each will have to be filled out differently.

What happens if you don't one of these in place and you are one of the ones that the ATO will demand of to see a resolution in place on the 5th of July 2012? The entirety of the distribution is taxed at 45% in the hands of the trustee.

All in all a waste of everyone's time. The tax office should have known better than this, many people will be caught out and the tax office will exploit this to their advantage with ordinary taxpayers operating in trusts.

 

[Terry_w]

Hi Mry

It must be a night mare with all the different trust deeds your clients could have. This is on top of the other end of financial year work which all tax agents would have. Busy time of year.

 

[zoozle]

So now that we all accept that the issue of resolutions being a total catastrophe, we now need to manage this risk area and attend to its requirements.

It is quite clear that resolutions need to be made before 30 June (or as specified per the deed), but there is no need to have it recorded as minutes until a future date. I guess the ATO would look for proof that the resolution was actually made...evidence which may include diary notes/timesheet entries by the clients accountant for the meeting with the trustee...i.e what I'm getting at is a verbal resolution (so long accepted by the deed) may be all that is required before 30 June.

Any thoughts?

 

[Terry_w]

So now that we all accept that the issue of resolutions being a total catastrophe, we now need to manage this risk area and attend to its requirements.

It is quite clear that resolutions need to be made before 30 June (or as specified per the deed), but there is no need to have it recorded as minutes until a future date. I guess the ATO would look for proof that the resolution was actually made...evidence which may include diary notes/timesheet entries by the clients accountant for the meeting with the trustee...i.e what I'm getting at is a verbal resolution (so long accepted by the deed) may be all that is required before 30 June.

Any thoughts?

If you are going to the trouble of making diary notes etc why not just write down a resolution.

You can also frame them in such a way so they are effective even if you don't know the full taxable income of the trust. e.g. the first $214 (or whatever) to baby x, the next $16,000 to non working wife and remainder to XX

 

[Rob G.]

And the relevant Q&A to this particular forum topic ...

Question

Many accountants don't get around to working out a trust's income until well after the end of an income year. Does the change in practice mean that they will have to have the trust accounts prepared by 30 June?

Response

No certainly not. Trustee resolutions do not have to specify an actual dollar amount in order for the resolution to be effective in making a beneficiary presently entitled to trust income. Instead, a resolution is effective if it simply prescribes a clear methodology for calculating the entitlement, the result of which will not be known until the accounts are drawn.

For example, the entitlement can be expressed as a specified percentage of the income - whatever that turns out to be. Alternatively, if the trustee knows that the income of the trust will be at least a certain amount, but how much beyond that amount is unknown, it may choose to make one or more beneficiaries presently entitled to the certain amount, and other beneficiaries entitled to the balance - whatever that turns out to be.

Great find Terry !

This has always been trust & revenue law requirements ... there is nothing new.

In the years when the ATO applied their concessional practice, many commentators questioned the legality and wisdom of relying on it.

At least the ATO has indicated its intention rather than just merely quietly withdrawing the concession and then ambushing taxpayers.

When you run interposed entities then you have to run them properly or else the revenue will look right through.

It might be time for some trustees/directors to actually start reading their deed and find out what they have involved themselves in.

Cheers,

Rob

 

[Rolf Latham]

just another good reason for a simplified tax system

ta
rolf

 

[Aaron_C]

just another good reason for a simplified tax system

Buckley's chance or none on that one.

 

[zoozle]

Yes Terry, agreed with your point, but realistically do you think all (even most) trustees will remain true to the resolution made pre 30 June if it means altering the distributions where significant amounts of money are at stake?

As advisors we must present the client with the requirements of the law. So if a client of yours lost the resolution or forgot to make one would you therefore deem the resulting taxable income to be taxed at 99A rates? Since this is a public forum I gather the answer is yes, but in reality if it means losing clients it certainly would be a difficult decision to make!

 

[Tillie]

Terry you are gem

I would have compeletely forgotten this. For some reason I thought that the resolution can be made after 30th of June e.g. after the final profit is known.

Anyhow just to be safe I drafted 2012 resolution and now I am getting the trustee to sign it before 30th.

Thanks again personally to you Terry, as well as others who voluntarily share their knowledge here. It has saved me a lot of headache and money as well.

 

[a.adams]

Hi zoozle,

Yes I also see where you are coming from.The integrity of resolutions made before June is highly questionable.

 

[NedKelly]

Yes Terry, agreed with your point, but realistically do you think all (even most) trustees will remain true to the resolution made pre 30 June if it means altering the distributions where significant amounts of money are at stake?

As advisors we must present the client with the requirements of the law. So if a client of yours lost the resolution or forgot to make one would you therefore deem the resulting taxable income to be taxed at 99A rates? Since this is a public forum I gather the answer is yes, but in reality if it means losing clients it certainly would be a difficult decision to make!

As an adviser, at what point do you consider that you work for the tax office and not the client? If a client wanted to change his resolution would you allow him or would you dob them in?