3.

4 Trusts
To whom the net income will be taxed depends on which beneficiary
has present entitlement or whether they are under legal disability
Nondiscretionary
Trust?

TRUSTS

NO

Discretionary
Trust?

YES

Indefeasible?
Interest that cannot be
brought to an end.
- Harmer v FCT
no
indefeasible interest

PRESENTLY
ENTITLED? (PE)
According to:
- FCT v Whiting
- Taylor v FCT

Vested?
Cloth with legal rights.
Vested in possession
right of present
enjoy (Gartside v IRC)
Vested in interest
right of future enjoy

YES

Deemed Present Entitlement? (DPE)

Did trustee exercise discretion in your
favour s101
YES

YES
Minors:
Tax-free
0-$416
417-1308
66%
>1307
45%

Legally disabled?
(LD)
- Minor (<18)
NO
-bankrupt
-unsound mind?

$1,325 tax-free when

combined with low-income
rebate of $600 s159N

Interest in possession?
There must be an immediate fixed right
of present or future enjoyments (but for
legal disability or not Taylor v FCT)

NO
YES

Resident?
YES

s97(1)
NLD + PE
Benef pay tax at
benef marg rate

NO

s98(2)
Trustee pay tax at
benef marg rate

Streaming of Dist TR92/13

Only allowed if:
1) Trust deed does not req mixing of income
2) Trustee accts for each type of income
3) Dist clearly reflected in trustees dist resolution
Other info
-Tax credits are according to beneficiaries dist, imputation
credits is dependent on trusts election
-Trust income retains character
-Company beneficiary receiving dividend will incur credit to
their franking acct
-Foreign income dist to non-resident is not assessable s98(4)
-Interest income to non-resident is not assessable s128D,
only subject to withholding tax of 10% s128B
-Franked dividends non-res not AI and no w/holding tax
s128D
-Unfranked dividends w/holding for non-res

Resident natural
person and not a
trustee?
YES

Legally disabled?
- Minor (<18)
-bankrupt
-unsound mind?

Resident?
NO

YES

s98(1)
LD + PE
trustee pay tax at
benef marg rate

NO

NO

s99/s99A
No one PE
- trustee pays tax at penal
rate (45% + 1.5%
YES
medicare levy)

No

s98(1), (3), (4)

Tax trustee

Does beneficiary
have vested and
indefeasible
interest?
s95A(2)

s97(1)
NLD + PE
Benef pay tax at
benef marg rate

NO

YES

s98(1), (3), (4)

Tax trustee

TAX LOSS or NET

INCOME? s95
TAX LOSS - calc assuming resident
individual

s97(1)
Benef pay tax

s98(1)
Trustee taxed

NET INCOME

Retained in the trust. Carried

forward to subsequent years.
Doherty v FCT

How do you calculate AI?

trust law income
- Income
(distributable income/profit)
tax law income
- Net Income

Accessing PY tax loss

-need to satisfy tests
according to trust type over
the test period CLP 94

Calculate proportionate share of income

and apply this percentage to net income
- Zeta Force Pty Ltd v FCT (authority for
net income > income)

Income injection test

CLP95
Family Trusts CLP 95

AI = [proportionate share of DI / DI] x NI

CGT Implications
A1 s104-10
-Transfer of property to trustee
-Declaration of trust in respect of asset
E1
- Further assets transferred to trustee
E2
E5 s104-75 (trustee makes
-Trust transfers to beneficiary
CG if MV > CB, CG passes to beneficiary s104-75(3))
Division 128: Deceased
-Deceased assets not assessed under CGT rules s128-10
-Main residence: acq @ MV at death
-Pre-CGT: acq @ MV @ death
-Post-CGT acq @ cost base
CGT event E4 s104-70
-CG/CB adj on non-assessable dist from unit/fixed trusts
1) Accting Y - taxable Y < CB of units
reduce CB by difference (AY-TY)
2) Accting Y - taxable Y > CB of units
CG on difference (CB vs AY-TY)

Ken Choi 2007