The Minister for Revenue and Assistant Treasurer, Peter Dutton MP, has announced that the Government will amend the income tax legislation that applies to certain trusts created under a will (testamentary trusts). The amendments will improve the taxation treatment of income beneficiaries in testamentary trusts, such as life tenants.
The amendments will allow the trustee of a testamentary trust to choose to be assessed on some part or all of an amount of net capital gain that is included in the net income of the trust where:
- that part or all of the net capital gain would be assessed to a presently entitled income beneficiary of the trust; and
- that beneficiary is not entitled under the terms of the trust to benefit from the gain.
These amendments will ensure that an income beneficiary is not assessed in respect of trust capital gains from which they will not benefit.
Allowing the trustee to make the choice on a beneficiary-by-beneficiary basis will ensure the trustee is not assessed on part of the capital gain in circumstances where no tax would have been paid on the gain by the income beneficiary, for instance where the income beneficiary is an exempt entity or a foreign resident.
Legislation giving effect to this announcement will be introduced as soon as practicable, following consultation with industry on the design and the implementation of the amendments.
These are practical changes that will provide greater security and genuine peace of mind to Australians preparing their affairs for when they pass away.
The amendments will apply to the 2005–06 and later income years.