The Assistant Treasurer, Bill Shorten, HAS released for public consultation exposure draft legislation that will enable farmers who have trusts to continue to use the primary production averaging and farm management deposits provisions in a loss year.


The draft legislation follows the release last month of a discussion paper that canvassed options to implement the recommendations made by the Board of Taxation to:


  • Better align the concept of 'income of the trust estate' with 'net income of the trust estate'; and
  • Enable the streaming of capital gains and franked distributions.


Mr Shorten announced at the recent Institute of Chartered Accountants National Tax Conference that the Government will defer consideration of the proposal to better align the concept of 'income of the trust estate' with 'net income of the trust estate' to the broader update and rewrite of Division 6 of Part III of the Income Tax Assessment Act 1936 (Division 6).


He was, however, aware that if there is no change to address the alignment problem, potential opportunities for tax manipulation would exist until the rewrite becomes law.


To avoid this, the Government is planning to introduce specific anti‑avoidance rules to target the use of low-tax entities, especially exempt entities, to reduce the tax payable on the taxable income of a trust.


Mr Shorten said that these rules would apply for the 2010-11 and later income years, and will be reviewed as part of the broader update and rewrite of Division 6. 


The exposure draft legislation introducing the streaming of franked distributions and capital gains as well as the targeted specific anti‑avoidance rules is not yet fully complete but Mr Shorten said he was releasing the legislation early to enable stakeholders to comment on the core changes.  Explanatory materials accompanying the exposure draft legislation will be released shortly.


Submissions close by 29 April 2011,  and the legislation will be introduced in the Winter sittings of Parliament.


The draft legislation and explanatory materials for both Improving the taxation of trust income and Primary production averaging and farm management deposits for trusts in a loss year can be obtained here.