Timing of allocation of beneficiary income

Section HC 6 of the Income Tax Act 2007

Section HC 6 has been amended to remove a timing problem for tax agents who administer trusts, in particular, to allow them more time to allocate beneficiary income. Under the previous rules, beneficiary income had to be allocated within an arbitrary six months of a trust's balance date, creating undue pressure for tax agents at a time when their clients' business tax requirements also had to be met.

Background

Under the previous law, trustees had to allocate beneficiary income within six months of the trust's balance date. This did not fit well with tax agents' work schedules as frequently they had to give priority to trust accounts to ensure the six months rule was met. This conflicted with the more commercial requirements of tax agents' clients.

Key features

Section HC 6(1) has been amended to allow the income allocation to be made in the longer of the following periods:

• six months after the end of the income year; or
• the earlier of:
  • the date on which the trustee files the tax return of income for the income year; or
  • the date by which the trustee must file a tax return for the income year under section 37 of the Tax Administration Act 1994.

Also, sections HC 6(3) and (4) concerning which year the beneficiary returns the income have been combined and their application has been clarified.

Application date

The amendments apply to income derived in the 2009 - 10 and subsequent income years.