ATO Trust Distribution Changes to Capital Gain and Franked Dividend Streaming

It is common to see a trustee give all the franked dividends of a trust to say, a company beneficiary, and all the capital gains to individual beneficiaries. This method of streaming often results in the best tax result for the family as a whole. But many people stretch this too far, where the “real” trust income distribution does not match the tax result.

So are we surprised the ATO are looking at this then? Not really.

The new trust tax law changes are supposed to be about making the whole thing simpler, making trusts easier to manage… and of course stopping what the ATO saw as many tax rorts.

Now the ATO say that if you have a trust deed that says you can stream, then:

1. There is a legal way to stream capital gains directly to your preferred beneficiaries
2. There is a legal way to stream franked dividends directly to your preferred beneficiaries

It can get tricky but in most cases whomever gets the real gain gets the real pain (tax pain – that is) and there is little way around it. Long gone are the days where it is easy to send income to a tax preferred beneficiary whilst keeping the real cash gain in your own hands. This applies from the 2011 income tax year.

Contact us to get the facts and determine how best to manage your trust and distributions going forward.