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Attribution vs present entitlement

Last updated 21 February 2023

Prior to the enactment of the new tax system for MITs on 5 May 2016, all trustees and beneficiaries of MITs were taxed under Division 6 of the ITAA 1936. Under Division 6, each beneficiary is taxed on their share of the trust's net income using the principles of present entitlement, while the trustee is only taxed on income that is not taxable to beneficiaries, or in certain circumstances is taxed on behalf of the beneficiaries.

One of the issues for MITs in using the principles of present entitlement occurs where beneficiaries acquire or dispose of their interests in the trust during the income year. Difficulties often arise in determining which beneficiaries have 'present entitlement' to the income of the trust at the end of the income year if they are no longer unit holders in the trust at that time. As a result, the tax consequences for the exiting unit holder, the new unit holder and the trustee can be affected.

The attribution method has been designed to overcome these difficulties so that the trust acts as a flow-through vehicle for income, and the tax consequences for trust income received by members are the same or similar to those that would occur if the members had derived the income directly.

QC47436