A draft ruling was issued in February 2022 where the ATO has targeted common transactions many trustees might have entered into in the past. This ruling seeks to stop commonly used trust distributions to family members.

In the past, it has been relatively common practice for business owners and investors who utilise Family (Discretionary) Trusts to spread income across family beneficiaries. These distributions, usually to adult children, are often made in the interest of asset protection and tax planning.

In many circumstances, the adult children in a family will have a lower taxable income and therefore lower tax rates than their parents. Spreading trust distributions their way, lowers the family groups overall tax rate. However, it is also common for parents to  benefit from the distributed funds, rather than give it to the children.

The updated ruling seeks to put an end to this practice, which may have a significant impact on 2021 and the future of trust distributions.

The ATO have stated that they believe parents who make these kinds of trust distributions to their children and arrange for the children to return the distributions (in the form of a gift or loan), do so to reduce their Family tax.

The ATO’s updated ruling seeks to invalidate these trust distributions and tax the trustee at 47% of the amount of the distribution. In contrast, if the children physically get the benefit of the funds,  (and keep them) there is no issue.

Please note, the ruling is far more detailed and therefore, we will be publishing more information to our clients shortly.

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Armada Accountants Pty Ltd – ABN 79 009 298 542, Armada Financial Planning Pty Ltd – Corporate Authorised Representatives of Armada Wealth Management Pty Ltd AFSL 535978, Armada Lending Pty Ltd – ABN 20 603 067 983 – Authorised Corporate Credit Representative (470054) of BLSSA Pty Ltd (ACL 391237), Armada Audit Services Pty Ltd – ABN 39 151 015 002, Armada Business Services Pty Ltd ABN 29 008 762 481 are members of the Armada Group. Each member of the Armada Group is a separate legal entity in its own right and is not in partnership with any other members of the Armada Group. Liability limited by a scheme approved under Professional Standards Legislation.


Armada Accountants & Advisors acknowledges and pays respect to the past, present and future Traditional Owners and Elders of this nation and the continuation of cultural and spiritual practices of Aboriginal and Torres Strait Islander peoples. Armada also acknowledges the Traditional Owners of the land where our Perth and Port Hedland offices are located, the Whadjuk Noongar People (Perth) and Kariyarra People (Port Hedland).

Copyright © 2022 Armada Accountants & Advisors.
ALL RIGHTS RESERVED 

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