Discretionary Trust Income Minutes for 2013/14

Transcription

1 Discretionary Trust Income Minutes for 2013/14

2 Trust Distribution Minutes Library for 2013/14 Page 1 of 16 PART 1 Discretionary Trust Distribution Minutes for... ( Trust ) where there are Net Capital Gains and no Franked Distributions Minutes of the meeting of the Trustee(s) of... ( Trustee ) Trust Tax File No:... Trust ABN:... For the financial year ended 30 June 2014 ( Income Year ) Held at... On the... day of Names of all persons present:... (where the parties have been unable to meet at the same time then this minute will be a circulating minute as evidenced by all parties signing the minute) 1. MINUTES The minutes of the previous meeting of the Trustee were read and confirmed. 2. EXERCISE OF POWERS The chairperson noted that the resolutions to be passed at this meeting are pursuant to the powers and discretions conferred on the Trustee as trustee at law and by the deed of settlement establishing this Trust ( Trust Deed ). 3. DETERMINATION OF INCOME It is resolved under the powers vested in the Trustee that the income of the Trust fund available for appointment will be an amount equal to net income as calculated under section 95 of the Income Tax Assessment Act 1936 (Cth), and includes any assessable capital gains ( income of the Trust Fund ). 4. ALLOCATING TRUST INCOME Under the Trust the Trustee is empowered to select Trust beneficiaries to receive the income of the Trust Fund. 5. RESOLUTION TO APPOINT TRUST INCOME Pursuant to: i. clause [ ] of the Trust Deed, which authorises the Trustee to appoint the income of the Trust Fund to the beneficiaries; Civic Legal

3 Page 2 of 16 i clause [ ] of the Trust Deed, which authorises the Trustee to separately deal with all or any part of the income or capital of a class referred to in clause [ ]; section of the Income Tax Assessment Act 1997 (Cth), which authorises the Trustee to determine that beneficiaries are entitled to a share of the net financial benefit referable to a capital gain made by the Trust, the Trustee resolves to appoint the income of the Trust Fund for the Income Year to the beneficiaries in the proportions shown in the table below. Name Discount capital gain distribution (%) Non-discount capital gain distribution (%) Other income distribution (%) For the avoidance of doubt and regardless of any adjustments to the income of the Trust Fund, the income of the Trust Fund shall be distributed as specified above. 6. PRIOR PAYMENTS If any amount of income of the Trust Fund has actually been paid by the Trustee to any beneficiaries during the Income Year, it is resolved that those amounts represent applications of the income of the Trust Fund in accordance with the terms of these resolutions, and do not vary or change the terms of any distributions made under these resolutions. 7. INDEFEASIBLE INTEREST RESOLUTION The Trustee confirms that the payments, allocations and applications made under these resolutions give the respective beneficiaries an immediate vested and indefeasible interest in the income of the Trust Fund so paid, allocated or applied. Accordingly, those respective beneficiaries are presently entitled to their share of the net financial benefit / income of the Trust Fund. There being no further business, the meeting was declared closed. Signed as a true and correct record: Trustee(s):... Guardian:... Appointor:... Dated: (a resolution may be made earlier than the last day of the financial year)

4 Page 3 of 16 Explanatory Note i. The Trust Distribution Minutes above assumes your Trust Deed: A. has an income equalisation clause which equates the income of the Trust Fund with the net income in section 95 of the Income Tax Assessment Act 1936 (Cth) including capital gains OR your Trust Deed allows your Trustee to determine that the income of the Trust Fund is equated to the net income in section 95 of the Income Tax Assessment Act 1936 (Cth) including capital gains; B. has a streaming clause allowing streaming of capital gains; and C. allows the net financial benefit to be recorded in its character as referable to the capital gain in the records or accounts of the Trust. A beneficiary s present entitlement to the income of the Trust Fund must be created prior to the end of 30 June In addition, for a beneficiary to be specifically entitled to an amount of a capital gain, the beneficiary s share of the net financial benefit must be appropriately recorded in the accounts or records of the Trust not later than 2 months after the end of the Income Year.

