Until this recent decision Federal Commissioner of Taxation v Thomas  HCA 31, there would appear to be uncertainty whether it was possible to stream franking credits derived by a trust in different proportions to the amount of distributed franked dividends.
1. Why Does This Decision Matter?
If the trust deed allows income or capital streaming, the trustee can distribute certain classes or categories of income to different beneficiaries. If it does not allow streaming than the attempt will not be effective.
By being able to stream, a flexible family trust deed can with careful tax planning achieve a better tax result rather than having to distribute all classes of income on a fixed approach.
For example a non-resident beneficiary cannot claim franking credits attached to franked dividends. Also, a beneficiary might be a resident company that has tax losses. Generally a company that has a tax loss after receiving franked dividends will not receive a refund of any excess franking credits but will have to have these excess credits converted to tax losses (different to individuals who in this instance would receive a refund). The problem with this is that the company might never get to use these losses so they might be effectively lost forever instead of getting them back into the taxpayers hands now either in the form of a refund or a reduced tax bill.
If your trust deed does not allow streaming of such types of income, you won't be in a position to stream these in a way that gives you the best result and so instead of giving this class of income to individuals, some of the dividends on the proportionate basis will still find its way to the loss company which might not be ideal.
Streaming of capital gains will also be more effective where certain beneficiaries have capital losses. In most cases any capital gain will want to be distributed to those firstly when considering the most advantageous tax outcome.
Whilst this case confirmed that streaming will be allowable where the deed allows it, it did confirm that you can't stream franked income in one proportion to a beneficiary without allocating the same proportionate amount of franking credits.
2. What If The Trust Deed Is Silent On Streaming?
If the trust deed is silent, get legal advice to determine whether it should be amended. Before amending any trust deeds always seek legal advice to avoid any resettlement issues which could result additional capital gains tax and stamp duty.
Family trusts can be very effective vehicles and with careful planning with your accountant before the end of the financial year, trustees can determine optimal tax outcomes.
If streaming of income will give you a better tax result, ensure that it is done in accordance with the tax law and the trust deed.
If you are unclear whether you are doing this correctly or in the best possible way, seek advice accordingly.