What you need to know about the recent changes in "fixed" trusts and unit trusts
It would be prudent to recommend to your clients that their "fixed" trusts and unit trusts be reviewed having regard to recent developments.
On 13 September 2017, the ATO issued a finalised Guideline (PCG 2016/16) which sets out the circumstances when the Commissioner will exercise his discretion to treat a trust as a fixed trust.
A trust being a ‘fixed trust’ has three important taxation consequences:
what rules need to be met for losses to be carried forward;
whether non-arm’s length income provisions will apply if a SMSF holds an interest in the trust;
whether franking credits are available to the beneficiaries (assuming that a family trust election is not made).
The Guideline is only directed towards carried forward losses, but the principles may have broader application.
The finalised Guideline contains significant changes to the draft guideline that was issued on 26 October 2016.
In PCG 2016/16 the Commissioner indicates that he will treat a trust as a 'fixed trust' where either:
the terms of the trust meet new 'safe harbour' conditions; or
the circumstances of the trust are such that the Commissioner otherwise considers it appropriate to treat the trust as a 'fixed trust'.
However, where the interests of beneficiaries under the trust are not vested, the trust will not be treated as a fixed trust.
We can help your clients review their unit trust deeds, and where necessary, make amendments to ensure that the safe harbour conditions are met or that the Commissioner should treat it is as a fixed trust under the guidance outlined in PCG 2016/16.
We will offer special rates for deeds prepared by our firm. For other deeds our fee will normally be $660 incl GST. If you want us to review a substantial number of deeds, we may negotiate a bulk discount price for you.
Should you have any questions please contact any one of the Tax Team at Brown Wright Stein Lawyers.