Changes to trust reporting
Changes to simplify reporting for trustees and beneficiaries are commencing from 1 July 2024 as part of the Modernisation of Trust Administration Systems (MTAS) project. From that date, labels in the statement of distribution, which is part of the trust tax return, will be modified, a new schedule will be introduced for all trust beneficiary types, and new data validations will be added.
These changes will enhance the ability of trustees to appropriately notify beneficiaries of their entitlement to income and support the calculation of the CGT amount in individual tax returns.
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The changes to trust reporting
Looking at each of these changes in depth, from the 2023-24 income year and onward, four new capital gains tax (CGT) labels have been added into the trust tax return statement of distribution. The ATO recommends that all beneficiaries obtain copies of the trust statement of distribution as it relates to their individual entitlements. This will allow beneficiaries to include the correct information in the new trust income schedule.
The trust income schedule instructions will demonstrate how the information on the tax statement provided should be reported on the trust income schedule. This also includes trust income from a managed fund. It should be noted that beneficiaries will still need to complete existing trust income labels in beneficiary income tax returns as this new trust income schedule will not replace any existing trust income labels. Individual beneficiaries who lodge via MyTax will receive prompts about the additional reporting of trust income.
Trustee resolutions appointing income and capital gains
In addition to these reporting changes, the ATO has reminded trustees that where a beneficiary’s entitlement reflected in trustee resolutions is subsequently changed by either arguing the resolution is invalid, defective or made at a different time, it should be notified as an affected party where the change triggers tax consequences.
To ensure that beneficiaries are presently entitled to trust income, trustees of discretionary trusts are required to make a resolution appointing trust income by 30 June of each income year. To make a beneficiary specifically entitled to a capital gain made by a discretionary trust, the trustee must make a resolution in respect of that capital gain by 31 August following the income year in which the capital gain is made.
Trustee actions that attract ATO attention
According to the ATO, high risk behaviours by trustees can include:
- altering trust resolutions after tax returns are lodged
- failing to inform the ATO of errors in trust deeds or their administration
- making decisions that affect the tax liabilities of a trust, such as early vesting, without notifying the ATO
These actions can lead to disputes over entitlements, amended assessments, and the potential for findings of fraud or evasion if the issues are not promptly and transparently addressed with the ATO. The ATO notes that it is critical for trustees of trusts to maintain open and honest communication with the ATO, as a failure to do so may lead to serious consequences, including the possibility of amended tax assessments for fraud or evasion (which are not limited by the standard four-year review period) and the imposition of significant penalties.
The need for trustees to promptly advise the ATO of any mistakes in the trust deed or in the administration of the trust to prevent legal and financial complications cannot be overstated.
Disclaimer: The information on this page is for general information purposes only and is not specific to any particular person or situation. There are many factors that may affect your particular circumstances. We advise that you contact Mathews Tax Lawyers before making any decisions.