Tax Tip: Update Your Trust Deed

This tax tip will be relevant for you if you’ve got a family trust or a discretionary trust, and it runs a business or receives investment income, and you use that to distribute to family members or entities in your family group. 

A trust deed is the document we use to make sure someone can receive money, or be a beneficiary of that trust. But it’s also the document we need to rely on to allow accountants to be able to do things like trust distribution streaming, where we distribute different types of income to different beneficiaries. Going into that a bit more; sometimes your trust might receive interest income, or it might receive business income, or capital gains income that financial year, or even franked dividends, and sometimes it might get a better tax outcome to distribute certain income types to different beneficiaries. For instance, capital gains – if there’s a discounted capital gains, individuals get a 50% discount on those and it carries through, but if you distribute discounted capital gains to a company you don’t get that 50% discount – so it can be a considerable difference there. And to be able to do that we need an up-to-date trust deed. 

There was a big case that went through the courts in 2012 (Bamford was the name of the case), and as a result, Bamford said that your deed needs to be able to allow you to distribute those different types of income. And soon after that case was finished, all of the lawyers updated their deeds to allow that sort of thing. So what we’re making sure there, is that if you rely on that ability, that your deed is updated – and it’s actually good practice to update them every few years anyway to keep them current with current legislation and current precedents that lawyers do. But particularly if your trust is older than 2010/2011/2012, I’d recommend it definitely gets a review and potentially updated. But again, we want to be doing this every three or four years, just checking that it’s up to date.

So again, this tax tip is on keeping your trust deed up to date and what you don’t want to do is from a tax perspective try to do something that you’re deed doesn’t allow. That wouldn’t be a great outcome.