The Government will amend the income tax law to allow income beneficiaries of testamentary trusts (such as life tenants) greater access to franking credits on dividends received by the trust.
Under the franking credit holding period rules, franking credits and associated tax offsets are not available to taxpayers who have not held shares at risk for more than 45 days. The rules are aimed at preventing franking credit trading.
In announcing the amendment today, the Minister for Revenue and Assistant Treasurer, Peter Dutton, said Income beneficiaries of testamentary trusts are generally unable to satisfy these rules because of the essential nature of their stake in the trust. They do not bear the risks of loss or opportunities for gain from shares held by the trust.
Beneficiaries who have a vested interest in the dividend income of the testamentary trust but not the current beneficial ownership of the underlying shares, will be excluded from the franking credit holding period rules.
This amendment will allow beneficiaries of testamentary trusts, such as life tenants, to benefit from greater access to franking credits on dividends.
The amendment will not apply to income beneficiaries who make related payments in respect of trust distributions.
The amendments will apply from 1 July 2002, the commencement date of the simplified imputation system. Transitional arrangements will be developed to give trustees who have made family trust elections an opportunity to revoke those elections where they were made primarily for the purposes of obtaining franking credits and associated tax offsets.