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A trust is an obligation imposed on a person to hold property or income for the benefit of others (who are known as beneficiaries).
A trust does not have a separate legal existence like a company. All transactions in respect of the trust are undertaken by the trustee. Consequently, a transaction entered into by the trustee is a personal obligation.
- Unit trusts have several similarities to companies in that the trust is separate from the unit holders; the unit holders subscribe equity on units and the principals may be employed by the trust.
- A unit trust need not pay tax. Rather, the unit holders incur the tax on taxable profits derived by the unit trust.
- The benefit of tax free capital gains and tax incentives may be passed through to the unit holders provided that appropriate structuring is undertaken.
- Unit trusts offer different forms of income to different unit holders. This is achieved under modern forms of unit trust deeds by providing for different classes of units.
- The 50% CGT discount is available to all trusts in relation to disposal of assets.
- A tax loss in a unit trust cannot be disturbed to the unit holders. Therefore it is important those unit trusts are structured in such a way that losses are incurred at the unit holder level rather than the unit trust level.
- A capital gain cannot be deferred through the CGT roll-over relief provision when assets are transferred into a trust.
Tax File Number: A trust must have its own tax file number and uses it when lodging its annual income tax return. The trustee needs to apply for a tax file number in its capacity as trustee of the trust. A tax file number can be applied for on the ABN application form.
ABN: If the trust is carrying on an enterprise in Australia, the entity that is trustee may register for an ABN in its capacity as trustee of the trust.
Who pays Income Tax: Whether or not a trust has a tax liability depends on the type of trust, the wording of its trust deed and whether the income earned by the trust is distributed (in whole or in part) to its beneficiaries. Where the whole of the net trust income is distributed to adult resident beneficiaries, the trust will have no liability. Where all or part of the net trust income is distributed to either non-residents or minors, the trustee will be assessed on that share on behalf of the beneficiary. In this case, the beneficiary is required to declare that share of net trust income on their individual income tax return, and also claim a credit for the amount of tax liability paid on their behalf by the trustee. Where the net trust income is accumulated by the trust, the trustee will be assessed on that accumulated income at the highest individual marginal rate.
If a trust is carrying on a business, each year all income earned by the trust and deductions claimed for expenses incurred in carrying on that business must be shown on a trust tax return. The Tax return also shows the amount of income distributed to each beneficiary.
Trusts are not liable to pay PAYG instalments. Instead, the beneficiaries or trustees may be liable to pay instalments.
GST: If the trust is carrying on an enterprise, the entity that is trustee can register for GST in its capacity as trustee of the trust. This can be applied for on the ABN application form. A trust is required to be registered for GST if its annual turnover is $75,000 or more ($50,000 or more prior to 1 July 2007). The registration threshold for non-profit organisations is $150,000 ($100,000 prior to 1 July 2007).
Superannuation: Trusts may need to pay superannuation contributions for trustees if they are also employed by the trust. A trust also needs to pay superannuation contributions for other employees of the trust.
Our dedicated team can assist you on how to set your business up as a trust. Complete and submit the Express Enquiry form on the top right hand side of this page and we will contact you to discuss your enquiry. or call us on 1300 QUINNS (1300 784 667) or on +61 2 9223 9166 to arrange an appointment.
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The Quinn Group operates Quinn Consultants, Quinn Lawyers, Quinn Financial Planning and Quinn Financial Solutions. The Quinn Group provides related information in regard to legal, accounting and financial planning issues. Liability limited by a scheme approved under Professional Standards Legislation* *other than for the acts or omissions of financial services licensees.