Interim changes to the taxation of trusts

Overview of the changes

The tax law has been changed to address a number of uncertainties and longstanding problems with the taxation of trusts, some of which were highlighted by the High Court decision in Commissioner of Taxation v Bamford [2010] HCA 10 (Bamford decision).

The changes made by Tax Laws Amendment (2011 Measures No. 5) Act 2011 have been introduced pending a broader review of the taxation of trusts - including a rewrite of Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936).

The changes:

• enable the streaming of capital gains and franked distributions to beneficiaries for tax purposes
• introduce anti-avoidance rules targeted at inappropriate trust distributions to exempt entities.

For convenience throughout this information, we will use 'trust's taxable income' when referring to the trust's net income as defined in Division 6 of Part III of the ITAA 1936 (Division 6).

Sections within Overview of the changes

• Why the changes were made
• What has changed
• What has not changed
• Trusts affected by the changes
• When the changes apply from