iscover ATO flags top tips for trustees in lead-up to EOFY
BusinessClarity, record keeping, and staying up to date with requirements are some of the areas trustees should pay attention to as the trust resolutions deadline approaches, the Tax Office has said.
With the trust resolutions deadline on 30 June approaching, the ATO emphasised the importance of trustees and advisers being clear about their obligations. The ATO emphasised the importance of trustees being familiar with their trust deeds and accurately determining the income of the trust estate for each financial year.
“Common errors include actions that are inconsistent with the deed, mistaking accounting profit for distributable income, and misinterpreting trustee powers,” the ATO said.
It urged advisers to review trust deeds and, to understand how it defines income, distribute income according to each beneficiary’s entitlements to avoid these errors.
Trustees must also know how to correctly identify the trust’s beneficiaries.
“Errors often occur when trustees fail to read the deed, distribute to non-beneficiaries, or distribute outside the family group when a family trust election (FTE) or interposed entity election (IEE) is in place,” the Tax Office said.
Trustees avoid these errors by identifying beneficiaries per the trust deed, ensuring all entitled beneficiaries quote their TFN, and ensuring all entitled beneficiaries are notified of their entitlement, the ATO said.
Trustees must also make valid resolutions to appoint or distribute income to beneficiaries by 30 June of the relevant tax year.
“If resolutions are not made by 30 June, default beneficiaries may be deemed presently entitled to the income, or you may be liable for the tax on all income of the trust and taxed at the highest marginal tax rate plus the Medicare levy,” the ATO said.
The ATO said errors such as invalid or back-dated resolutions can be avoided by reviewing the trust deed to confirm how and when resolutions must be made, and by ensuring resolutions are clearly documented and made by 30 June.
In addition, the ATO said it is critical that trustees keep accurate and complete records that explain expenses and losses.
“Bank statements and accounting records alone are not enough, as they often don't contain all the required details.”
“[Trustees] need to keep written evidence for each expense that they claim, retain records of losses from when they arise until the end of the period of review for the year they are deducted.”
“If [trustees] can't substantiate your claims, we may disallow [deductions], and carried forward losses may be lost.”
Finally, the ATO urged trustees to check holding period rules. If trustee documents do not comply with rules, franking credits cannot be claimed unless an exception applies.
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Carlos Tse
Carlos Tse is a graduate journalist writing for Accountants Daily, HR Leader, Lawyers Weekly.