Testamentary trust measure a ‘sleeper issue’ for SMSFs
A tax integrity measure around changes to the concessional tax rates received on income from testamentary trusts may potentially have estate planning implications for SMSFs also, says an industry lawyer.
From 1 July 2019, the government announced that it intends to introduce a tax integrity measure that would mean the concessional tax rates available for minors receiving income from testamentary trusts will be limited to income derived from assets that are transferred from the deceased estate or the proceeds of the disposal or investment of those assets.
The budget papers explained that currently, income received by minors from testamentary trusts is taxed at normal adult rates rather than the higher tax rates that generally apply to minors.
“However, some taxpayers are able to inappropriately obtain the benefit of this lower tax rate by injecting assets unrelated to the deceased estate into the testamentary trust,” said Treasury.
“This measure will clarify that minors will be taxed at adult marginal tax rates only in respect of income a testamentary trust generates from assets of the deceased estate or the proceeds of the disposal or investment of these assets.”
View Legal director Matthew Burgess said it is unclear at this stage whether superannuation assets would be considered to be outside the deceased estate but believes this could potentially be a “sleeper issue for SMSFs” depending on what details come out about this policy.
“There are a whole raft of questions here and your preferred asset protection strategy may be undermined by the potential tax downsides of going into the trust,” he explained.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.