Ideas Tax Knowledge Blog

Topics on preparing timely trust resolutions (8)

Written by Ideas Group | Sep 18, 2020 2:12:05 AM
 

Assessment of Additional Net (Taxable) Income in Simms Discretionary Trust

In the Simms Discretionary Trust, with a trust income and net (taxable) income both at $100,000, each beneficiary is initially assessed based on their allocated share:

  • Pete: $40,000 (40%)
  • Connor: $40,000 (40%)
  • Jane: $20,000 (20%)

When a subsequent ATO review reveals an incorrect $10,000 deduction claimed for entertainment expenses, increasing net (taxable) income to $110,000, each beneficiary's share of the additional income is calculated proportionately:

  • Pete: $4,000 (40%)
  • Connor: $4,000 (40%)
  • Jane: $2,000 (20%)

If the trust deed included an 'income equalisation' clause, adjusting trust income to match net (taxable) income, each beneficiary's share would be recalculated:

  • Pete: $40,000 (36.36%)
  • Connor: $40,000 (36.36%)
  • Jane: $30,000 (27.27%)

In this scenario, Jane, as the 'balance beneficiary,' would absorb the additional $10,000 trust income. Each beneficiary would then be assessed accordingly:

  • Pete and Connor remain unchanged at $40,000 each.
  • Jane assumes $30,000, including the $10,000 increase.

Impact of Fully Streamed Franked Dividends and Capital Gains

If the ATO amends a fully streamed franked dividend or capital gain, only the beneficiary to whom it was streamed would be affected. However, if the amendment impacts trust income, a review of the initial entitlement is advised to ensure proper streaming.

For further assistance or inquiries regarding trust income assessments and amendments, contact Tax Ideas Accountants & Advisers at +61 2 83181545 or schedule an appointment through the live calendar.