Meg Saksida outlines the steps and logic behind calculating income tax on trusts that have converted from interest in possession to discretionary or vice versa.
Sometimes, income tax calculations on trusts are relatively simple. There is a life interest for one life tenant, or there is a class of discretionary beneficiaries that does not change.
However, there are other situations where the trust may change and mature over the course of time. Changes in the trust structure can affect the distribution and taxation of income. For example, grandparents may set up a discretionary trust where the grandchildren are beneficiaries of a discretionary trust (DT) until they are of a certain age, and after that point they are entitled to a life interest in their share of the trust capital through an interest in possession trust (IIP). Where a trust entitlement changes from discretionary to life interest or vice versa, for income tax
