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Family Trusts and Taxation


It has been stated that the Tax Commissioner and the treasurer would have ordinary Australians believe that those who operate their businesses and family affairs through trusts are nothing more than blatant tax cheats[i].   Further, the treasurer has made it quite clear that a review of trusts is necessary “to ensure that the taxation of trusts…do not permit tax avoidance or undue tax minimisation”.  The concern has arisen, apparently due to, information gathered by the Australian Taxation Office’s (ATO) High Wealth Individuals Tax Force[ii].
In order to combat the hypothesised abuse by High Wealth Individuals and other perceived inequities the Government has introduced, or is planning to introduce, complex, convoluted and draconian legislation to limit or eliminate the tax advantages of Trusts.
The RBT discussion paper ‘A Strong Foundation’ was released in November 1998.  It states that its objective is to agree on a system that enhances economic growth and is equitable and efficient[iii].The report identifies a key problem area of the current system as the ‘different taxation of different business entities’[iv].  It highlights the fact that, in many instances, the treatment of income depends on the nature of the entity.  The Report claims that the above anomaly is inequitable and distorts investment decisions[v]
Given the above, it is understandable that the RBT sought to review the taxation of trusts v companies.   However, it is questionable as to whether the current suggestion to tax trusts as companies overcomes the anomalies.  In fact, in many ways it exacerbates the problem as it proposes to extend the current inequitable taxation of companies to trusts[vi].  The Governments New Tax System as outlined in its paper “Tax Reform – not a new tax a new tax system’[vii]attempts to justify its decision on the basis that companies and trusts, unlike individuals and partnerships, have the benefit of limited liability and thus should be taxed accordingly, ie; by being penalised.  As succinctly, put by Ms Carey, Taxation Institute of Australia’s Tax Technical Director “instead of looking at ensuring the system is fair for everyone, it will make the system equally unfair for everyone”[viii]
However, this paper will not focus on the political correctness of the above Government decisions as these have been discussed in detail elsewhere[ix] and it is doubtful as to whether any further discussions or submissions to Government will influence their decision.  Instead, this paper will focus on the potential ramifications of the recent changes if they are not amended and the proposed changes if they are implemented in their current form.

Traditional use of family trusts

What is a trust?

According to Meagher RP, et al,[x] the trust was not in its origin and perhaps never has been primarily a device of commerce.  It was from early times and has continued to be an instrument of family settlement.
A trust can be described as ‘the whole relationship which arises between the parties in respect of the property the subject of the trust, and to regard the obligation of the trustee to the beneficiary and the interest of the beneficiary in the property as results flowing from the existence of that relationship’[xi].
Trusts can be generally divided into various categories.  Firstly whether they are express, implied or constructive.   ‘Express trusts may be created by any language which shows a sufficiently clear intention to create them’[xii].   Implied and constructive trusts, on the other hand, arise by operation of law and will not be discussed further.  
Express trusts may be created either by will (testamentary trust) or by declaration (inter vivos trust) and can be further divided into the following categories;a)      public or private,b)      simple or active,c)      fixed or discretionary[xiii].
The traditional family trust is a express, private, active, discretionary trust either testamentary or inter vivos.  The most common examples of such trusts are;¨      those used to run the family business,¨      those used as an investment vehicle,¨      child maintenance trusts,¨       and testamentary trusts.
The historical advantages and disadvantages of such family trusts will now be discussed in general before moving onto recent and proposed changes that could fundamentally affect the decision to use such family trusts.  In conclusion, it will be decided whether each type of family trust is viable in the uncertain and continually changing future.

Tax Advantages of Family Trusts.

¨      A person can divert income (other than personal exertion income as to which see later) away from themselves into the trust structure.¨      The trustee can distribute income and capital in varying amounts between beneficiaries each year, and can even distribute different types on income to different beneficiaries (subject to the dividend imputation anti-avoidance rules). ¨      The trustee can determine the distributions in a way that minimises tax.¨      The trust is seen as a conduit as income that passes through it to the beneficiaries retains its character.  This is important as tax preferences such as the indexation factor of a capital gain, are able to be passed onto beneficiaries.¨      A substantial advantage of a testamentary trust and some Child maintenance trusts is that children under the age of eighteen can receive distributions which are taxed at normal rates instead a the penalty children’s rates under Div 6AA ITAA.¨      Distributions to disabled minors are taxed at the much lower adult rates.

