Volume 15, Issue 1 – Boccabella

WHAT SHOULD BE THE TIMING RULE FOR ‘DERIVATION’ OF ASSESSABLE INCOME BY BENEFICIARIES OF DISCRETIONARY TRUSTS?

By Dale Boccabella

The accepted principle of the tax accounting rules for taxpayers’ assessable income inclusions is that a receipt or entitlement must have arisen or accrued before year-end in order to support an assessable inclusion for that year. In spite of this, for at least 45 years of Australia’s income tax, the tax accounting rule for beneficiaries of discretionary trusts has not been a year-end rule; it has been (at least) a two month post year-end rule. It is only recently that the rule has been ‘restored’ to a year-end rule. While no final decision has been made yet, it is clear that the current trust tax review strongly favours a post year-end rule for beneficiary derivation; in fact, there is little evaluation of a year-end rule. This article examines the merits of a year-end rule as opposed to a post year-end rule. Even though the discretionary trust is a problematic and unique ‘entity’, this article contends that the arguments for having a post year-end derivation date for taxation of a beneficiary of a discretionary trust are not convincing.

DOWNLOAD THE FULL ARTICLE

Comments are closed.