A bare trust arises where the trustee simply holds property of and on behalf of the beneficiary without any interest therein, other than that existing by reason of office and the legal title as trustee. The trustee has no discretion and no active duties other than to transfer the property to the beneficiary when required. The trustee is merely the nominee of the beneficiary and the beneficiary is absolutely entitled to the trust property. As such, a bare trust is not a reportable entity and does not require an ABN or TFN.

In an income tax setting, taxable income is taxed in the hands of the beneficiary rather than the trustee on behalf of the trust and the beneficiary is treated as the true owner of any CGT assets held on trust. Accordingly, the beneficiary is entitled to any franking credits available from security investments by the trust as if the beneficiary was listed as the shareholder on the register of a company. For CGT purposes, any disposal of the assets of the trust by a bare trustee will be treated as a disposal by the beneficiary.

 

All types of trusts, including bare trusts, are considered entities for GST purposes (section 184-1 (1)(g) of the GST Act). The GST position for bare trusts, like all trusts, is simply determined by the general concepts in the legislation. However, by reason of the legal characteristics of trust arrangements themselves, trusts raise certain GST issues that need to be addressed. In particular, in the case of a bare trust arrangement, the issues arise as to who the relevant supplier is, who the relevant recipient is and whether a taxable supply or creditable acquisition can arise in the context of such an arrangement.

 

Of note, as there are no special rules in relation to bare trusts, this will need to be determined by an application of the general rules under GST law. Generally, the transfer of legal title from the beneficiary to the trustee that creates the bare trust is deemed a supply under the GST rules, but it is not a taxable supply and is not subject to GST either because there is no actual supply nor there is any consideration for the supply.

 

Advantages

The main advantage is that beneficial ownership does not change. The bare trustee just holds the asset for the beneficiary.

The trustee has no power to deal with the asset. The trustee has no power to make any decisions regarding the asset. The trustee only has the power to hold the asset for the beneficiary. The trustee must follow all instructions given by the beneficiary.

 

Disadvantages

Bare trusts do not prevent creditors from accessing the property under the bare trust.

The bare trust and individual ownership without a mortgage do not provide any significant asset protection.

The trustee holds the asset for the beneficiary. This may be a disadvantage.

As a bare trustee you must follow the instructions of the beneficiary.

 

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