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Streaming of Income- Bamford

Discussion in 'Accounting, Tax & Legal' started by Swan, 4th Mar, 2010.

  1. Swan

    Swan Member

    Joined:
    27th Feb, 2009
    Posts:
    13
    Location:
    Perth, WA
    Hi all,

    I have read all of the practise statements / articles on the Bamford case regarding distribution of income but I still have two questions:

    1. what happens now with regard to distribution of trust income to children (if you cant specify the dollar amount) and must use the proportionate approach. Do you just estimate as best possible the percentage of trust income. For example, assume trust income for 2010 (estimated) is $100,000 and you can distribute $2668 to a minor (assuming 2009 low income rebate), do you estimate 2.5% to be distributed to a minor in the distribution minutes?

    2. Furthermore, can you still stream different sources of income. For example, lets say you had $10,000 trust income of which $5,000 is capital gain, $1000 is interest and $4,000 is dividends/franking credits. In the distribution minutes do you just separate each separately but still use proportionate approach?

    For example,
    Capital Gains: 100% to be distributed to Beneficiary A
    Interest: 50% to be distributed to Beneficiary A; 50% to Beneficiary B
    Dividends/Franked Credits: 100% to be distributed to Beneficiary C.

    Or is the $10000 now aggregated as income with no streaming possible?

    Many thanks
    Rob
     
  2. PJCA

    PJCA Member

    Joined:
    30th Oct, 2009
    Posts:
    18
    Location:
    Adelaide
    What gives you the idea that dollar amount cannot be specified in distribution minutes?

    The practice statement issued from ATO resulting from Bamford does not provide guidance on streaming. As streaming normally doesn't result in differences between beneficiary entitlement and taxable outcome it may fall outside of what Bamford issue is trying to target - where a trust deed serves to shape the definition of trust income. Therefore it can be argued that it is business as usual as far as streaming is concerned. Of course you'd want to check your trust deed to ensure it allows streaming classes of income to start with.

    I'm not a lawyer, just my thoughts :)
     
  3. Superman

    Superman Well-Known Member

    Joined:
    6th Nov, 2007
    Posts:
    343
    Location:
    Gold Coast, QLD
    Yeah - as mentioned it all comes down to how the deed is written.

    I beleive in the Bamford case they were trying to argue that there was a difference between the net income for tax purposes and the net income as defined under the trust deed.

    If you have a very old or very cheap or overly creative trust deed for your family or discretionary trust you should double check the relevant clauses or see a lawyer to get it amended if necessary.

    Yes - should still be business as usual in regards to the flexibility to stream certain components or types of income capital gains to certained beneficiaries.

    I think you are confused in regards the proportionate rules - this is where as a result of the ATO disallowing a deduction (or including additional income) for the trust the income increases. In this case you must stick to the proportions that where originally distributed.

    If the trustees have made a distribution to a minor (i.e. $3,000) and as a result of an ATO investigation the taxable income of the trust increases by 20%, then all the distributions MUST increase by 20% (i.e. $3,000 becomes $3,600 and extra tax for the minor / kid). You cannot specifiy via a trust minute that any additional income will be distributed to a specific beneficary.

    The above is my interpretation but I admit I haven't reviewed Bamford in a lot of detail - however I am fairly certain I have the main aspects down.

    As an aside, just wonder if people who distribute to minors actually pay or offset the amounts they distribute on paper to thier kids (or grandkids, nieces / nephews etc)? Technically if a beneficiary loan builds up over a number of years, that beneficiary has legal claim from the trust of those monies.

    SM