Draft bill - Taxation of testamentary trusts

Treasury has moved to implement an integrity measure on the taxation of testamentary trusts which was first announced in the 2018-19 Federal Budget.

Currently, income received by minors from testamentary trusts is taxed at standard adult rates (under section 102AG of Income Tax Assessment Act 1936), instead of the higher tax rates which generally apply to minors.

The Government identified that some taxpayers have been inappropriately obtaining the benefit of this concession, specifically by transferring assets that are unrelated to the deceased estate into testamentary trusts. The Government announced on 8 May 2018, in the 2018-19 Budget, that an integrity measure would be introduced to deal with this ‘mischief’.

Accordingly, Treasury has released for consultation Treasury Laws Amendment (Measures for Consultation) Bill 2019: testamentary trusts (Bill).

Commercial debt forgiveness - What is love and affection?

Recently released Draft Taxation Determination TD 2019/D9 (Draft TD) clarifies that only a creditor who is a natural person can rely upon the natural love and affection exception to the commercial debt forgiveness rules. A company or an individual acting as the trustee of a trustee cannot claim that a debt has been forgiven for reasons of ‘natural love and affection’: a somewhat ridiculous idea, if you think about it!

This departs from the Commissioner’s earlier position provided in ATO Interpretative Decision 2003/589 (withdrawn on 6 February 2019), which established that a company could rely upon this exception.

The Draft TD is intended to have retrospective effect but the ATO has confirmed it will not devote compliance resources to debts forgiven prior to 6 February 2019, as taxpayers would likely have relied upon the now withdrawn ATO Interpretative Decision 2003/589.

Disclosure of taxpayer’s protected information in defamation proceedings against the Commissioner

In Jordan, Commissioner of Taxation v Second Commissioner of Taxation [2019] FCA 1602, Justice White of the Federal Court held that the Commissioner of Taxation, Mr Chris Jordan (Commissioner) was allowed to access the ‘protected information’ of a taxpayer, Sydney accountant Vanda Gould (Taxpayer), for the purpose of defending defamation proceedings brought by the Taxpayer.

In this case, the Court found that the defamation proceedings (and the Commissioner’s defence to those proceedings) would most likely involve matters relating to the Taxpayer’s compliance with taxation laws, and therefore accepted that the information could be disclosed, as the disclosure of would be for the purpose of criminal, civil or administrative proceedings related to a taxation law.