On 24 October 2012, the Assistant Treasurer released a Policy Options Paper, seeking to further progress the Government’s modernisation of the Australian trust income tax provisions and broader reform of Division 6 of the Income Tax Assessment Act 1936.
The Policy Options Paper follows the Initial Consultation Paper, released in November 2011, and provides further detail on the two proposed models currently being considered in the reform of trust taxation, the ‘Economic Benefits Model’ and the ‘Proportionate Assessment Model’.
Whilst the Policy Options Paper does not provide any detail in terms of how the broader reform of Australian trust taxation will operate, it does offer some detail on the proposed reforms:
The EBM of taxation is similar to the “quantum” based approach to trust taxation, whereby beneficiaries are assessable based on the quantum and character of the distributions made to them, with the trustee assessable on any residual taxable income in the trust. The PAM of taxation is similar to the existing proportionate system of trust taxation whereby beneficiaries are taxable on their proportionate share of each class of trust “profit”.
As previously noted, the proposed reforms will result in significant implications for all taxpayers operating through trust vehicles. It is also expected that existing trust deeds will need to be updated once the reforms are operative. With this in mind, since the Options Policy Paper does not provide any further guidance on the effective start date for the proposed reforms to Division 6, it is expected that 1 July 2014, as previously announced, will be the effective start date.