5 Page 4 of 16 PART 2 Discretionary Trust Distribution Minutes for... ( Trust ) where there are Franked Distributions and no Net Capital Gains Minutes of the meeting of the Trustee(s) of... ( Trustee ) Trust Tax File No:... Trust ABN:... For the financial year ended 30 June 2014 ( Income Year ) Held at... On the... day of Names of all persons present:... (where the parties have been unable to meet at the same time then this minute will be a circulating minute as evidenced by all parties signing the minute) 1. MINUTES The minutes of the previous meeting of the Trustee were read and confirmed. 2. EXERCISE OF POWERS The chairperson noted that the resolutions to be passed at this meeting are pursuant to the powers and discretions conferred on the Trustee as trustee at law and by the deed of settlement establishing this Trust ( Trust Deed ). 3. DETERMINATION OF INCOME It is resolved under the powers vested in the Trustee that the income of the Trust fund available for appointment will be an amount equal to net income as calculated under section 95 of the Income Tax Assessment Act 1936 (Cth) and including any franking credit under section of the Income Tax Assessment Act 1997 (Cth) ( income of the Trust Fund ). 4. ALLOCATING TRUST INCOME Under the Trust the Trustee is empowered to select Trust beneficiaries to receive the income of the Trust Fund. 5. RESOLUTION TO APPOINT TRUST INCOME Pursuant to: i. clause [ ] of the Trust Deed, which authorises the Trustee to appoint the income of the Trust Fund to the beneficiaries;

6 Page 5 of 16 i clause [ ] of the Trust Deed, which authorises the Trustee to separately deal with all or any part of the income or capital of a class referred to in clause [ ]; section of the Income Tax Assessment Act 1997 (Cth), which authorises the Trustee to determine that beneficiaries are entitled to a share of the net financial benefit referable to the franked distributions made to the Trust, the Trustee resolves to appoint the income of the Trust Fund for the Income Year to the beneficiaries in the proportions shown in the table below. Name Franked Distribution (%) Other Income Distribution (%) For the avoidance of doubt and regardless of any adjustments to the income of the Trust Fund, the income of the Trust Fund shall be distributed as specified above. 6. PRIOR PAYMENTS If any amount of income of the Trust Fund has actually been paid by the Trustee to any beneficiaries during the Income Year, it is resolved that those amounts represent applications of the income of the Trust Fund in accordance with the terms of these resolutions, and do not vary or change the terms of any distributions made under these resolutions. 7. INDEFEASIBLE INTEREST RESOLUTION The Trustee confirms that the payments, allocations and applications made under these resolutions give the respective beneficiaries an immediate vested and indefeasible interest in the income of the Trust Fund so paid, allocated or applied. Accordingly, those respective beneficiaries are presently entitled to their share of the net financial benefit / income of the Trust Fund. There being no further business, the meeting was declared closed. Signed as a true and correct record: Trustee(s):... Guardian:... Appointor:... Dated: (a resolution may be made earlier than the last day of the financial year)

7 Page 6 of 16 Explanatory Note i. The Trust Distribution Minutes above assumes your Trust Deed: A. has an income equalisation clause which equates the income of the Trust Fund with the net income in section 95 of the Income Tax Assessment Act 1936 (Cth) including a franked dividend together with its franking credit OR your Trust Deed allows your Trustee to determine that the income of the Trust Fund includes a franked dividend together with its franking credit; B. has a streaming clause to allow streaming of franked dividends; and C. allows the net financial benefit to be recorded in its character as referable to the franked distribution in the records or accounts of the Trust. A beneficiary s present entitlement to the income of the Trust Fund must be created prior to the end of 30 June In addition, for a beneficiary to be specifically entitled to an amount of a franked dividend, the beneficiary s share of the net financial benefit must be appropriately recorded in the accounts or records of the Trust not later than the end of the Income Year.

