Streaming of Franking Credits Curtailed by Bamford-Induced Amendments - An Unintended Consequence?

Abstract

In 2011, the provisions providing for allocation to beneficiaries of a trust’s franked distributions and associated tax attributes (franking credit tax offsets) were amended in light of the High Court decision in Commissioner of Taxation v Bamford. The concern from Bamford was that streaming of receipts of a discretionary trust may no longer be available in light of the proportionate view interpretation of the rule that allocates the trust’s taxable income to beneficiaries. The overwhelming aim of the 2011 amendments was to cement the streaming of a trust’s franked distributions and associated tax attributes (and net capital gains) to selected beneficiaries to the exclusion of other entitled beneficiaries. However, the amended provisions prevent streaming of franking credits where the distribution is extinguished by related expenses. However, the old provisions, as confirmed in the recent Thomas v Federal Commissioner of Taxation decisions, permitted streaming in these situations.

Keywords: Discretionary trust, franking credits, streaming, Bamford, Thomas, franked distributions

JEL Classification: K34, H25