Implication of Bamford case on Trust capital gain

March 30 2010 is a landmark day for trusts in Australia. The High Court released its decision for Bamford v FCT [2010] HCA 10.

Why is Bamford so important anyway?

This is the first time the High Court has considered two of the most important concepts in trust law:
1. A 'share' (the Bamfords appealed this); and
2. The definition of 'net income' (the ATO appealed this).
These concepts are central to lodging trust tax returns and making trust distributions.

What did the High Court say?
The High Court upheld the Federal Court's decision Bamford v FCT [2009] FCAFC 66 in its entirety. The ATO lost their appeal about the definition of 'net income', and the Bamfords lost their appeal about how to calculate a 'share'.
Just for our beloved Platinum Members who have paid their $99 subscription, we decipher what you need to know after Bamford.

What does this mean for my Trust?
If you use a deed that is drafted with Bamford in mind, capital gains are taxed in the hands of the beneficiary. The Trustee is no longer taxed at penalty rates where there is no other income.
Bamford means that the beneficiary's liability is proportionate to either their fixed dollar or variable percentage of their interest in the income. If you don't have a Bamford complying deed, your beneficiaries may be taxed on income that is higher than what they actually receive.

source: law central