We have law (almost!) and some guidance - thankfully all before 30 June

We have law – almost! As I predicted, the No. 5 Bill passed the Parliament by 30 June. It is currently awaiting Royal Assent, which we will understand will happen on or before 30 June. At that point, we will be working with a fully-fledged piece of legislation that applies for the 2011 income year.

The good news is that the ATO has been very quick to engage with the professional bodies and discuss what type of interpretative guidance is required. The ATO has convened two meetings of the NTLG Trusts sub-group, where the immediate problem of giving interpretative advice in a short period of time has been discussed. In a very welcome move, the Commissioner has acknowledged that trustees and their advisors have had scant opportunity to consider how the new law applies, and that special administrative arrangements should be put in place for the 2011 income year.

The special administrative arrangements include adopting a similar practice to that outlined in IT 328 and 329 for present entitlements – that is, trustees with a usual 30 June balance date will be given until 31 August to make records to satisfy the “specifically entitled” requirement for franked distributions in s.207-58. As the requirement for making beneficiaries specifically entitled to capital gains already allows for records to be put in place any time up to 2 months after the end of the income year, there is no need for a similar concession for capital amounts.

ATO officers have been instructed not to select cases for review or audit in respect of the 2011 income year for the sole purpose of determining whether the purported streaming of capital gains or franked distributions by a trustee is effective. But, in a clear warning, the ATO states that this instruction does not apply where there has been a deliberate attempt to exploit weaknesses or deficiencies in the law. The message is abundantly clear – trustees must play by the policy of the rules.

A full statement of the ATO’s administrative arrangements is on their website.
I am very pleased that the ATO has adopted a practical approach, which should ease the pressure on trustees for the upcoming year end. Whilst trustees and their advisors may have a short reprieve, it must be remembered that this administrative concession is only for the 2011 income year. The ATO has stated that it intends to withdraw IT 328 and 329 such that they will not apply for the 2012 income year, and the administrative concessions will not be extended any further.  When advisors are speaking to their trustee clients about resolutions over the next 2 months, it may be wise to line up discussions for next April/May – it is very clear that next year, 30 June will be the drop date and trustees (and their advisors) must be prepared.

I am interested to hear your thoughts on the ATO’s administrative arrangements. Are they adequate and helpful? Do you think trustees should still act prior to 30 June due to requirements under trust law? Are there other aspects of the new provisions which need urgent interpretative guidance? Leave your thoughts as comments on this blog post, or feel free to raise your concerns with The Tax Institute by emailing taxpolicy@taxinstitute.com.au

Tamera Lang
Tax Counsel, The Tax Institute


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