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Recording entitlement rule in trust streaming provisions allows for creation of mismatches

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Published on 01 Apr 16 by "THE TAX SPECIALIST" JOURNAL ARTICLE

The principle that the beneficial owner of an economic gain representing “assessable income” is the (proper) taxpayer is a well-established income tax principle, as is the correlative principle that those who do not benefit economically should not become the proper taxpayer. The recording entitlement rules within the Income Tax Assessment Act 1936 (Cth) concerning the allocation and streaming of a trust’s net capital gains and attributes associated with franked distributions to beneficiaries provide for outcomes that depart from these principles. This anomaly, or tax planning opportunity, centres on a deficiency in the streaming mechanisms.

This article highlights the opportunities and risks to taxpayers arising from making use of the anomalous rule. Whether there is an anomaly will depend on the trust law rules that facilitate the creation of beneficiary entitlements. The article will also make brief reference to trust law rules and explain their significance to the central issue in the article.

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Dale BOCCABELLA
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