Just further on my report from last Friday—"Simplification: Has the trust been broken?"—the trust beneficiary reporting rules which commenced in the 2011 income year are not well understood by practitioners and will lead to unpleasantries in the future. This is particularly a problem when trustees change agents. It cannot be assumed that the previous agent has made a TFN report or that the transitional provisions related to the 2011 trust return operate to cover all beneficiaries.
This all sounds like doom and gloom. But there is hope on the horizon albeit a little further away than we might first have anticipated. It is expected that a revised time line for the Div 6 rewrite project will be released soon and it would not be surprising to find that practical reform is at least 2 years away. The problem with the reform is that it appears wedded to the notion of "following the money".
On page 20 of this month's Taxation in Australia journal you will find an article penned jointly with my business accomplice, Andrew Noolan. There I observe that "following the money" means applying the tenets of accretion to trust value as explained in the Commissioner’s draft ruling TR 2012/D1. That draft ruling has attracted enormous criticism from the professional bodies for being a departure from the case law and trust principles. Yet, the notions in the draft ruling underpin the examples given in the Treasury Discussion Paper.
I take "reform" to also embrace simplification. It is feared that adoption of the accretion to value approach will simply add an extra dimension of complexity. Why should this be so? Trusts are perfectly good family controlled commercial entities that have admirable qualities apart from tax advantages. Predominantly discretionary trusts are family arrangements which provide some modest income splitting. However, the complexity of the present rules belies the domestic nature of these arrangements.
Real tax reform would see the accountant’s work load reduced, increased accuracy of tax reporting and diminished costs for all (including the Taxation Office). The Tax Institute will be pressing to keep these goals in the fore front of consultation.
Ken Schurgott is President of the National Council at The Tax Institute.
The Tax Institute is Australia’s leading professional association in tax. Its 13,000 members include tax agents, accountants and lawyers as well as tax practitioners in corporations, government and academia.