The Australian Taxation Office (ATO) has confirmed that the income tax amendment period for 'potential' trust beneficiaries is four years.
Given the complex definition of the term 'beneficiary', BDO tax partner Mark Molesworth said there could potentially be thousands of individuals unaware that a longer period now applies to them.
He said the consequences of being a 'potential beneficiary' were highlighted in a recent Administrative Appeals Tribunal case – Yazbek and Commissioner of Taxation (2012) AATA 477 – in which the applicant was deemed a trust beneficiary despite never having derived any income from the trust.
"There is no need for an individual to actually receive a benefit in the relevant year – or indeed ever – from the trust to be classified as a 'potential beneficiary'," Molesworth said.
"The impacts of the extended amendment period could end up being beneficial, where the taxpayer discovers an error in their favour and wants to amend prior years to reflect this.
"However, the change could end up being quite serious for taxpayers under review from the ATO, because the number of prior years that remain open to amendment is larger," he said.
Taxpayers can avoid potential breaches of tax law by disclaiming their interest in the trust of which they are a potential beneficiary, Molesworth added.
He urged potential taxpayers to contact their tax adviser to determine the best course of action to take if they do make the decision to disclose their trust interests.
