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'Lucky' error in trust distribution resolutions avoids tax on $13M
In brief: In addition to distribution resolutions by 2 trusts in this case, variation resolutions for each provided for additional distributions ‘should the Commissioner of Taxation disallow any amount as a deduction or include any amount in the assessable income of the trust …’ Assuming each variation provision was authorised by the relevant trust deed, the Full Federal Court held that it made the trust distribution contingent (on whether the Commissioner disallowed a trust deduction or included an additional amount in assessable income). Consequently, the beneficiary taxpayer who had been assessed on adjustments to the net (taxable) trust income was not presently entitled to a share of trust income by the end of the relevant income year and was not liable for tax on amended assessments following audit by the ATO.
More: There were a number of issues in this complex case, which arose from ATO amendments made a number of years after the relevant income years. But the big takeaway is the impact of variation clauses relating to trust distributions. They typically serve no real purpose but create very significant potential problems. It was beneficial in this case that the beneficiary assessed had no present entitlement to the trust income, but ordinarily the result of that is a liability on the trustee for tax at the maximum individual rate. Variation clauses should consequently be avoided. (Lewski v Commissioner of Taxation  FCAFC 145)
21 Sep 2017
Topic: Trusts/Income Tax
06 Jun 2016
Topic: CGT/Income tax/Business and investment structures/Trusts
18 Apr 2016
Topic: CGT/Business and investment structures
17 Feb 2016
Topic: Trusts/Business and investment structures/State Taxes
07 Dec 2015
Topic: Business & investment structures/CGT/Trusts
03 Nov 2015
Topic: CGT/Estate Planning/Income Tax