New Bill passed relating to testamentary trusts and minors
A new Bill has been passed which ensures that the tax concessions that are available to minors from testamentary trust income, only applies to income generated from assets that are transferred from the estate into the testamentary trust.
Prior to this, the law did not specify that the assessable income of the testamentary trust must be derived from assets transferred from the estate into the testamentary trust.
Under Australian tax laws, there are higher tax rates imposed on minors to prevent tax advantages from diverting income from adults to minors. However, one exception to this is assessable income from income from a testamentary trust, which is ‘excepted trust income’ and is usually taxed at ordinary rates.
Therefore, assets that are not transferred from an estate into a testamentary trust may generate income that is not subject to the higher tax rates on minors, which allows taxpayers to improperly gain the benefit of the concessional tax treatment.
This Bill confirms that in order to be excepted trust income, it must be derived from assets that have been transferred from the estate into the testamentary trust.
This will apply to assets transferred on or after 1 July 2019.
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