Last amended 17 June 2009
A person who is a beneficiary of a discretionary trust [2], receives income from the trust only when:
Allocations and distributions are assessed as income for 12 months from the date of the resolution to distribute.
The following table describes the assessment of trust income that includes franking credits (known as imputation credits)
If a person is... |
Then the... |
a pensioner |
|
The following table describes the roles of individuals within a trust and the treatment of their trust related income. A person may have more than one role and each needs to be considered separately.
Role |
Description |
Settlor |
Does not usually receive income from the trust, but the deprivation provisions may apply. |
Contributor |
May receive income from interest on loans. The deprivation of income provisions may apply. Deeming applies to the:
|
Beneficiary |
May receive distribution of income or capital at the discretion of the trustee. Further information on assessment of income to trust beneficiaries is provided in this topic. |
Trustee |
May receive wages, fees, or salary. The current rate payable is held as on-going income. Reimbursement of 'out of pocket' annual expenses is not income. |
Distribution of income to beneficiaries is maintained for 12 months. A beneficiary who received a trust distribution of an amount in one year may not automatically receive a distribution of the trust's profits in the following year. Distribution of profits from discretionary trusts are treated as non-periodical income.
A person who is a beneficiary of a discretionary trust [2] has no rights to the trust's income, even if they are also trustees. A beneficiary receives a distribution solely at the trustee's discretion in accordance with the terms of the trust deed.
A beneficiary is entitled to receive an amount under a discretionary trust when the trustee exercises their power under the trust deed and makes a resolution to distribute in favour of the beneficiary. Allocations and distributions are assessed as income for 12 months from the date of the resolution to distribute. There may be instances where a resolution to distribute was made but the trust's tax return has not been lodged at the time of resolution. Where this is the case, the onus is on the person to find out how much they are entitled to receive. Distribution income should still be assessed from the date the resolution was made and not from the date the tax return was lodged. An example would be where a resolution was made on 1 July 2001, but the tax return was done on 1 October 2001. The person, as trustee, may know of the distribution prior to receipt, or may be ignorant of the distribution until it is paid. In either case, assessment is from the date of resolution which is the 1 July 2001.
A person is entitled to receive the amount when they have an absolute vested interest in the amount and are legally able to demand payment of the amount. A person cannot demand payment of an unspecified amount and therefore is entitled to receive the amount only when a figure is specified. Where there has been a resolution to distribute an unspecified amount, the distribution only becomes assessable when the person becomes entitled to legally demand a specific amount.
A trustee makes a resolution in July to make a profit distribution of $700 to one person, and total profit less $700 to another. In October the accountant has determined the profit of the trust to be $1,000. The first person has a legally enforceable right to $700 from July, and this amount is assessed from then. The other person is assessed when their exact entitlement becomes known, so their $300 is assessed from October.
A discretionary trust is a private trust set up by an individual or individuals either to:
In virtually all cases the trust deed gives absolute discretion to the trustee to distribute both income and capital among the beneficiaries as he or she sees fit.
Trustee has two meanings depending on the context, (i) and (ii).
(i) a person who looks after someone else's affairs
According to section 202 of the VEA [6], a trustee is a person appointed by the Commission to administer the financial affairs of a pensioner who may be incapable of managing their own affairs for reasons such as:
These criteria include circumstances where a pensioner has a psychiatric disorder or a mental illness as a result of alcohol or drug addiction.
A trustee can be appointed, with or without the consent of the pensioner and once appointed, a trustee has full control of the pension payment.
(ii) a person responsible for administration of a trust
According to section 52ZO of the VEA [6], trustee has the same meaning as in the Income Tax Assessment Act 1997 [7].
A deprived asset is an asset:
A discretionary trust is a private trust set up by an individual or individuals either to:
In virtually all cases the trust deed gives absolute discretion to the trustee to distribute both income and capital among the beneficiaries as he or she sees fit.
Links
[1] https://clik.dva.gov.au/user/login?destination=node/16374%23comment-form
[2] https://clik.dva.gov.au/%23
[3] https://clik.dva.gov.au/book/export/html/16374#tgt-cspol_part10_ftn399
[4] https://clik.dva.gov.au/service-eligibility-assistant-updates/all-determinations-order-date-signed-oldest-most-recent/determinations-under-vea
[5] https://clik.dva.gov.au/book/export/html/16374#ref-cspol_part10_ftn399
[6] http://clik.dva.gov.au/legislation-library
[7] http://www.comlaw.gov.au/comlaw/management.nsf/lookupindexpagesbyid/IP200401745?OpenDocument