8 Page 7 of 16 PART 3 Discretionary Trust Distribution Minutes for... ( Trust ) where there are no Net Capital Gains or Franked Distributions Minutes of the meeting of the Trustee(s) of... ( Trustee ) Trust Tax File No:... Trust ABN:... For the financial year ended 30 June 2014 ( Income Year ) Held at... On the... day of Names of all persons present:... (where the parties have been unable to meet at the same time then this minute will be a circulating minute as evidenced by all parties signing the minute) 1. MINUTES The minutes of the previous meeting of the Trustee were read and confirmed. 2. EXERCISE OF POWERS The chairperson noted that the resolutions to be passed at this meeting are pursuant to the powers and discretions conferred on the Trustee as trustee at law and by the deed of settlement establishing this Trust ( Trust Deed ). 3. DETERMINATION OF INCOME It is resolved under the powers vested in the Trustee that the income of the Trust fund available for appointment will be an amount equal to net income as calculated under section 95 of the Income Tax Assessment Act 1936 (Cth) ( income of the Trust Fund ). 4. ALLOCATING TRUST INCOME Under the Trust the Trustee is empowered to select Trust beneficiaries to receive the income of the Trust Fund. 5. RESOLUTION TO APPOINT TRUST INCOME Pursuant to: i. clause [ ] of the Trust Deed, which authorises the Trustee to appoint the income of the Trust Fund to the beneficiaries;

9 Page 8 of 16 clause [ ] of the Trust Deed, which authorises the Trustee to separately deal with all or any part of the income or capital of a class referred to in clause [ ], the Trustee resolves to appoint the income of the Trust Fund for the Income Year to the beneficiaries in the proportions shown in the table below. Name Income Distribution (%) For the avoidance of doubt and regardless of any adjustments to the income of the Trust Fund, the income of the Trust Fund shall be distributed as specified above. 6. PRIOR PAYMENTS If any amount of income of the Trust Fund has actually been paid by the Trustee to any beneficiaries during the Income Year, it is resolved that those amounts represent applications of the income of the Trust Fund in accordance with the terms of these resolutions, and do not vary or change the terms of any distributions made under these resolutions. 7. INDEFEASIBLE INTEREST RESOLUTION The Trustee confirms that the payments, allocations and applications made under these resolutions give the respective beneficiaries an immediate vested and indefeasible interest in the income so paid, allocated or applied. Accordingly, those respective beneficiaries are presently entitled to their share of the income of the Trust Fund. There being no further business, the meeting was declared closed. Signed as a true and correct record: Trustee(s):... Guardian:... Appointor:... Dated: (a resolution may be made earlier than the last day of the financial year)

10 Page 9 of 16 Explanatory Note i. The Trust Distribution Minutes above assumes your Trust Deed has an income equalisation clause which equates the income of the Trust Fund with the net income in section 95 of the Income Tax Assessment Act 1936 (Cth) OR your Trust Deed allows your Trustee to determine that the income of the Trust Fund is equated to the net income in section 95 of the Income Tax Assessment Act 1936 (Cth). A beneficiary s present entitlement to the income of the Trust Fund must be created prior to the end of 30 June 2014.

11 Page 10 of 16 PART 4 Discretionary Trust Distribution Minutes for... ( Trust ) where there are Net Capital Gains and Franked Distributions Minutes of the meeting of the Trustee(s) of... ( Trustee ) Trust Tax File No:... Trust ABN:... For the financial year ended 30 June 2014 ( Income Year ) Held at... On the... day of Names of all persons present:... (where the parties have been unable to meet at the same time then this minute will be a circulating minute as evidenced by all parties signing the minute) 1. MINUTES The minutes of the previous meeting of the Trustee were read and confirmed. 2. EXERCISE OF POWERS The chairperson noted that the resolutions to be passed at this meeting are pursuant to the powers and discretions conferred on the Trustee as trustee at law and by the deed of settlement establishing this Trust ( Trust Deed ). 3. DETERMINATION OF INCOME It is resolved under the powers vested in the Trustee that the income of the Trust fund available for appointment will be an amount equal to net income as calculated under section 95 of the Income Tax Assessment Act 1936 (Cth), and includes any assessable capital gains ( income of the Trust Fund ). 4. ALLOCATING TRUST INCOME Under the Trust the Trustee is empowered to select Trust beneficiaries to receive the income of the Trust Fund. 5. RESOLUTION TO APPOINT TRUST INCOME Pursuant to: i. clause [ ] of the Trust Deed, which authorises the Trustee to appoint the income of the Trust Fund to the beneficiaries;

