Taxation determination on deductions for bad debts: trust beneficiaries and UPEs

In a new tax determination, the ATO states that a beneficiarynis not entitled to a bad debt deduction for an amount of unpaid presentnentitlement (UPE) that the beneficiary purports to write off as a bad debt.

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It says this is because the amount of UPE is not included innthe beneficiary’s assessable income. Instead, the entitlement is used tondetermine how much net income of the trust is included in the beneficiary’snassessable income. This means that the the debt amount cannot be included innthe taxpayer’s income in that year or in an earlier income year, which is anrequirement for writing off a bad debt.

Important: Clients should not act solely on the basis of the material contained in Update. Items herein are general comments only and do not constitute or convey advice per se. Also, changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. This update is issued as a helpful guide to clients and for their private information.