Mills Oakley Tax Note: Is your trust a fixed trust?

September, 2017

By David Marschke, Partner; Stuart O’Neill, Special Counsel; and Tran Vuong, Associate. 

The final version of the ATO guidance on what constitutes a “fixed trust” for tax purposes has been released.  It provides safe harbour rules to assist practitioners and taxpayers in applying the “fixed entitlement” requirements.

Why bother with “fixed trusts”?

There can be tax problems if “fixed trusts” are incorrectly characterised including:

When will the Commissioner treat a trust as a “fixed trust”?

A trust will be a “fixed trust” if the beneficiaries hold, under the deed, fixed entitlements to all trust income and capital in accordance with the legislation, requiring that the beneficiary’s interest must be vested and indefeasible.

If a trust does not qualify as a “fixed trust” and does not satisfy the “safe harbour”, there is discretion to treat it as if it were one.  Of course, the facts and circumstances of each case are taken into account.

The following are some indicators of a “fixed trust” that should be reflected in the deed:

What are the safe harbours under the guidelines?

The safe harbours can be only satisfied in relation to known facts.  If one of the following is satisfied, the trustee can manage its tax affairs as though the trust is a “fixed trust”:

What actions should you take?

Review the trust deed and arrangements:

Trustees should be acting now.  In our experience given that the ATO has now issued a definitive guideline, you can expect to encounter more reviews and stricter scrutiny of fixed trust arrangements.  Act now.

 

Contact


David Marschke | Partner
T: +61 7 3228 0453
E: dmarschke@millsoakley.com.au  

Stuart O’Neill | Special Counsel
T: +61 7 3228 0426 E: soneill@millsoakley.com.au 

 

 

 

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