‘Non-tax’ Advantages of Family Trusts:

As can be seen the traditional tax advantages of trusts are substantial.  However, there are also significant ‘non-tax’ or commercial advantages to the trust structure.  These include:¨      Asset Protection from potential creditors and in the event of marital breakup[xiv].¨      Benefits and income can be passed onto beneficiaries without ownership of the assets.¨      Limited liability is available if the trustee is a company.¨      Continuity  – a trust has a semi-permanent existence.¨      Social security assets tests do not usually include trust assets.¨      Flexibility in structure.¨      Privacy as details are not accessible by the public.¨      Estate planning – passing assets/businesses onto future generations.¨      Legal formalities of winding up trusts are generally simpler than those for companies.

Disadvantages of Family Trusts:

As with everything in life, where ever there are advantages there is almost always disadvantages.  These include:¨      The disadvantageous effect of distributions to minors from inter vivos trusts.¨      Losses can only be offset against income of the trust and cannot be distributed to beneficiaries.¨      Where grossed up dividends are less than losses from other sources, not only are franking credits lost, but the carried forward losses are reduced by the amount of the franking credit.¨      The cost of creating and administering a trust is significant.¨      Trust law is complex.¨      Government intervention and changing tax laws are always a possibility.¨      Loss of ownership where assets are given to the trust.
In addition to the above disadvantages, there are also potential problems with many of the above listed advantages, due to the application of the anti-avoidance provisions of the current tax regime and other recently introduced legislative chnages.  These will now be discussed.

Potential Existing Problem with trust structure:

Alienation of income:

As mentioned above, one of the fundamental tax advantages of trusts is their ability to divert income away from a particular taxpayer and then split the income between other taxpayers.  However, caution must be exercised when attempting to divert and split income from ‘personal services’. 
Income from personal services is income which is earned by an individual taxpayer, predominantly as a direct reward for personal effort, the exercise of personal skill or the application of labour[xv].  Personal Services income is distinguished from income derived from property or assets[xvi].  Income from property and assets is capable of being assigned or diverted by transferring the property or assets to another person or entity, ie; a family trust.  However, it is the ATO’s view, as expressed in numerous rulings[xvii], that income from personal services cannot be ‘alienated’. 
Alienation of personal services income occurs where income is diverted from the taxpayer whose services generated the income, so that it is legally derived by an interposed entity, usually a family company or trust.  Of particular concern to the ATO is where that income is then split between the taxpayer and their family members or retained in the interposed entity.
The ATO has recently commenced an extensive audit project on alienation of income through interposed entities.  The ATO has used various mechanisms to assess the personal service income to the taxpayer.  These include, determining the whole arrangement to be a sham, using Section 17, 19 and 25(1), or as a last resort Part IVA[xviii].  The ATO is firm on its stance that where alienation is effected for the sole or dominant purpose of avoiding tax, the general anti-avoidance provisions of Part IVA of the Act will apply[xix].  The ATO achieves this by determining that the ‘scheme’ is the diversion of personal service income to the interposed entity.  Part IVA generally allows the Commissioner to cancel the tax benefit under the scheme.  The courts and tribunals have confirmed the view that alienation of personal services income, predominantly for the purpose of reducing income tax, is ineffective for tax purposes[xx].  It can be concluded from the case law that the personal services income will, in cases involving tax avoidance, be assessable to the person who performed the services.
Basically, the avoidance of the application of these provisions is fairly simple – don’t contravene them.  Either resist the temptation to divert personal service income through the trust or if circumstances exist so as to make this commercially attractive, ensure that all of the personal service income, less related allowable deductions, is distributed wholly to the personal service provider.

Potential problems caused by recent changes:

The tax advantages of Trusts have been subject to continual legislative attempts to reduce or eliminate certain advantages.  The most recent changes include the potential application of CGT Event No 4, the application of Div 7A to beneficiaries who are corporate shareholders, the disclosure of ultimate beneficiary rules, the dividend streaming rules, the decision to extend the FBT rules to beneficiaries and, of course, the trust loss measures.  Each of these and their effect on family trusts will now be discussed.