12 Page 11 of 16 i iv. clause [ ] of the Trust Deed, which authorises the Trustee to separately deal with all or any part of the income or capital of a class referred to in clause [ ]; section of the Income Tax Assessment Act 1997 (Cth), which authorises the Trustee to determine that beneficiaries are entitled to a share of the net financial benefit referable to a capital gain made by the Trust; section of the Income Tax Assessment Act 1997 (Cth), which authorises the Trustee to determine that beneficiaries are entitled to a share of the net financial benefit referable to the franked distributions made to the Trust, the Trustee resolves to appoint the income of the Trust Fund for the Income Year to the beneficiaries in the proportions shown in the table below. Name Discount capital gain distribution (%) Non-discount capital gain distribution (%) Other income distribution (%) Franked distribution (%) For the avoidance of doubt and regardless of any adjustments to the income of the Trust Fund, the income of the Trust Fund shall be distributed as specified above. 6. PRIOR PAYMENTS If any amount of income of the Trust Fund has actually been paid by the Trustee to any beneficiaries during the Income Year, it is resolved that those amounts represent applications of the income of the Trust Fund in accordance with the terms of these resolutions, and do not vary or change the terms of any distributions made under these resolutions. 7. INDEFEASIBLE INTEREST RESOLUTION The Trustee confirms that the payments, allocations and applications made under these resolutions give the respective beneficiaries an immediate vested and indefeasible interest in the income of the Trust Fund so paid, allocated or applied. Accordingly, those respective beneficiaries are presently entitled to their share of the net financial benefit / income of the Trust Fund. There being no further business, the meeting was declared closed. Signed as a true and correct record: Trustee(s):...

13 Page 12 of 16 Guardian:... Appointor:... Dated: (a resolution may be made earlier than the last day of the financial year) Explanatory Note i. The Trust Distribution Minutes above assumes your Trust Deed: A. has an income equalisation clause which equates the income of the Trust Fund with the net income in section 95 of the Income Tax Assessment Act 1936 (Cth) including capital gains as well as including a franked dividend together with its franking credit OR your Trust Deed allows your Trustee to determine that the income of the Trust Fund includes capital gains, and franked dividends together with their franking credits; B. has a streaming clause allowing streaming of capital gains and franked dividends; and C. allows the net financial benefit to be recorded in its character as referable to the capital gain and the franked distribution in the records or accounts of the Trust. A beneficiary s present entitlement to the income of the Trust Fund must be created prior to the end of 30 June In addition, for a beneficiary to be specifically entitled to an amount of a capital gain, the beneficiary s share of the net financial benefit must be appropriately recorded in the accounts or records of the Trust not later than 2 months after the end of the relevant Income Year. Further, for a beneficiary to be specifically entitled for an amount of a franked dividend, the beneficiary s share of the net financial benefit must be appropriately recorded in the accounts or records of the Trust not later than the end of the Income Year.

14 Page 13 of 16 The under 18 (not disabled) distribution (Beneficiaries under 18 years of age - not suffering a disability or not receiving the income or capital through a Will or Testamentary Trust) * The sum of $416 of the following type of income.. (The type of income is best to be free of refundable credits, such as net interest). This income is to be applied for the benefit of. full name (TFN ) Explanatory Note Why is a specific type of income, usually interest, rent or other income free of franking or foreign tax credits important? It removes the need to claim a refund of those credits. This can be stated if the trustee/trustees has separately identified the different types of income received by the trust. Why only $416? This is the maximum amount of non-excepted income most Australian residents under 18 years can usually receive free of income tax beyond which a penalty rate applies. This penalty tax rate does not apply to distributions from arm s length earnings of deceased estates and testamentary trusts. No unfranked income available? In that case the resolution should include a reference to the franking or foreign tax credits accompanying the distribution.

