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As we approach the implementation of new trust administration reforms on 1 July 2024, trustees, beneficiaries, and tax agents need to be well-prepared. These changes will streamline and modernise the trust income reporting and processing system.

Digitalisation of Trust Income Reporting

The upcoming reforms, known as the ‘Digitalising Trust Income Reporting and Processing’ measure, aim to enhance annual income tax return information’s quality, accuracy, and integrity. From the 2023-24 income year, the reforms will:

  • Revise labels in the statement of distribution to better detail beneficiary information.
  • Introduce a new trust income schedule that must accompany tax returns for all beneficiaries receiving trust income.
  • Enhance data validations within the trust tax return form to strengthen reporting integrity.

These changes will facilitate accurate and consistent reporting across all types of beneficiaries, simplifying compliance with tax obligations for both trustees and beneficiaries.

Trust Distribution Resolutions

Effective from 1 July 2024, trustees must ensure that all resolutions to distribute trust income are made by 30 June to be adequate for tax purposes. This is crucial for determining who is assessed on the trust’s net (taxable) income. Trustees must also adhere to specific dates mentioned in the trust deed, such as a resolution required by 28 June.

Key Considerations for Trustees

Review Trust Deed: Verify if your trust deed needs updates regarding the new requirements, especially regarding the timing and documentation of resolutions.

Understand the Implications of Non-Compliance: Failing to comply with the trust deed or breaching trustee duties can lead to severe consequences, including the reversal of decisions, removal of the trustee, and potential appointment of an independent trustee.

Documentation and Evidence: Although the ATO accepts resolutions made by or after 30 June, proper records are crucial. Confirmatory resolutions should be drafted accurately and dated when completed to avoid penalties associated with backdating documents.

Preparing for the Changes

Trustees should update policies and procedures to align with the new reporting requirements to ensure smooth adaptation. They should also educate beneficiaries and advisors about how these changes will affect them, particularly concerning the new trust income schedule and the necessity for timely resolutions. Finally, they should implement robust systems to handle the new forms and schedules, investing in or updating current systems as needed.

Seek Legal and Compliance Advice

Professional advice is essential given the complexity of trust law and the significant penalties for non-compliance. Trustees should consult with tax and legal professionals to ensure their trust is managed under the new regulations and that all decisions are documented correctly and timely.

Stay Informed and Compliant

The changes to trust distribution rules mark a significant shift in how trusts will operate in Australia. By preparing adequately, trustees can ensure that their trusts continue functioning efficiently and compliantly under the new system.

At AFP Accounting, Tax, and Business Advisory, we are dedicated to helping our clients adapt to these changes. We ensure that your trust meets all new legal and regulatory requirements while continuing to serve the best interests of the beneficiaries.

For further assistance or to discuss how these changes may affect your trust, contact AFP Accounting, Tax, and Business Advisory today. We are here to support and guide you through every step of this transition.

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