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Understanding Trust Taxes: What is the Anti-Avoidance Provision?

Sometimes, trustees of closely held trusts may face Taxable Distribution Non-disclosure Tax (TBNT) due to the anti-avoidance provision (S.102UM). Let's break down how it works:

When Does the Anti-Avoidance Provision Apply?

This provision kicks in when:

1. A closely held trust gives money to a trustee beneficiary, who then adds some of the trust's income to their own taxes.
2. The beneficiary then gives money back to the trust, claiming it's from the income they received.
3. If the trust doesn't pay TBNT on the money received back, the anti-avoidance provision comes into play.

Why Does it Matter?

The goal is to prevent trusts from passing money around in circles to dodge taxes. If this happens, the original trust can face TBNT at a rate of 47% on the untaxed money they received.

What Should Trustees Do?

If involved in such circular distributions, trustees must:

1. Realize that the money they received back isn't counted as income.
2. Fill out a 'Trustee beneficiary non-disclosure tax payment advice' form (NAT 72967) to inform the tax office about the TBNT owed.
3. Pay TBNT within 21 days after the trust's tax return due date, unless granted an extension by the ATO.
4. If the trustee is a company, its directors are also responsible for paying TBNT along with the company.
   
   

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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