The ATO have confirmed that those of us with a trust which has profit to distribute at year end must write and complete the distribution minute before 30 June of that year, for tax purposes. It’s now official. The ATO used to have an “administrative practice” of allowing minutes to be penned as late as end of August, but this is now gone for the 2012 year onwards.
What is the issue here? Well, the income at year end is a fixed amount – a “profit” from your income less expenses. But how many trustees know right-on-that-day the exact profit made for the whole year? Isn’t this normally finalised when the accounts are prepared? If the ATO now say you must determine what to do with an amount you are not sure of… well, you get my point, it could spell trouble. Especially if undistributed funds attract penalty tax rates. Ouch!
Trustees can have many ways to deal with this problem.
Take a typical investment trust like the Barry and Betty Trust which has rent, interest and dividends less expenses. Now, even though at year end the trustee does not know for sure what the exact profit is, they can still “apply it” and “distribute it”. How so? They do this by applying a percentage of all profit to a particular person – not an amount. They could do this by directing on 30 June that 20% goes to Barry and 80% to Betty. This applies all the income with none left over. If they want to stream dividends or capital gains, they can give similar directions. Say 100% of all capital gains to Betty, 100% of all dividends to Barry and the remaining profit split 50%/50% between them.
Trusts that previously sent exact amounts to exact people will find it hard to justify how these were calculated. So ratios and percentages are now the preferred method of distribution for many.
Your trust can be a complex structure to deal with, but with experts like us to help and advise you, it doe not have to be. Contact us today to discuss your trust.