In 2016, legislative amendments were made to Tax Assessment Act 1936 (ITAA 1936) which resulted in some trusts ceasing to be public trading trusts for income years starting on or after 1 July 2016.
Speaking to SMSF Adviser, DBA Lawyers director Daniel Butler explained that prior to these amendments in 2016, where superannuation funds invested more than 20 per cent into a unit trust, and that unit trust was not primarily investing in land, for instance, it had significant business income, then that unit trust would be a public trading trust and as a result it would be taxed as a company.
“It would file a return like a company and when it made distributions, it made franked distributions with franking credits.”
Mr Butler said these trusts were effectively given a two-year period from 1 July 2016 in which that public trading trust can effectively pass on those franked distributions.
The ATO states in fact sheet QC 54719 that trusts that “ceased to be taxed as a corporate tax entity as a result of the 2016 amendments which repealed Division 6B and modified Division 6C will have until 30 June 2018 to use any surplus in its franking account, provided that the trust meets any imputation integrity rules”.
The ATO also noted that the trust must issue a distribution statement to each member who receives a distribution, showing the amount of the franking credit attached to the distribution and the extent to which it is franked. The trust is also required to include the distribution information in the annual investment income report.
“If those distributions are not made, prior to 30 June 2018, those franking credits are effectively wasted,” warned Mr Butler.
He said while these amendments only apply to super funds holding more than 20 per cent of the units in a unit trust where that unit trust conducts some kind of business, it is important for practitioners to take note of the upcoming 30 June deadline.