CGT Event E4

CGT Event E4 happens where:            “(a) a trustee of a trust makes a payment to you in respect of a unit or an interest in a trust…and            (B) some or all part of the payment …is not included in your assessable income”[xxi]
There has been some contention that this provision may apply to the distribution of tax preferred income and result in either a capital gains tax liability or a reduction in the beneficiaries cost base of their units or interests.  However, the Commissioner has determined that the predecessor to CGT Event E4 has no application to discretionary trusts[xxii] and any attempt to alter this opinion  would probably not be upheld by an appellate court[xxiii].  It is therefore presumed that these provisions will not apply to family trusts.

Div7A application to corporate shareholder/beneficiaries

S109UB of Div 7A deems a loan to a shareholder of a private company by the trustee of a trust estate to be a loan by the private company if the company is presently entitled to the income and that income has not been paid to the company.  The loan will be bought within the scope of Div 7A and may be deemed to be an unfranked dividend.  This provision is fairly narrow in its scope but should be kept in mind.

Disclosure of ultimate beneficiary:

From August 1998, a withholding tax will be applied to all closely-held trusts where no ultimate beneficiary is disclosed.  The purpose of this rule is to ensure that tax is collected and income is not disguised through ‘chains’ or multiple trust structures[xxiv].  It is envisaged that, in the absence of contrived and convoluted  tax planning, these changes would not affect the average family trust structure.

Dividend Streaming Rules


On 31 December 1997 the Government released amending legislation to prevent trading in franking credits.  It applies to shares purchased after 31/12/97 and applies to all trusts other than family trusts as defined in the trust loss provisions[xxv].
The legislation denies franking credits to a beneficiary of a trust if the beneficiary is exposed to less tan 30% of the risks and opportunities of the shares held.  Perhaps unintendedly, the provisions operate in such a manner so as to deny all beneficiaries of discretionary trusts their entitlement to franking credits.  The only way to avoid this draconian and unfair provision is to make a family trust election[xxvi], the pros and cons of which will be discussed later. 
The dividend streaming rules also apply to testamentary trusts once the estate is fully administered[xxvii].   This results in a significant disadvantage to testamentary trusts that hold shares.

Proposed FBT changes from 1/4/00:

It is proposed from April 2000, to extend FBT to non-employee relationships including beneficiaries of trusts.  Interest free loans and the provision of assets such as the family farm house, holiday house, boat, etc, to beneficiaries will be taxed at the highest marginal rates.  This change has the potential to adversely affect existing trusts who hold family assets as trust property and provide these for the benefit of the beneficiaries.  The classic example is the holding of the family farmhouse within the family trust.         
(transitional provisions???)

The Trust Loss measures:

The trust loss measures are primarily contained in Taxation Laws Amendment (Trust Loss and other Deductions) Bill 1997. They operate to deny or limit deductions for prior year losses and debt deductions unless certain tests are passed.  Generally, these rules apply when a change in ownership or control occurs or where there is abnormal trading of units. These Bills received Royal Assent in 1998 and apply from 9 May 1995 for losses and 20 August 1996 for debt deductions.
The trust loss measures divide trusts into three broad categories being; fixed trusts, non-fixed trusts and excepted trusts.  The family trust will usually fall under the category of a non-fixed trust or a excepted trust, the later if it has elected to be a family trust (as to which see later).  Deceased estates and testamentary trusts (for the first five years after date of death) are also considered to be excepted trusts.  Excepted trusts (other than family trusts) are not subject to the new provisions.

Family trust elections:

In order to qualify as a family trust the trustee must make an election in the trust’s income tax return.  The election must specify an individual as the individual whose family group is to be taken into account.  In order to make this election the trust must also satisfy the control test at the end of the year of income in which the election is made.
The trust may also make an irrevocable interposed entity election to include any company, partnership or trust in it’s family group.

Consequences of election:

The effect of such an election is that the trust will not need to satisfy the continuity of ownership test or the pattern of distribution test.  The trust will still have to satisfy a  income injection test but only where benefits flow to members outside the family group.
The consequence of the election is that a new tax called the Family Trust Distribution Tax (FTDT) is imposed at 48.5% of any distribution by family trust to persons or entities outside the family group.  Ironically, the FTDT will apply to all distributions to outsider and not just the component attributable to the loss.
Some of the difficulties posed by the provisions include[xxviii]:
i)                    The lack of ability to later alter or revoke the Family Trust election.  A change in family circumstances, such as divorce or death, (two potentially common occurrences) could necessitate the termination of the existing trust and settling a new trust.  This could be a very costly exercise in terms of accounting and legal fees, capital gains tax and stamp duty.
ii)                  The difficulty of disposing of an interposed entity without attracting the FTDT.
iii)                The inflexibility with regard to inter-generational transfers of assets as the great grand-children are not included in the definition of a family.

