Test case by Prudential Partners
Landmark decision in taxation of Australian trusts
The High Court of Australia handed down its decision in Bamford v Commissioner of Taxation.
The case deals with the basis upon which beneficiaries of trusts should be assessed for tax purposes. The decision is of significant importance to those involved in the administration of trusts.
The Commissioner's arguments in Bamford sought to limit the ability of the trustee to give effect to the terms of trust deeds in determining how a liability to tax will be determined. The Court decided the trust deed determines the definition of "trust income". The decision also confirmed that the correct method of determining a beneficiary's "Share" of trust income is the proportionate approach.
The High Court agreed with the Full Federal Court that the terms of the deed should prevail in determining the "income of the trust" to which beneficiaries are presently entitled and are assessed to tax and dismissed each appeal.