15 Page 14 of 16 The under 18 year old child with a disability resolution * The sum of $ of the following type of income.. (e.g. net interest or other types of income, preferably free of refundable credits) is to be applied for the benefit of full name (TFN.). The Trustee notes that the above person is a resident minor beneficiary under a legal disability but able to derive the income as excepted income by reason of the items below that are ticked: An interest in a deceased estate or Testamentary Trust contained in a Will relating to a deceased estate An intellectual disability A physical disability Other disability being. Explanatory Note A minor is someone under 18 years of age on the last day of the year of income.

16 Page 15 of 16 Where the Trustee is to pay the tax for the beneficiary * The sum of $ of the following type of income.. (such as net interest or other types of income that are free of refundable credits) is to be applied for the benefit of.. full name, (TFN..). This sum is to be held by the Trustee in anticipation of the income tax payable by the Trustee on behalf of the above beneficiary.

17 Page 16 of 16 Remaining surplus income Resolution * The balance (if any) of the net income, together with the balance (if any) of tax credits is to be allocated for payment to Pty Ltd (ABN.) (TFN..). Explanatory Note This clause can be used where your other resolutions do not distribute percentages of the income of the Trust Estate to the beneficiaries, but rather distribute fixed amounts. While Parts 1, 2, 3 and 4 are drafted on the basis that you will distribute percentages of the income of the Trust Fund to the beneficiaries, it is however possible to distribute fixed amounts to beneficiaries, with the remaining surplus income being distributed in accordance with this resolution. You should not employ a strategy of distributing fixed amounts with a remaining surplus distribution unless you understand the effects of the High Court's decision in Commissioner of Taxation v Bamford [2010] HCA 10. The recipient of the remaining surplus is generally a Pty Ltd company, which is sometimes referred to as a bucket company. You should not employ a strategy of distributing to a bucket company unless you understand the tax rules relating to Unpaid Present Entitlements.

18 Further Explanatory Notes on completing Distribution Minutes for 2013/14 Civic Legal

19 Trust Distribution Minutes Explanatory Notes for 2013/14 Page 1 of 5 1. IT S ALL ABOUT FLEXIBILITY i. Each year you have the wonderful flexibility of deciding which of your beneficiaries get the trust s income and capital. How is it done? You complete either annual minutes or one-off distribution minutes. Such flexibility allows you to adjust for when someone goes bankrupt (you stop distributing to them) or someone takes a year off and has no income (you start distributing to them). There are no transfer costs. This helps protect you from insolvency laws, income tax, stamp duty and capital gains tax savings. 2. DO MY BENEFICIARIES NEED TAX FILE NUMBERS? It is best for the trustee to get and quote tax file numbers of beneficiaries (especially minors and endorsed income tax exempt charitable bodies such as churches). What if you don t? The Australian Taxation Office is at liberty to ask you, as the trustee, to lodge an ultimate beneficiary ( UB ) statement. The UB statement requires the Tax File Numbers. 3. WHY DO I NEED TO GIVE THOUGHT TO MINUTES? i. The days of drafting family trust distributions by allocating $3,000 to each minor beneficiary, a further amount to a non-working spouse with the balance to X Pty Ltd is gone. i iv. There is certainly a risk of extra tax liabilities. Don t forget that for legal purposes (unless there is something contrary in the Deed) the trust s net income of a trust is determined under generally accepted accounting practice. Accounting net income is not always net income for tax purposes. Think about the effect of capital gains tax indexation, the carry forward of losses, accelerated tax depreciation rates, the quarantining of foreign losses, nondeductible provisions, and prepayments. Does your Trust Deed require the accounting income of the trust to be distributed to beneficiaries? Have a look at Section 97. Your beneficiaries pay their tax on their share of the accounting income plus their share of the capital gain (being the capital gain which they are specifically entitled plus the capital gain to which no beneficiary is specifically entitled multiplied by the beneficiary's adjusted Div 6 percentage of the income of the trust). This may be a long way from the cash received. v. Section 97 requires the tax law Division 6E income of the trust (which excludes a capital gain or franked distribution) to be allocated among beneficiaries in proportion to their entitlement to accounting income. 4. DO I SLAVISHLY FOLLOW THESE SAMPLE MINUTES? These draft Minutes are something you copy from. Your accountant adapts the minutes. With all well drafted modern trust deeds the minutes can segregate the income of a particular category e.g. capital gains or franked dividends. This is called streaming and is highly valuable.

