After reviewing literally thousands of trust deeds, it still amazes us to see how many have not been updated, or at least reviewed, by a tax professional following Bamford and the 2011 ‘trust streaming’ amendments to the Tax Acts.

What is the easiest way to check whether a trust deed should be reviewed?

The easiest way to check whether a trust deed should be reviewed is to look at the definition of ‘income of the trust fund’ or ‘net income’. If your deed says that income is the same as ‘section 95 net income’, or there is no definition, then it probably needs amending.

The ATO’s draft taxation ruling (TR 2012/D1) reinforces some of the serious problems that can arise if your deed does not define income properly.

What about unit trusts?

If your unit trust receives franked dividends, the trust must be a ‘fixed’ trust in order to get the benefit of any franking credits.

If your unit trust has a unitholder that is a superannuation fund, there is a material risk that distributions from the unit trust to the superannuation fund will be taxed as ‘non-arm’s length income’ (at the top marginal rate) in the light of the decision in MH Ghali Superannuation Fund ([2012] AATA 527).

If either of these situations apply, the trust deed will almost certainly need to be amended as very few existing unit trusts qualify as fixed trusts under the stringent requirements in the Tax Acts.

How we can help you

We review discretionary trust, unit trust and hybrid deeds to determine whether they should be amended. If a deed needs to be amended, we prepare the necessary documents for a fixed fee.

At the same time, we also review the deed to make sure it includes the latest powers requested by financiers.

It is particularly important that the trust deed is reviewed well before the end of the financial year to avoid the 30 June rush.