Trusts are widely used for investment and business purposes.

A trust is an obligation imposed on a person or other entity to hold property for the benefit of beneficiaries. While in legal terms a trust is a relationship not a legal entity, trusts are treated as taxpayer entities for the purposes of tax administration.

The trustee is responsible for managing the trust’s tax affairs, including registering the trust in the tax system, lodging trust tax returns and paying some tax liabilities.

Beneficiaries (except some minors and non-residents) include their share of the trust’s net income as income in their own tax returns. There are special rules for some types of trust including family trusts, deceased estates and superannuation funds.

Considering the above, it is imperative to adhere to all formalities when establishing a trust as improper trust records may have detrimental impacts to the trustee and the beneficiaries. The most common repercussion is financial losses suffered by way of non-entitlement to tax benefits otherwise being available to the trustee which is clearly demonstrated in the case study below.

Case Study

In the case of Aston (Aust) Properties Pty Ltd & Ors v Commissioner of State Revenue (Taxation) [2012] VCAT 48 (9 January 2012), the Victorian Civil and Administrative Tribunal (VCAT) had determined that the trusts did not exist and the appellants were refused entitlements to tax benefits of which had otherwise been available to the trustee companies in the purchase and transfer of properties. The reasons for the rejection of entitlements were as follows:

  1. For each trust, there was no evidence of the payment of a settled sum to establish the trust;
  2. The appellant could not point the Tribunal to the existence of any trust deeds;
  3. There were a large number of errors and inconsistencies in the trust schedules, execution pages and associated minutes that were exhibited;
  4. The transactions were entered into by the companies that did not exist at the time; and
  5. Each trust lacked certainty of intention where there were no trust deeds nor evidence of any undertakings by the trustee to hold the transferred property for the unitholders.

Therefore, to avoid the issues as depicted in the case above, it is crucial to comply with all formalities when you establish a trust.

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