New draft guidance on family trust beneficiaries

The ATO recently released new draft guidance material on how trusts distribute income. Under this new guidance, many family groups may pay higher taxes.

Currently, the structures likely to be impacted by this guidance is where income of a trust is appointed to a beneficiary, but the economic benefit of the distribution is provided to another individual or entity.

If the trust comes under scrutiny in this manner, what this will mean is that the trustee may be taxed at (higher) penalty rates rather than the beneficiary being taxed at their own (lower) marginal tax rates.

This guidance suggests that the ATO will be looking at arrangements that are used for tax planning purposes for family groups. The allowance for what is considered acceptable will mean that some family trusts are at risk of higher tax liabilities and penalties.

It’s important to note that there may be some exceptions, including where income is appointed to minor beneficiaries and where the arrangement is part of an ordinary family or commercial dealing. In fact, much of the ATO’s recent guidance focuses on whether arrangements form part of an ordinary family or commercial dealing.

What does this mean for you? If your Trust is seen to distribute income which may fall into one of the categories likely to be impacted, we have a variety of strategies we can apply. We will make a time to talk you through your options and find the best way forward for your situation.

If you’d like to know more now, please feel free to contact us.