10. Trusts Flashcards
Was is the purpose of a trust?
A trust is an equitable obligation binding a person (the trustee) to administer the property (trust
property) under the terms of a trust deed for the benefit of the beneficiaries of the trust.
What are the four essential elements of a trust?
- • Trustee.
- • Trust property.
- • Beneficiary.
- • Obligation in respect of the trust property.
What is an appointer in trusts?
The person nominated in the trust deed as having the power to remove or appoint trustees
What is the beneficiary in trusts?
The person who is entitled to, or who may become entitled to, a share of trust income
or property
What is the guardian in trusts?
The person nominated in the trust deed as having the power to veto the exercise by the trustee
of certain powers
What is the settlor in trusts?
The person who creates the trust. This person provides the initial trust property to create the
trust. A trust does not exist without trust property
What is the trust deed in trusts?
Broadly, the document that contains the rules governing the operations of the trust relationship
and the duties and obligations of the trustee and that identifies the beneficiaries and sets out
their rights
What is the Trustee in trusts?
The person or entity (often a company) who controls or administers the trust and trust property in accordance with the trust deed. In s. 6(1) ITAA 1936.
The trustee is the legal owner of the trust property, which comprises the initial settled sum together with any additions
Is the trustee personally liable for debts of the trust?
Yes.
Although they are entitled to be indemnified out of the trust property in respect of liabilities incurred in the
proper exercise of the trustee’s powers (except where a breach of trust has occurred)
Whats is a vest in trusts?
To vest a trust means to wind it up, or for the trust to cease. The vesting period refers to the life
of the trust and is usually either a period no longer than 80 years, or the period ending 21 years
from the death of someone living at the time of creation of the trust
Does the Trust pay tax?
No, it is required to have a TFN and also an ABN if carrying on business.
But the net income (taxable income) is in the hands of the beneficiaries and depends on their individual tax rate
How does residency apply to trusts?
The residency of a trust depends on the residence of the trustee or the
central management and control of the trust (s. 95(2) and (3) ITAA 1936)
How are net losses in trusts treated?
Net trust losses are carried forward by the trust and cannot be allocated to beneficiaries. To utilise a carry forward net trust loss, a trust needs to satisfy additional rules
Can a trust be registered for GST?
A trust that carries on an enterprise can be registered for GST
Does a trust have to pay FBT?
A trust that is an employer can provide a fringe benefits to an employee (or their associate) and may be subject to FBT
Can a trust be a SBE?
A trust that carries on a business may be classified as an SBE and choose to apply the available SBE concessions
Can a trust be a PSE?
A trust may be classified as a PSE and subject to the personal services income (PSI) rules where it is not a personal services business (PSB)
How does a resident trust treat Capital gains events?
A trust must follow the method statement in s. 102-5 to determine the net capital gain included in its net income/loss
A trust can generally apply both the CGT general 50% discount and the SBE CGT concessions (where relevant)
How does a non-resident trust treat Capital gains events?
- • Only capital gains on taxable Australian property are taken into account when working out the net capital gain/loss for the trust (TD 2017/23)
- • Amounts attributable to capital gains on non-taxable Australian property will be assessable upon distribution to an Australian resident beneficiary. However, the amounts will not be treated as capital gains of the Australian beneficiary and therefore cannot be reduced by the CGT general 50% discount or by capital losses (TD 2017/24)
How goes CGT apply to the beneficiaries of a trust?
Special rules apply to allow a trust to allocate net capital gains to particular beneficiaries (i.e. the streaming rules for capital gains)
A net capital gain allocated to a beneficiary retains its nature as a capital gain in the hands of the beneficiary. However, to determine a beneficiary’s net capital gain the CGT concessions applied by the trust must be reversed.
The beneficiary must then determine their entitlement to the CGT general 50% discount and the SBE CGT concessions (where relevant) based on their own tax profile
If a trust receives a franked dividend from an Australian company, what does it include in its net income?
The dividend amount and the franking credit
How does a trust pass on franking credits to beneficiaries?
Special rules apply to allow a trust to allocate franked dividends and the attaching franking credit to particular beneficiaries (i.e. the streaming rules for franked dividends)
Is a non-resident beneficiary entitled to a franking tax offset?
No
What is deemed to be NANE income of a non-resident beneficiary?
Interest, dividends (unfranked portion), and royalties allocated to a non-resident beneficiary are subject to withholding tax and a deemed to be NANE income
