If you have a family trust there are two recent major (very major) things that have happened that will affect the way they will be taxed in the future.
The first is the announcement in the Budget that trust income will now be taxed to the trust at a minimum rate of 30% regardless of how it is ultimately distributed to beneficiaries. However, under the proposed measures, Individual beneficiaries who later receive that trust income will get a credit for the tax paid by the trust, preventing double taxation. But a credit will not be available where this trust income is distributed to a corporate beneficiary.
These measures are due to start on 1 July 2028 but no doubt will be subject to tremendous scrutiny in the meantime before any final legislation is passed. Nevertheless, it is never too early to start looking at things and making initial plans.
The other major thing that happened that affects family trusts was a decision of the High Court in Bendel’s case. And that decision applies immediately.
In that case the High Court ruled that where a corporate beneficiary of a trust is made entitled to trust income, but this income is not paid over to them, then the ATO cannot say that this is a taxable dividend paid back to the trust from the company.
Rather, in this case, where the income is “set aside” for the corporate beneficiary and retained by the trust (i.e.: where an “unpaid present entitlement” arises) there will be no income tax consequences for the trust and the ATO cannot claim that a “deemed dividend” has arisen. However, it seems that this decision is dependent on the corporate beneficiary not calling for this debt owed to it to be paid.
Also, in the light of this case, it may be that you are entitled to an amended assessment and a refund of tax if the ATO has now wrongly applied these “deemed dividend” rules in the past few years.
It should also be emphasised that the proposed Budget changes to taxing trust income will presumably make distribution of trust income to corporate beneficiaries no longer viable or tax effective (if the Budget measures proceed in their current form).
Conclusion
The combined impact of the proposed Budget reforms and the immediate consequences of the Bendel decision means family trusts are entering a period of significant change. Some long‑standing strategies may no longer be effective, others may need to be revisited, and in certain cases there may even be scope to seek amended assessments where past “deemed dividend” treatments were incorrectly applied. With further scrutiny and consultation still to come on the 30% minimum tax, now is the right time to review how your trust operates and ensure you are well positioned for whatever the final rules may look like.
