In a recent legal case known as The Trustee for the Dalby Family Trust v FCT [2019] AATA 5241 (‘Dalby’s case’), the trustee of the Dalby Family Trust tried to avoid paying taxes on the trust's income for the 2013 tax year. They aimed to dodge taxes at the highest government-set rate, plus the Medicare levy. Unfortunately, they weren't successful.
This case offers valuable lessons for trustees handling trusts and distributing income to beneficiaries. Here are the key takeaways:
- Timely and Effective Trust Resolutions: Trustees must ensure that trust resolutions are prepared on time and are legally effective.
- Default Beneficiary Clause: It's important to have a clause in the trust deed that specifies who receives the income if no other beneficiary is nominated.
- Tax Responsibility: Trustees need to consider who will be responsible for paying taxes on the trust's income if there are any changes or audits after the tax year ends.
Here's a summary of what occurred in Dalby's case:
- The Dalby Trust reported income of $849,984 for the 2013 tax year but also claimed a loss of $4,523.
- In February 2018, the tax office audited the trust's tax return and didn't allow a deduction of $900,000 related to gold trading losses due to fraud. This raised the trust's taxable income to $895,477.
- The tax office informed the trustee that no beneficiary was entitled to the income for that year, so the trustee would have to pay tax on it at the highest rate.
- The trustee received a hefty tax bill of $416,396, which represented 46.5% of $895,477.
- When the trustee objected to the tax bill, they only focused on the denied deduction, neglecting to mention any resolutions or declarations about who should receive the income.
- The objection did not include any reference to trust resolutions or other declarations.
For any inquiries, contact Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment through their live calendar.
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