Employee or contractor - making the right decision
Is a worker an employee or contractor? Your business clients risk having to pay penalties if they get this decision wrong.
Trustee resolutions must be made no later than 30 June
If you are a trustee and you make beneficiaries of a trust entitled to trust income by way of a resolution, it is important you read the following information.
When do you have to make your resolutions?
From the 2011-12 income tax year, all trustees who make beneficiaries entitled to trust income by way of a resolution must do so by the end of an income year (30 June). This resolution will determine who is to be assessed on the trust's taxable income.
If your trust deed requires your resolution to be made at a date before 30 June 2012, you should comply with the requirements of the deed. For example, if the trust deed requires your resolution to be made by 28 June 2012 then you should make your resolution by that date.
If your trust deed requires an earlier resolution, all references we make to 30 June should be read as the earlier date required by your deed.
What do you need to do?
You need to ensure that any resolution you make to distribute your trust's income for the 2011-2012 year is made in accordance with the terms of the trust deed and by 30 June 2012.
Is there a standard format for a resolution?
No. As there are a wide variety of trust deeds with different requirements for trustee resolutions, we cannot provide a standard format.
The important thing is that your resolution must establish, in one or more beneficiaries, a present entitlement to the trust income by 30 June.
Does a resolution have to be in writing?
This will depend on the terms of your trust deed. If your deed does not require a resolution to be in writing, an unwritten decision you make would create a valid entitlement at that time and be effective for tax purposes.
However, a written record will provide better evidence of the resolution and avoid a later dispute (for example, with us or with relevant beneficiaries) as to whether any resolution was made by 30 June.
A written record will be essential if you want to effectively stream capital gains or franked distributions for tax purposes. This is because a beneficiary can only be specifically entitled to franked dividends or capital gains if this entitlement is recorded in writing in the records of the trust either:
by 30 June for franked dividends
by 31 August for capital gains.
A beneficiary cannot be made specifically entitled to a capital gain included in the income of the trust estate after 30 June if, as a result of the operation of the trust deed, another beneficiary (including a default beneficiary) was presently entitled to it.
If a resolution is made before 30 June and formalised after, will the formal resolution be accepted as evidence?
We will accept official minutes drawn up later as evidence of actions undertaken by you before 30 June to create present entitlement in the beneficiaries by that date. The following examples show how an action taken by you before 30 June may be formalised after that date.
An individual trustee documents by way of a note, dated 29 June, that they have resolved to distribute the trust income in a certain way. This note is later typed as an official minute, which refers to the resolution of 29 June.
The trustees of a larger trust group may map out where distributions are to be made to with appropriate percentages. This 'map' is signed by the relevant trustees before 30 June to evidence the resolutions that have been made. The official minutes will refer to the date when the distributions were mapped out, but may be drawn up after the end of the year.
Do you have to prepare the trust accounts by 30 June to make beneficiaries presently entitled to trust income?
No. Your resolution does not need to specify an actual dollar amount for the resolution to be effective in making a beneficiary presently entitled, unless the trust deed specifically requires it.
A resolution is effective if it prescribes a clear methodology for calculating the entitlement. For example, the entitlement can be expressed as a specified percentage of the income - whatever that turns out to be.
Alternatively, if you know that the income of the trust will be at least a certain amount, you may choose to make one or more beneficiaries presently entitled to the certain amount, and other beneficiaries entitled to the balance - whatever that turns out to be.
What happens if you make a resolution after 30 June?
If no beneficiary (including a default beneficiary) was presently entitled to trust income as at 30 June, you (the trustee) will be assessed on the trust's taxable income at the highest marginal tax rate plus the Medicare levy.
Extracted from ATO website
Taxable payments reporting - building and construction industry
From 1 July 2012, businesses in the building and construction industry need to report the total payments they make to each contractor for building and construction services each year. As such these businesses need to keep records of each contractor’s:
• Phone Number
• Gross paid to the contractor for the financial year
• Gross GST paid to the contractor
• Where an ABN is not supplied – record the gross tax withheld from the payments to the contractor.
After the end of the financial year, the business is required to complete a Taxable Payments Annual Report (NAT 74109) and submit it to the ATO by 21 July. Thus the first report will be due 21 July 2013 for the 2013 financial year payments.
To meet this new requirement these business should maintain these records for each contractor so that the Taxable Payments Annual Report can be completed in a timely manner.