20 Trust Distribution Minutes Explanatory Notes for 2013/14 Page 2 of 5 5. MUST TRUST DISTRIBUTION MINUTES BE SIGNED OFF BEFORE THE END OF EACH FINANCIAL YEAR? Yes, you should try and do so. This is what the black letter law requires. 6. DOES THE TRUSTEE HAVE TO MAKE A BENEFICIARY SPECIFICALLY ENTITLED TO CAPITAL GAINS BY 31 AUGUST 2014? i. A beneficiary s present entitlement to the income of the Trust Fund must be created prior to the end of 30 June In addition, for a beneficiary to be specifically entitled to an amount of a capital gain, the beneficiary s share of the net financial benefit must be appropriately recorded in the accounts or records of the trust not later than 2 months after the end of the relevant income year. Therefore, if there are net capital gains and the Trustee wishes to make a beneficiary specifically entitled to capital gains, the Trustee has to ensure that the trust deed contains appropriate provisions which would enable a resolution or determination to be made which would have the effect of making a beneficiary specifically entitled to an amount of the capital gain by 31 August 2014, having regard to the formula used for specifically entitled in s ITAA DOES THE TRUSTEE HAVE TO MAKE A BENEFICIARY SPECIFICALLY ENTITLED TO FRANKED DISTRIBUTIONS BY 30 JUNE 2014? i. A beneficiary s present entitlement to the income of the Trust Fund must be created prior to the end of 30 June In addition, for a beneficiary to be specifically entitled to an amount of franked distibution, the beneficiary s share of the net financial benefit must be appropriately recorded in the accounts or records of the trust not later than the end of the relevant income year. Therefore, if there are franked distibutions and the Trustee wishes to make a beneficiary specifically entitled to franked distributions, the Trustee has to ensure that the trust deed contains appropriate provisions which would enable a resolution or determination to be made which would have the effect of making a beneficiary specifically entitled to an amount of the franked distribution by 30 June 2014, having regard to the formula used for specifically entitled in s ITAA WHAT HELP IS THERE IN DOING THE DISTRIBUTION MINUTES? i. The ATO s Ruling IT 329 provides help: 9. A declaration, resolution or other act of a trustee in an effective exercise of his discretion will amount to an application of income of a trust estate for the benefit of a beneficiary where:- a. a specific ascertainable portion of the income of the year in question is thereby immediately and absolutely vested in the beneficiary so that even though it might not be immediately paid to the beneficiary it becomes his absolute property and would form part of his estate in the event of his death;

