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  • Anti-avoidance rules for circular trust distributions now extend to family trusts

    Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Act 2019 received royal assent on 28 October 2019. This amended the law to extend the anti-avoidance rules that apply to other closely held trusts that undertake circular trust distributions to family trusts.

    Circular trust distributions

    Circular trust distributions occur when a trustee of a closely held trust becomes entitled to an amount that is attributable to trust income that the trustee had distributed to a beneficiary that was a trustee of another trust (a trustee beneficiary).

    The trustees of these trusts distribute amounts to each other in a circular way such that no tax is paid on the distribution.

    Amended legislation

    For income years starting on or after 1 July 2019, the amended legislation brings family trusts under the anti-avoidance rules which impose trustee beneficiary non-disclosure tax (TBNT) on circular trust distributions.

    The TBNT is imposed on the untaxed part of a circular trust distribution, to which a trustee of a family trust becomes entitled, at a rate equal to the top marginal tax rate plus the rate of the Medicare levy.

    If you are affected

    If you are involved in a circular trust arrangement, we encourage you to:

    Last modified: 18 Nov 2019QC 60664