Consequences of non-election:

If a family trust does not elect to be a family trust then it will usually be classified as a non-fixed trust and only be able to deduct the above deductions if it passes; the income injection test, the pattern of distributions test, the 50% stake test, and the control test.  The technicalities of each of these will not be discussed in detail,  however it would be reasonable to assume that:
¨      The income injection test is only of relevance if it is expected that an ‘outsider’[xxix] may inject income.  This may be very likely given the narrow definition of ‘outsider’ for trusts other than family trusts.
¨      The 50% stake test would not be relevant to most standard discretionary trusts as the beneficiaries for not hold fixed entitlements.
¨       The control test should be satisfied by most family trusts[xxx]
¨      The pattern of distributions test is likely to be the most difficult test to pass and the trustee will need to carefully consider the test when determining distributions.

To elect or not to elect:

As can be seen above there are disadvantages of making a family trust election. Thus, the election should not be made without thorough examination of the possible consequences.  The trustee or tax planner should consider[xxxi]:¨      The type of loss incurred.¨      The likelihood of passing the relevant tests.¨      The prospect of future distribution to members outside the family group.¨      The prospect of the need for income injection by outsiders.¨      Possibility of later revocation of the election.
Obviously, no such examination is necessary until such time as the trust has losses or debt deductions that may be subject to the provisions.  The provisions are principally designed as an anti-avoidance measure to eliminate trafficking in trust losses.  It has also been stated that it is not an abuse of the tax system if a family wishes to share wealth and losses and that the measures are not designed to affect small business[xxxii].  It is therefore submitted that the provisions should not effect most family trusts that are set up to run a profitable family business, child maintenance trusts and testamentary trusts after the five year exclusion period.

But beware Dividend Streaming Rules:

Having just concluded that the trust loss measures should not affect most family trusts, one still has to consider the above mentioned Dividend Streaming Rules which deny franking credits to discretionary trusts that don’t make a family trust election.  The denial of franking credits is a significant disadvantage and would, in most circumstances, necessitate that a family trust that holds shares should make the election.  They would therefore be subject to all of the above outlined disadvantages of making the election.

Potential problems caused by proposed recent changes:

In addition to all the past and current changes to trusts the Government has decided to overhaul the entire taxation of trusts through the ‘New Tax System’ and the Ralph review.

The final Ralph report was released on September 22 1999, but unfortunately the future of trusts is still uncertain.  The Government has decided to defer the introduction of the entity regime until 1 July 2001.  It is clear that the Government intends to tax trusts as companies regardless of any submissions evidencing the adverse consequences of such.  However, it is unknown as to whether the Government will consider carve outs for family trusts and what transitional measures will be introduced for existing trusts.  The following discussion will therefore only outline some of the possible ramifications of the proposal to tax trusts as companies.

Entity taxation – Taxing trusts as Companies

Under entity taxation, trusts are to be taxed comparably with companies.  All distributed profits, including tax preferred profits, will be taxed at the entity level and the tax will be imputed to the shareholder/beneficiaries. Excess imputation credits will be refundable to the shareholder/beneficiaries.

            Affect on flow through of tax-preferred income:

Some authors believe that the new tax system’s proposal to tax trusts as companies makes no difference to their tax effectiveness because beneficiaries would receive full tax credits for tax paid by the trust and low income earners can obtain a tax refund of these tax credits[xxxiii].However, it is believed that such authors have overlooked the effect of the loss of flow through effect for tax preferences. 
Tax preferences effectively lost through the new regime include, but are not limited to:¨      The previous 50% exemption for CGT of Goodwill of a business (now replaced by the 50% exemption for active assets).¨      Distributions of exempted gain on pre-CGT property.¨      The inflationary component of any CGT (for pre-Ralph assets).¨      The new 50% exemption from CGT for assets sold post-ralph.¨      Deferral of tax liability through averaging, excelerated depreciation, etc.
It appears that some of the above items may be subject to transitional provisions[xxxiv] if the gain is ‘realised’ prior to the introduction of the new regime.  However it is unknown as to what the definition of realised will be.  Will all trusts be required to sell their assets or will a re-valuation suffice?
In conclusion, under the proposed new system, trusts may no longer be the most effective structure to hold capital appreciating assets.  This will seriously affect the benefit of using trusts as investment vehicles and to run the family business. 

