The disutility of assessing trust beneficiaries on income derived by trustees: a critique of the existing regime whereunder beneficiaries are taxed on trust income before they receive it

摘要

The Australian tax policy of assessing trusts and their beneficiaries has been buffeted by changes that have occurred over the last 10 years or so, chiefly in the rules that equity has adopted and applied in its restatement of the rights and interests that a beneficiary has in a trust. Broadly, the scheme of div 6 of Part III of the Income Tax Assessment Act 1936 – the general provisions for assessing trustees and beneficiaries – has remained largely unaltered, its machinery has now become ill-suited to equity’s new jurisprudence concerning beneficiaries' interests in trusts.This thesis examines the rules that seek to identify in a beneficiary an interest that she or he has in a trust’s subject matter, and it questions whether the tax legislation is still adequate to work its policies in the light of changes in the rules of equity. Most pressing amongst them is the concept of present entitlement to income as a criterion for assessing beneficiaries of trusts on incomes derived by their trustees – at least before the income is physically paid or dealt with by the trustees so that there is some actual or constructive receipt by the beneficiary of that income.In addition to this, the thesis points to other difficulties that have arisen – largely because of changing jurisprudence – that portend the unworkability of the current tax policy. The proposition is that the only way to correct the present and forthcoming problems, and the tensions they will cause in the Australian tax system, is to abandon the conventional policy of seeking primarily to assess a beneficiary on a mere present entitlement, and instead to assess tax on physical distributions. Under this proposition, a beneficiary will no longer be assessed on anticipated distributions: she or he will now be assessed only on those distributions that are actually made thereto. Naturally enough, a number of other trust assessing issues are affected by the proposal, and the changes to them – largely in a way that makes them simpler – are proposed and submitted.