The Assistant Treasurer, Senator Rod Kemp, today announced amendments to the A New Tax System (Closely Held Trusts) Act 1999.
Trustees of certain closely held trusts are required to disclose to the Commissioner of Taxation the identity of the ultimate beneficiaries of certain net income and tax-preferred amounts.
The announced amendments will improve the practical operation of this measure for trustees who are meeting their tax obligations whilst preserving the integrity of the measure.
The amendments will:
- allow extensions of time for lodgment of ultimate beneficiary statements in circumstances where the Commissioner allows;
- allow ultimate beneficiary statements to be amended in certain circumstances;
- provide trustees of closely held trusts with the right to seek damages in respect of the UB tax they paid (including any additional tax or penalty) from ultimate beneficiaries, trustee beneficiaries or interposed trustees or partnerships in certain circumstances; and
- clarify that section 254 of the Income Tax Assessment Act 1936 applies to trustees of closely held trusts in respect of the obligations imposed by the measure.
Further details of the proposed amendments are provided in the attachment.
The amendments are to apply from the time the measure first applied (i.e. present entitlements created after 4 pm on 13 August 1998 AEST).
MELBOURNE
4 February 2000
Media Contacts: Richard Allsop Assistant Treasurer’s Office (03) 9650 7274
Haydn Daw Australian Taxation Office (02) 6271 6413
ATTACHMENT
MODIFICATIONS TO THE RULES APPLYING TO TRUSTEES OF CLOSELY HELD TRUSTS IN RESPECT OF ULTIMATE BENEFICIARIES
Background
A New Tax System (Closely Held Trusts) Act 1999 (the Act) amended the tax laws by requiring trustees of closely held trusts (CHTs) to disclose to the Commissioner the identity of ultimate beneficiaries (UBs) presently entitled to net income and tax-preferred amounts to which trustee beneficiaries (TBs) are presently entitled within a specified period after the end of the income year.
Where no UBs are presently entitled as at the year end, or the trustee of the CHT fails to correctly identify the UBs within the specified period, the Act imposes taxation on that part of the net income of the trust at the top marginal rate plus Medicare levy. For tax-preferred amounts the trustee of the CHT must provide what information is available and take reasonable steps to obtain all the information.
To improve practical operation of the measure for trustees who are meeting their tax obligations, the Government has decided to make amendments as explained below. These amendments apply from the time the measure first applied (i.e. present entitlements created after 4 pm on 13 August 1998 AEST).
Extension of time to lodge Ultimate Beneficiary Statements
Under the Act, UB statements are required to be lodged by the time the trustee of the CHT is required to lodge the income tax return of the trust for the relevant income year.
Representations made to Government contend that, in certain circumstances, this does not give sufficient time for trustees or their tax agents to prepare and lodge correct UB statements.
To address this situation the Government has decided to amend the Act to allow extensions of time for lodgment of UB statements in circumstances where the Commissioner allows. For example, the Commissioner may, in genuine cases, allow a trustee an extension of time to lodge a UB statement in circumstances where the trustee cannot elicit the required information from a UB because the UB is temporarily overseas.
Amendment of UB statements
Under the Act, unless a correct UB statement is made and given within the UB statement period, tax is payable.
Because the Act does not provide for the ability to correct purported UB statements, trustees of CHT may inappropriately incur a liability to UB tax even where such a statement was lodged in good faith by a trustee.
To address this situation the Government will amend the Act by allowing trustees to correct purported UB statements in the following circumstances:
- amendments will only be permitted within 4 years of the time the UB tax became due and payable (as per the amendment period for ordinary income tax returns);
- the amendment only corrects an error in the original purported statement where the trustee of the CHT believed on reasonable grounds the statement to have been correct in that respect; and
- the event that led to the need to correct the original statement could not reasonably have been foreseen by the trustee.
Power for trustees to recover UB tax
The Government has also received submissions that trustees of CHTs may inappropriately incur a liability to UB tax (and associated penalties) where:
- they have unwittingly exposed themselves to UB tax etc. because they relied on information from UBs, TBs or interposed trustees or partnerships which they honestly but mistakenly took as being correct, and it was reasonable for them to do so; or
- they have made genuine attempts to elicit the required information from such persons to make a correct UB statement but were unable to do so because the person was uncooperative.
To address these concerns the Government will amend the Act by providing trustees of CHTs with the right to seek damages in respect of the UB tax (and associated penalties) from UBs, TBs or interposed trustees or partnerships in the above circumstances where the TB has received the full distribution (i.e. the gross amount without any UB tax taken out).
Clarificatory amendment
Finally, the Government will also amend section 254 of the Income Tax Assessment Act 1936 so that it is clear that this section applies to trustees in respect of UB tax obligations.