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21 February 2012 | Bamford Decision Update

Bamford Decision – Change your Trust Deed before your next tax return

Many of you will know about the Bamford High Court decision a while ago, with new rules around streaming of capital gains and franked dividends.

The rules require among other things that trustees have clear power to classify and stream income and capital at their discretion.

We recommend amendment of discretionary Trust Deeds:-

1.       Clarifying the trustee’s discretion to stream income types (as well as a new and flexible definition of Income);

2.       Providing the trustee a clear discretion to determine whether a receipt is to be regarded as income or on capital account;

3.       Providing the trustee a clear discretion to allocate expenses against income or capital account;

4.       Indemnifying the trustee from claims by beneficiaries for notional (non cash) income entitlements; and

5.       Ensuring the amendment does not constitute a re-settlement.

 

Trustee Minutes are also required recording classification and streaming rationale, for franked dividends by 30 June and for capital gains by 31 August 2011.

The new rules will apply to the 2010/2011 financial year and thereafter, and so changes should be in place before submission of Trust tax returns for that year, which deadline is approaching.

You may wish to discuss this with your accountants.