            Affect of reduced Company tax rate:

Other authors[xxxv] have heralded the fact that the Trust tax rate will drop to match the company tax rate thus making the retaining of income in trusts more advantageous than as is at present.  This sentiment seems to ignore the fact that most family trusts have corporate beneficiaries which effectively already enables trusts to take advantage of the company tax rate.  

Div 7A implications

The above discussed, fairly narrow application, of Div 7A to trusts may be considerably expanded under the new regime, in that, all loans to beneficiaries may be subject to Div7A.  It is unknown at this stage the exact application of this rule to trusts under the new regime.

Affect on existing Dividend Streaming  Rules:

It would appear that dividend streaming practices will be rendered unnecessary by the new regime as all distributions will be franked and excess credits refundable to the beneficiary/shareholder.  Therefore, the above mentioned provisions will probably be repealed although this has not yet been announced.

Affect on Trust Loss Provisions:

It has been stated that the tax reform document indicates the worst of both worlds in relation to losses in that, the new trust losses will continue to apply under the new regime[xxxvi].  This seems unbelievable but remains questionable until the exact details of the new measures are released. 

Will family trusts still be allowed to rest is peace under the new regime?

(or should they be buried once and for all?)
As stated by Richard Friend, of Arther Andersons, ‘trusts are still a “valuable tool” for individuals who do not wish to risk holding assets in their own name.  They still remain the most flexible vehicle you can have[xxxvii].  Wilst this may be the case, I seriously doubt their effectiveness for tax purposes and will now consider each individual type of family trusts and its viability into the future.

As an Investment Vehicle:

One would have to weigh up commercial advantages outlined above and the tax advantage gained through income splitting and income diversion against the tax dis-advantage of the loss of tax preferences.  The decision to continue to use a trust structure for the purchase of capital appreciating assets would depend upon the investment portfolio, ie; whether it is geared towards fully franked dividends or capital growth, and the expected inflation rate over the life of the asset.
In general, it is suggested that if the new tax system proposal are passed as presented it would not be a good idea to establish a trust as an investment vehicle due to the inability to flow through tax preferred income, in particular, the tax free component of any capital gain. 

To run the family business:

As above with investment trust, one would need to weigh the commercial and tax advantages of income splitting against the adverse consequences of the proposals.  In summary;¨      the Trust Loss provisions should not affect profitable businesses, but do beware; that making interposed entity election may affect subsequent sale of business,¨      avoid holding capital appreciating assets such as shares and property,¨      will lose benefit of 50% goodwill exemption (or the new 50% active asset exemption) on sale of business when distributed to beneficiaries.
In general, it is suggested that it if the new tax system proposals are passed as presented it would be borderline as whether or not to establish a trust for the family business.  If it is anticipated that the business or it’s assets will not be sold, or sold for minimal gain, the trust structure may still be viable.  In addition, if protection of assets was a important consideration (due to the nature of the business) then the taxpayer may be willing to sacrifice the loss of tax preferences in return for limited liability.

Child Maintenance Trusts:

Child Maintenance Trusts, if correctly formulated[xxxviii], currently result in considerable tax benefits as distributions to minor beneficiaries are excepted income under Division 6AA.  This means that they are not subject to the usual penalty rates that apply to minors.
The Review of Business Taxation – Platform for Consultation Discussion Paper 2[xxxix] states that Child Maintenance trusts may be excluded from the new provisions as a trust to which beneficiaries are absolutely entitled.  The paper further states that ‘with the availability of refunds for excess imputation credits and the maintenance of the current criteria for excluding these trusts from Div 6AAA, the tax outcome would be little changed’[xl]. Thus it would appear that the tax effectiveness of child maintenance trusts may be maintained under the proposed new tax system in that exemption from the penalty rates on distributions to minors is to be maintained.  Of course, the effect of the loss of flow through of tax preferences would have to be considered, it is suggested that the above tax advantage would usually outweigh this disadvantage and child maintenance trust will continue to be viable wealth creation vehicles.

