It has been some time since the High Court’s decision in the Bamford case (for a quick refresher on what the Bamford decision is all about  have a look at this article). Despite the time elapsed, there is still a level of uncertainty surrounding the tax consequences of Family Trusts.

In response to the Bamford decision (Commissioner of Taxation v Philip Bamford & Ors [2010] HCA 10), the ATO released Draft Taxation Ruling TR 2012/D1. The Draft Ruling provides the ATO’s view on  what the term “income of a trust estate” means in light of the decision.  In the Draft Ruling, the ATO expresses the view that “notional amounts” cannot form part of the “income of a trust estate”. In the ATO’s view, this effectively excludes imputation credits, foreign tax credits and Division 7A deemed dividends.

The Draft Ruling is open to comments and submissions and is yet to be finalised.

Controversies over the draft ruling:
The release of the Draft Ruling caused considerable controversy in tax circles. Numerous submissions have been made criticising the ATO’s views and requesting that the Draft Ruling be withdrawn. The ATO are yet to finalise the Ruling.

Gold and Platinum Members read on to see the Law Society of Australia’s submissions in response to the Draft Ruling:

There are concerns that the Draft Ruling is retrospective. The ruling appears to proceed on the basis that it represents what the ATO’s view has always been. However, this is inconsistent with the Commissioner’s arguments in the Bamford case. 

The ATO seems reluctant to finalise the Draft Ruling in view of these controversies.

Current Status of the Ruling:
The Government is considering conducting a wholesale reform of the law relating to the taxation of trusts, and the ATO has confirmed that the ruling will not be finalised until this has been further considered. 

In Summary, the Draft Ruling issued by the ATO is yet to be finalised, and this this is unlikely to occur until the criticisms of it and the comments in relation to it have been assessed.  However, it would be wise to ensure that your trust documentation is up to date, and is in accordance with the law as it currently stands.

Build these documents now:

• Family Trust - Streaming & Bamford Update
• Family Trust
• Change Trustee of Family Trust