21 Trust Distribution Minutes Explanatory Notes for 2013/14 Page 3 of 5 b. the declaration, resolution, etc, is final and irrevocable. 10. To the extent that a resolution conforms to these requirements it will be accepted that it evidences an application of trust income for the benefit of a beneficiary within the meaning of section 101. This has to be carefully done: In Idlecroft the distribution minutes appointed beneficiary A. The resolution then distributed any of the trust s net income in excess of $100 to Mr & Mrs B equally. But the gift to A failed. One would have thought that Mr & Mrs B got the lot. However, that was not the case. The minutes were held not to have given a present entitlement to Mr & Mrs B for that first $100. The $100 ended up going to the default beneficiaries. Idlecroft ATR 699 (Spender J, Federal Court) 9. HOW SHOULD THE MINUTES HAVE BEEN WRITTEN? Merely write up the minutes so that they state that Mr & Mrs B get so much of the income of the trust estate that is not otherwise effectively appointed. 10. CAN I CHANGE MY MIND ABOUT THE DISTRIBUTION OF INCOME LATER? Sorry. Determinations of the trustee distributing income are irrevocable. 11. IS DISTRIBUTING TO A COMPANY THE SAME AS DISTRIBUTING TO A HUMAN? i. No it isn t. Often, you may distribute to the beneficiary but no money actually changes hand. Subdivision EA in Division 7A of the Income Tax Assessment Act 1936 (Cth), affects distributions made to corporate beneficiaries. Subdivision EA includes the situation where the trustee makes a private company beneficiary presently entitled to an amount. What if that amount is not actually paid to the company? That unpaid amount is a deemed dividend as if the amount has then been loaned by the trustee to a shareholder or associate of the private company. You need a Division 7A loan agreement. i iv. If desired, when completing details state whether part or whole is a category of income e.g. $10,250 being the franked dividends received by the trustee during the current financial year or $20,250 including $10,250 being the franked dividends received by the trustee during the current financial year or 50% of the income of the trust including $10,250 being the franked dividends received by the trustee during the financial year - see taxation ruling TR 92/13. Describe how payment is to be made e.g. by payment of the beneficiary's school expenses or by paying the monies to [name] to be paid for the benefit of the beneficiary. Examples A. Michelle Simpson $17,000 by setting aside the money to a separate

22 Trust Distribution Minutes Explanatory Notes for 2013/14 Page 4 of 5 account in the name of the beneficiary in the books of the trust. B. Mary Rogers $15,000 by paying the amount, which includes franked dividends, to a parent of a beneficiary. C. Paul Jackson $4,500 by applying money for the benefit of the beneficiary by payment of the beneficiary's school fees. 12. WHEN DO THE BENEFICIARIES HAVE TO PAY TAX ON THE INCOME? The beneficiaries (or the trustee on behalf of non-resident, minor, bankrupt or intellectually disabled beneficiaries) become liable to pay income tax at the point of allocation of the income. This is when the beneficiary has a present entitlement to the income. The beneficiary does not necessarily ever see the actual money but if the beneficiary can call the trustee to pay the money over then there is a present entitlement. 13. INTENDING BENEFICIARY REALLY A BENEFICIARY OF THE TRUST? Is your intended beneficiary of trust income or capital either named or within the class of beneficiaries in the Deed? For example, the children of specified beneficiaries are fine at defining the class. However, check whether step children come within one of the classes. Check also to see if the person is not disqualified as a beneficiary by being put in the excluded class. Some older deeds unwisely made uncles and family members the settlor thus the settlor and his children under 18 years of age can t be beneficiaries of the trust. Some older deeds also have strange restrictive rules on distributing income and capital. There may be other reasons why the person should not have a distribution made to them. It may affect their pension. It could ruin your chance of getting the active asset concessions in Division PROTECT THE CGT 50% EXEMPTION IN SUBDIV 152-C i. If you wish to use the active asset concessions (which get rid of at least half of your capital gains if not all of it) you may need to distribute at least 20% of the trust income (and any applicable capital) to certain individual beneficiaries. The controlling 50% individual test has been replaced with a significant 20% individual test as of 1 July 2007, s SUFFERED THE FAMILY TRUST ELECTION? It is always a terrible tragedy to any discretionary trust if you have been forced to make a family trust election. It severely limits your beneficiaries for the rest of the trust s life. Often, in fact usually, you will need to set up a new family trust that has not been contaminated by the family trust election and start putting new assets into that new trust. If a family trust election (or interposed entity election) applies to the trust for income tax purposes then your intended beneficiaries are limited to that family group. 16. DOES DIVISION 7A RAISE ITS UGLY HEAD? If you make a distribution to a corporate beneficiary then make sure you have considered your Division 7A issues.

23 Trust Distribution Minutes Explanatory Notes for 2013/14 Page 5 of WAS THE INCOME REALLY PERSONAL EXERTION INCOME? If the trust s income was personal services income then the only person that is allowed to receive that income is the person that really did the work. The commercial debt forgiveness rules can also kick in.