Announced as a federal budget measure, the government has looked to extend a specific anti-avoidance rule for closely held trusts engaging in circular trust distributions to family trusts.
According to the government, where family trusts act as beneficiaries of each other in a ‘round robin’ arrangement, a distribution can be ultimately returned to the original trustee — in a way that avoids any tax being paid on that amount.
Currently, trustee beneficiary non-disclosure tax does not apply to circular trust arrangements involving family trusts.
Accordingly, as trustee beneficiary non-disclosure tax did not apply to family trusts prior to the amendments, it created the potential for circular trust distributions to occur involving family trusts that could result in the original trustee avoiding liability for tax on such distributions.
The new measure, set to apply from 1 July 2019, will allow the ATO to pursue taxpayers entering into these arrangements and impose tax on such distributions at a rate equal to the top personal tax rate plus Medicare Levy.
Interested stakeholders have been invited to provide their views on the exposure draft legislation and accompanying explanatory materials by 31 October.