• Trustee can retain funds for trust use

    A trustee can still appoint a share of the net income of a trust to a private company beneficiary without immediately paying out that entitlement. However, to avoid that entitlement being treated as a dividend paid by the private company to the trust, the trustee of the trust must take certain steps to ensure that the private company beneficiary is not financially accommodating the trust by allowing the trustee to retain the funds for use within the trust.

    This can be done by placing the funds in a separate sub-trust for the sole benefit of the private company beneficiary by the date specified in PS LA 2010/4. The relevant dates for trustees to put the funds on a separate sub-trust are for UPEs that came into existence:

    • between 16 December 2009 and 30 June 2010 inclusive - 30 June 2011
    • on or after 1 July 2010 - the lodgment day of the trust tax return.

    The trustee may then also invest the sub-trust's funds in the sub-trust back into the main trust on commercial terms, so that the main trust continues to have access to those funds. PS LA 2010/4 outlines the types of investment which the Commissioner considers acceptable and the timeframes for doing so.

      Last modified: 22 Jun 2011QC 24445