This week we will continue our detailed examination of the exposure draft legislation for the proposed 30% minimum tax on discretionary trusts.
Last session began with proposed s 101AA and the definition of a minimum tax trust. We considered the exclusion for the trust estate of a deceased person and then spent most of the session working through the proposed new definition of “fixed trust” in s 272-65.
We did not get very far. Almost every word of the definition raised another question: who are the “beneficiaries” of a discretionary trust, what is a “fixed entitlement”, how can a person have an entitlement to “income” before that income has been ascertained, what constitutes the “capital” of the trust, and what is meant by rights relating to the “governance” of a trust?
This week we will continue from that point and then move into the electable regime.
Come prepared to discuss:
- whether the proposed definition of “fixed trust” operates as intended;
- the meaning of “beneficiaries”, “fixed entitlements”, “income”, “capital”, “governance” and “material discretionary elements” in proposed s 272-65;
- whether the definition may inadvertently extend to trusts that would ordinarily be regarded as discretionary trusts;
- how an EET nomination operates and how the nominated shares of income and capital must be implemented;
- what causes an EET election to be revoked;
- what happens if the trustee’s actual distributions differ from the nominated proportions because of a rounding error, a denied deduction or subsequently discovered income;
- whether the absence of a de minimis rule, dispensing power or Commissioner’s discretion means that a minor error can revoke the election and expose the trust to assessment under s 99A; and
- the consequences of getting the election wrong.
Campbell will also raise a constitutional question. The 30% impost is plainly concerned with taxation. But the proposed fixed-trust definition and EET provisions also purport to define trust interests and direct trustees how to confer entitlements. To that extent, are those provisions laws with respect to taxation, or laws regulating trusts?
Our principal focus will remain the exposure drafts themselves. We will continue working through the provisions step by step.
Required Reading:
Minimum Tax on Discretionary Trusts, Part 2
particularly:
- the exposure draft concerning the minimum tax and proposed s 272-65;
- the exposure draft concerning the electable regime; and
- the accompanying explanatory materials
Discussion led by Adrian Cartland & Dr Campbell Rankine