Topics on testamentary trust (3)

Issue with Current Rules

We've found a problem with how some rules are written, creating a potential gap that could be taken advantage of. This loophole might allow certain benefits to be gained in a way that wasn't intended.

Specifically, if someone puts an asset (like transferring or lending) into a testamentary trust, the income from that asset might get special treatment, even if the deceased didn't specify it in their will to be held by the trust.

Currently, Division 6AA has two safeguards in section 102AG to prevent abuse:

1. If parties involved in a deal aren't acting at arm's length (like if the trust gets more rent from a related party than market rates), only the fair amount is treated specially.
2. If income is earned from a deal made just to get special treatment (not for a normal reason), it won't be treated specially.

So, if an asset is transferred to a trust for less than its value (like a family deal), the income from it might be subject to these rules. This means if the parties didn't deal at arm's length, no income would get special treatment.

These rules might stop inappropriate asset transfers into trusts, but the government wants to make it even clearer with a new measure.

Should you have any questions or need assistance, feel free to reach out to                            Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment through our live calendar.

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