Trust income is a concept that is quite controversial in the history of Australian law. It is very important to understand how the law applies to trust income if you are involved in any form a trust either as a beneficiary or as a trustee. A recent decision of the high court in Australia has shed new light on how Australian law treats the concept of trust income. The concept of trust income is braodly defined in Div 6 of Pt III of the Income Tax Assessment Act 1936 (Cth) ("the Act"). The recent case of Federal Commissioner of Taxation v Bamford & Ors [2010] HCA 10 has found that the appeal heard in the High Court should be dismissed.
The circumstances which gave rise to that case were that in the relevant years of income in the year ended 30 June 2000 and the year ended 30 June 2002, Mr and Mrs Bamford as executives in P&D Bamford Enterprises Pty Ltd arranged for the 2000 tax year and the 2002 tax year that their company would be trustee of the Bamford Trust. In the Bamford Trust Deed, "Trust Fund" is defined as "the sum of $10 settled on the Company, as trustee of the Bamford Trust, and all other moneys or property at any time transferred to and accepted by the Company as additions to the Trust Fund, as well as any accretions thereto and also includes the investments for the time being representing those moneys and that property". The trust deed contained no definition of "income". However, the Company, as trustee, was given authority to determine if payments to the company were income or capital amounts. For the 2002 and 2000 tax years, the Company distrubuted amounts to the beneficiaries. The Commissioner of Taxation assessed the net income under section 95 of the legislation as if the trust exceeded the net accounting income. The Commissioner apportioned the excess ($191,701) amongst the beneficiaries entitled to specific amounts on the basis of the proportion which the amounts they received bore to the total amount distributed. For example, Mr Bamford's assessable income was increased by $34,624.
The court eventually found that although there was a legally enforceable right involved which the ATO was entitled to rely on, one Judge called for legislative change to correct the implication of this law so that it does not reflect such a rigid position in relation to the interpretation of trust accounting. However, ultimately, the taxpayer did lose the appeal. This decision has important implications for the application of trust law
Article Source: - http://lawandjustice56.blogspot.com/
The circumstances which gave rise to that case were that in the relevant years of income in the year ended 30 June 2000 and the year ended 30 June 2002, Mr and Mrs Bamford as executives in P&D Bamford Enterprises Pty Ltd arranged for the 2000 tax year and the 2002 tax year that their company would be trustee of the Bamford Trust. In the Bamford Trust Deed, "Trust Fund" is defined as "the sum of $10 settled on the Company, as trustee of the Bamford Trust, and all other moneys or property at any time transferred to and accepted by the Company as additions to the Trust Fund, as well as any accretions thereto and also includes the investments for the time being representing those moneys and that property". The trust deed contained no definition of "income". However, the Company, as trustee, was given authority to determine if payments to the company were income or capital amounts. For the 2002 and 2000 tax years, the Company distrubuted amounts to the beneficiaries. The Commissioner of Taxation assessed the net income under section 95 of the legislation as if the trust exceeded the net accounting income. The Commissioner apportioned the excess ($191,701) amongst the beneficiaries entitled to specific amounts on the basis of the proportion which the amounts they received bore to the total amount distributed. For example, Mr Bamford's assessable income was increased by $34,624.
The court eventually found that although there was a legally enforceable right involved which the ATO was entitled to rely on, one Judge called for legislative change to correct the implication of this law so that it does not reflect such a rigid position in relation to the interpretation of trust accounting. However, ultimately, the taxpayer did lose the appeal. This decision has important implications for the application of trust law
Article Source: - http://lawandjustice56.blogspot.com/
0 comments:
Post a Comment