Trust Distributions from Family Trusts

Jun 15, 2022

Trust Income – Family Distributions under the Spotlight

The Taxation Office released four documents which focus on the splitting of Trust income amongst family members where the nominated beneficiaries do not receive the actual economic benefit of the distribution.

Of concern to us is the common situation where trust distributions are made to “adult” children or other adult family members. The adult beneficiary is the nominated beneficiary for tax purposes, however the cash distribution ends up ultimately in the hands of the Trust controlling parent. These arrangements utilise lower marginal tax rates which result in a lower tax liability. The Taxation Office is suggesting the distributions are “ineffective” as the adult beneficiary does not receive the economic benefit of the distribution and therefore the trustee may be taxed at the highest marginal tax rate.

Whilst this is a developing area with guidance changing, it is important that clients be aware of the Taxation Office’s focus when determining their trust distributions for 2022.

Contact us for further guidance to ensure that your Family Trust distributions continue to remain effective this year and beyond !

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