I wonder if anyone can help with a definitive answer to a question that I have been asked several times over the years. Can (discretionary) distributions of trust income be made to a beneficiary (Ben) after he or she has received an income entitlement. Often there will still be an income balance and tax pool left over from the discretionary period (there may still be other discretionary beneficiaries), so can (some of) this income be paid out to Ben with a credit to use up the tax pool? I have never been able to find an answer in black and white and would be very grateful if someone could point me in the right direction. Thank you!
If this is referring to a trust where the accumulation period has ended, Ben now has an IIP and there is unaccumulated income from past years, then I see no reason why prior years income over which the trustees have not yet made a decision to accumulate cannot be distributed to Ben so as to make use of a brought forward tax pool. The key here, to my mind, is that this can only apply to income over which the trustees have not yet made a decision to accumulate.
Storrie and Company
It seems to me that the first question one must ask is: what happens to the income still held at the time Ben became entitled to the income as of right?
This will be defined by the terms of the trust. It may be that accumulations of income vest automatically, rather than remaining in trust, or the discretion over income ceases upon Ben becoming absolutely entitled to the income.
Certainly, if the trustees’ discretion is still exercisable, it can be exercised with a view to utilising the remaining balance of the tax pool subject to the limitation referred to by Paul Storrie.
Paul Saunders FCIB TEP
Independent Trust Consultant
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