Testamentary Trusts:

According to The Review of Business Taxation – Platform for Consultation Discussion Paper 2[xli].  Deceased estates are excluded from the new provision for the first two years from the date of death.  However, testamentary trusts are not excluded.  The paper makes no mention of whether the current advantageous tax consequences of distributions to minors from testamentary trusts will be maintained.  Presuming that it will be, the same conclusion as to child maintenance trusts applies, ie; they will continue to be tax effective.
The only caution would be to carefully watch the effect of the dividend streaming rules (if they are not repealed) if the testamentary trust holds shares on behalf of the beneficiary.

What about existing trusts? – should they be laid to rest?

In addition to considering the effectiveness of establishing family trusts in the future, tax planners should also be considering what to do with existing trusts.  The following is a brief summary of some of the things to consider[xlii].¨      It may be appropriate to realise gains on capital appreciating assets and transfer these to other business vehicles such as partnerships or individuals.¨      Watch the transitional arrangements carefully to ensure full advantage is taken¨      Review beneficiary loan accounts


Given all of the above changes is it questionable as to whether it is still appropriate to use trusts as vehicles for investments and family businesses.  The ASCPA, the National Farmers Federation and others[xliii] are currently lobbying the Government to reconsider some of the above changes and proposals.  In particular, the ASCPA states that ‘nearly 260,000 small businesses will be affected by the proposed changes’.  The ASCPA calls for an exclusion from the new provisions for trusts that make a family trust election, including testamentary trusts and child maintenance trusts, because these trusts are already subject to a number of restrictions[xliv]
The ASCPA recommendations are a common sense solution to the Government’s concerns that Trusts are being used for tax avoidance.  Given that the Prime Minister has stated that the new measures are “a way to eliminate the unfair advantages to some issues of trusts, while at the same time respecting the role of trusts as well-used vehicles for asset protection and holdings by both farmers and small business”[xlv] one would hope that the ASCPA recommendations are accepted.
However, until the uncertainty is clarified tax advisers, financial planners and taxpayers should take all of the above comments into consideration when deciding whether to use a trust structure for family circumstances.

[i]Intax, April 1998, pg 20

[ii]see generally, “Trust Structures:  Witch-hunt of the wealthy”, The Tax Specialist, Vol 1, No 1, pgs 14-20_

[iii]Review of Business Taxation (RBT) discussion paper ‘A Strong Foundation’.  Commonwealth of Australia 1998. AGPS. Pg v

[iv]ibid @ xi

[v]See generallyReview of Business Taxation (RBT) discussion paper ‘A Strong Foundation’.  Commonwealth of Australia 1998. AGPS

[vi]              See generally, TIA Submission.  The trust loss amendments.  Vol 1. No 3.  The Tax Specialist. February 1998, pg 163.  Trust Losses: Unfairness of the Draconian measures. The Tax Specialist.  Vol 1. No 2.  Oct 1997, pg 74.  Tax Reform:  Prospects for Change.  The Tax Specialist.  Vol 1.  No 5.  June 1998, pg234. Les Szekely.  Are Trusts Dead?  Intax.  Nov 1997, pg 16.   Paul Drum.  Trusts: Changing the Rules.  Australian CPA, November 1998.  The Tax Specialist.  Glower J.  Vol 2, No 4, April 1999, pg 194

[vii]Commonwealth of Australia 1998. AGPS. Pg 109

[viii]Simon Gaylard.  Double Vision.  Taxation in Australia.  Vol 32, No 10, May 1998, pg 512.

[ix]              As above @ vi

[x]Meagher RP, & Gummow WMC,   Jacobs’ Law of Trusts in Australia (Sydney: Butterworths, 5th ed, 1986.pg3

[xi]Meagher RP & Gummow WMC,   Jacobs’ Law of Trusts in Australia (Sydney: Butterworths, 5th ed, 1986. Para 104

[xii]             ibid @ 201

[xiii]             ibid @ 306

[xiv]             However, the Family Court does have wide powers in relation to trust property in the event of a marital breakup.  Such powers include the ability to remove the trustee and appoint the divorced spouse as trustee or to set aside the transfer of property to the trust.  (CCH.  Tax Planning: Trusts.  903-110

[xv]see IT2639, para 3

[xvi]ibid, para 8

[xvii](IT 2121, 2330, 2503, 2639, TD 95/34 & 94/71

[xviii]see generally, SBI Curriculum.  Training Module – Alienation of Personal Services Income through Interposed Entities.  March 1997.  ATO.

