Sample client letter
For the 2016 year, as with any other year, it is important to inform relevant clients of the need to make trust resolutions within the requisite timeframes.
The following is a sample explanation which may be inserted in standard letters to clients accompanying the trust resolutions. It is intended as a sample only, so please adjust the wording as appropriate for your practice and clients.
SAMPLE LETTER – Timing of trust resolutions
Dear Client
Please find enclosed the sample documents [i.e., trustee resolutions or minutes of meeting] to record decisions regarding trust distributions for the year ending 30 June 2016 (‘the 2016 year’).
It is crucial that the trustee(s) of your trust consider and decide how the income of the trust for the 2016 year is to be distributed on or before 30 June. It is also worth noting that ensuring such distributions are made on time has become the subject of increased ATO focus in recent times.
In particular, if the trustee wants to ensure that specific beneficiaries will receive the benefit of any dividends that have franking (or ‘imputation’) credits attached, that decision needs to be put in writing no later than 30 June. Failure to do so may mean that the intended beneficiaries may not in fact benefit from the franking credits.
A similar arrangement also exists in relation to the streaming of capital gains.
We recommend that, as a matter of good practice, all our trust clients consider these issues by 30 June and, ideally, put their trust resolutions in writing no later than 30 June every year going forward.
If you have any queries about this (or about anything else in relation to your tax affairs) please contact our office as soon as possible so that any necessary action can be taken no later than the 30 June 2016 deadline.
Kind regards
Accountant
TRUST TIP – Capital distributions
Example resolution 2 assumes that, if capital gains are to be streamed, the gross amount of the capital gain will be included in the trust’s income, so that all of the capital gain can be dealt with as part of the income distribution resolution.
However, there may still be situations where the gross capital gain has not been included in trust income (e.g., if the trustee failed to make a determination of the trust income by 30 June, triggering the ‘default income clause’ in clause 5.2 of the NTAA Corporate Discretionary Trust Deed, meaning that only taxable amounts (including net capital gains) are included in trust income). If this is the case, the trustee may only be able to ‘stream’ the gross capital gain by making a capital distribution.
When making a capital distribution, it is very important to refer to the trust deed and ensure that the correct procedure is followed.
For clients with an NTAA Corporate Discretionary Trust Deed, the procedure for making a capital distribution is contained in clause 8.1. Basically, the trustee of a trust with an NTAA Corporate trust deed may distribute capital by paying or setting aside trust capital to a beneficiary or transferringan existing investment representing “the whole or any portion of the Trust Fund” to them. The decision to do this must follow the regular procedure for making trustee decisions generally as set out in clause 15. Importantly, a distribution of trust capital does not need to be recorded in a deed, and the trustee does not need to seek the approval of any other entity (such as the appointor) when making the distribution.