The SMSF Association has noted proposed changes to exempt testamentary trusts from a new 30 per cent tax, while restricting efforts to access that measure to legitimate schemes, do not clearly recognise some of the tax arrangements that occur in estate and death benefit planning.
In a submission to Treasury regarding tranche two of legislation to introduce changes to capital gains tax and negative gearing announced in this year’s budget, the association noted alterations to the Income Tax Assessment Act (ITAA) 1997 that would include integrity measures to ensure the exemption could not be accessed by contrived arrangements involving the injection of unrelated property may extend past that policy objective.
Specifically, the measures address any efforts where assessable income was derived as a result of a scheme designed to gain the application of the testamentary trust or deceased estate exemption, even if a relevant tax purpose was not the sole or dominant purpose of the arrangement.
The association pointed out a narrow application of these rules could create difficulties where they should not apply.
“The proposed provisions will operate in the broader context of estate, succession and superannuation death benefit planning, where the tax consequences of alternative structures are routinely and legitimately considered,” the submission stated.
“For example, an individual may consciously consider taxation consequences when deciding whether a superannuation death benefit should be directed to their legal personal representative, whether assets should pass into a testamentary trust, how a will should structure testamentary trusts for a spouse, children or other dependants, the ownership and beneficiary arrangements for life insurance, or the interaction between superannuation nominations, the deceased estate and testamentary trusts.
“The deliberate consideration of the tax treatment parliament has chosen to confer on a genuine testamentary trust should not transform conventional estate planning into an arrangement to which an integrity provision applies.”
The professional body recommended the legislation contain an appropriate safe harbour for ordinary bona fide estate and succession planning as the explanatory material for the draft bills describes the target of the provisions more narrowly and places limits on the exemption that are not in the statutory language.
“The integrity provisions should not apply merely because taxation consequences were taken into account when determining the terms of a will, establishing a testamentary trust, arranging the ownership of estate assets or determining the appropriate destination of a superannuation death benefit or life insurance proceeds,” the submission added.
“Such a safe harbour could be confined to arrangements having a genuine estate, succession or death benefit purpose and where the relevant property has a substantive connection with the deceased, their estate, superannuation interest or life insurance arrangements.”
Jason Spits
SENIOR JOURNALIST
Jason is a senior journalist with Benchmark Media and writes for the selfmanagedsuper website and magazine and smstrusteenews website. He has covered financial services since 1999 and has written about life insurance, superannuation, investment management and financial advice, in both a freelance and in-house capacity, and also did a brief stint as a media manager for an industry association. He has been the editor of trade titles Money Management and Financial Standard, and was most recently senior journalist with life insurance title Riskinfo.
Articles by Jason