[xix]** Part IVA applies when:¨       There is a scheme as defined in section 177A;¨       A tax benefit as defined in section 177C(1) is obtained by a taxpayer in connection with the scheme;¨       The scheme is one to which Part IVA applies having regard to the matters set out in section 177D; andThe Commissioner is entitled, under section 177F to determine that ‘personal services’ income be included in the assessable income of the service provider.

[xx]             (Tupicoff v FcofT 84 ATC 4367. FcofT v Gulland Watson & Pincus. 85, ATC, 4765.   Bunting v FcofT. 89, ATC, 5245.   Daniels v FcofT. 89, ATC, 4830.  Case W58, 87, atc, 524.  Case X90, 90, ATC, 648. Case Y13, 91, ATC, 4990.   Case Y28, 91, ATC, 296. Case Y29, 91,ATC, 301.   Liedig v FcofT, 94, ATC, 4269.  Osborne V FcofT, 95, ATC, 4323

[xxi]ITAA97 sec. 104-70(1)

[xxii](see Tax Determination 97/15)

[xxiii]The Tax Specialist.  John Glover. Volume 2, No 4, April 1999, pg 194)

[xxiv]Paul Drum.  Trusts: Changing the Rules.  Australian CPA, November 1998

[xxv]The Tax Specialist.  Trusts Reform: Credit where its due.  Vol 1, No 3, Feb 98, pg 122-124


[xxvii](The Tax Specialist.  Robert Glover…)

[xxviii] see generally Taxation in Australia.  Family trusts and trust losses.  Volume 32, No 5, Nov 97, pg 237
[xxix]However note that the definition of an outsider differs for trusts other than family trusts.  For trusts other than family trusts, an outsider is any person other than the trustee of the trust or a person with a fixed entitlement to the income or capital of the trust (s270-25(2)).  Therefore, a purely discretionary beneficially is an outsider for trusts other than family trusts.  This may be reason in itself for the trust to elect to be a family trust.

[xxx] Taxation of Trusts – Study Guide.  Walpole, M, et al.  UNSW. 1999.
[xxxi] bid @ 3.38

[xxxii]Intax.  April 1998, pg20

[xxxiii]Michael Laurence.  Business Review weekly.  August 24, 1998, pg 25.  The family trust is dead…long live the family trust.  Lawrence Myers.  Weekly Tax Bulletin.  No 46, ATP, 98.  Personal trust havens disappear.  Tim Boreham.  Australian. 22/9/99.

[xxxiv] Taxation in Australia.  The Common Entity System.  Assessing the regime proposed for companies and trusts.  Vol 33, No 3, Sep 98, 137.[xxxv]           Above iiixxx.

[xxxvi]The Common Entity System.  Taxation in Australia.  Vol 33, No 3, September 1998, pg 137.

[xxxvii] Personal trust havens disappear.  Tim Boreham.  Australian. 22/9/99.[xxxviii]  Ie; in accordance ith TR 98/4[

xxxix] Commonwealth of Australia.  AGPS. 1999, pg 487

[xl]  ibid @ 482

[xli] ibid @ 504

[xlii] see generally, Les Szekely.  Intax. Nov 1997, pg 15

[xliii](Simon Gaylard.  Double Vision.  Taxation in Australia, Vol 32, No 10, May 1998.  Trusts Review:  Tax reforms are unwarranted.  The Tax Specialist. Vol 1. No 2, Oct 1997, pg 82. Financial Review.  Farmers to fight move on Family Trusts. Brendan Pearson. 23/9/99).  Trust tax ‘traps investor’. Kirsten Lawson.  Canberra Times. 22/9/99.

[xliv]        (Media Release.  CPA.  Ralph changes to Trusts a blow for small business.  20 July 1999)
[xlv](Robert Skeffington and Robert Gottliebsen.  Business Review Weekly.  August 24, 1998, pg 23)

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