ATO ATTACKS DISCRETIONARY TRUST DISTRIBUTIONS & INCOME SPLITTING

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WHAT DO I NEED TO KNOW?

The ATO has recently announced a major focus on Section 100A of the tax law – the area of the law focusing on trust distributions to associated family members, commonly referred to as splitting income among the family.

Specifically, the ATO will focus its attention on cases where a trust distribution is made to a family member, for the primary purpose of capturing a lower tax bracket.

30 June 2022 is expected to be transitional period, with the proposals to be implemented from 1 July 2022.  There are sections of the ruling that can apply retrospectively, so it is important to be reviewing your position sooner rather than later.

FOR EXAMPLE:

  • If a trust distributes all of its income to the husband and wife, who use this money to pay household expenses, the ATO will unlikely see any issue.
  • If, however, the trust distributes its income to adult children, due to the fact they have minimal other income, and the children gift this money back to their parents, there will likely be an issue.
WHAT ACTION DO I NEED TO TAKE?

At this stage, the ruling is currently open for consultation, and we expect further discussion and announcements over the coming weeks and months.  We will keep you updated with changes as they occur.

If you are a client of HYD Advisory, your Client Manager will be covering this topic with you in your next catch up.

We will need to review your specific circumstances and cover alternative tax minimisation strategies that may be available to you (for example, using a “bucket company” with various classes of shares issued to family members) to allow you to split income with family members.