1. Children’s Income from Testamentary Trusts
From 1 July 2019, the Government intends to change the law so that the adult tax rates and the tax-free threshold available to children in receipt of certain income from testamentary trusts (a trust arising from the will of a deceased person) will be limited. Limiting access to the adult tax rates for minors will mean that only income derived from assets or funds arising from the deceased person’s estate will be taxed concessionally.
This means that if other persons later add funds to the testamentary trust, the income from these new funds will be taxed at the normal tax rates for minors in receipt of passive income, e.g. where the income exceeds $416, tax is payable on the whole of the child’s income at 45% plus Medicare Levy. The measure will clarify the position on the taxation of income received by minors from testamentary trusts.
2. Stopping Circular Family Trust Distributions
From 1 July 2019, the Government will extend a specific anti-avoidance rule to family trusts that applies to other closely held trusts that engage in circular trust distributions.
Currently, where family trusts act as beneficiaries of each other in a ‘round robin’ arrangement, a distribution can be ultimately returned to the original trustee — in a way that avoids any tax being paid on that amount. This measure will better enable the ATO to pursue family trusts that engage in these arrangements by extending the specific anti-avoidance rule, imposing tax on such distributions at a rate equal to the top personal tax rate plus the Medicare levy.