Is tax return required for 'non active' Trust?
- Thread starter btc
- Start date
hmm.. that is a worry, a friend who is a CPA accountant adviced me that the trust can simply lodge a 'Tax Return Not Required' form to the ATO as there is no income and expenses. So that is a worry that i m hearing a contrary.
Yes, i have spoken to 2 accountant, and one says yes the trust can charge no rent, the other says no like you did.
In this case, the trustee is the beneficiary.
As long as you a loding something you should be ok. A tax return would be just nil anyway. I remember when i made my first trust over 10 years ago, and never lodged a tax return (unknowingly) till the next financial year when the trust purchased a property. The ATO caught up with me - about 4 years later.
As for the rent side of things, I don't want to spoil your fun, but want to point out a few things. Trustees have a strong obligation to act in the interests of the beneficiaires of the trust. This is known as a fiduciary duty. They are holding the assets in trust for the beneficiaries. They can't treat the assets of the trust as their own even though the trustee has the right to distribute to whomever they choose among the beneficiaries and may always distribute to themselves.
Your trustee may be a beneficiary of the trust, but it can't be the only beneficiary - otherwise there is no trust, it would be holding assets for itself.
So by your trustee using the premises without paying rent the other beneficiaries could argue that they are not acting in their best interests - despite the fact that they may never receive a distribution.
In this case, can the beneficiary me and wife, who is happy for the arrangement then would that solve this issue?
Say the point of this is for an underage child to inherite the property when he/she is 18. Then this fulfill exactly the purpose of Trust, which is why it was created in the first place.
However, this is my understanding, if anyone think otherwise or the truth is in contrary, please let me know
.Hi Mry, could you expand on this topic?
but if i m on the right track, could i argue that the 'employee' is paying all the expenses but not claiming it.
Thanks for all your advice.
Its one of those generally accepted points of law with regards to trusts that you would have to discuss with a lawyer.
I'm not sure what you are saying. The facts of the case is that there is a property being used as a private residence and no rent is being paid on its behalf. If you want to discuss aspects of your situation, talk to an accountant. There's a lot of precedent on this and not much of it is friendly to taxpayers and I have had lots of boring conversations on "new and improved" ways of putting a PPOR into a DT to stick it to the man.
Hi Btc,
No need to lodge a tax return where the discretionary trust hasn't derived any assessable income or incurred any deductible expenses. If the trust has a TFN then a 'Form CU - return not necessary' can be lodged by your accountant.
Whilst Terryw is correct with his commentary regarding a fiduciary duty this would not typically be a problem with a discretionay trust not deriving assessable income due to the nature of the beneficiaries interest in the trust which is typically nil unless/until the trustee determines that they are entitled to some benefit. Therefore I see no real problem in not charging any rent unless the trust has an unpaid present entitlement outstanding to a company which might cause problems.
Note its very difficult to obtain the benefit of the CGT main residence exemption and Land Tax exemption for a property held in a discretionary trust however can be possible in some circumstances.
I hope this was helpful, but please post up any further Q's
No need to lodge a tax return where the discretionary trust hasn't derived any assessable income or incurred any deductible expenses. If the trust has a TFN then a 'Form CU - return not necessary' can be lodged by your accountant.
Whilst Terryw is correct with his commentary regarding a fiduciary duty this would not typically be a problem with a discretionay trust not deriving assessable income due to the nature of the beneficiaries interest in the trust which is typically nil unless/until the trustee determines that they are entitled to some benefit. Therefore I see no real problem in not charging any rent unless the trust has an unpaid present entitlement outstanding to a company which might cause problems.
Note its very difficult to obtain the benefit of the CGT main residence exemption and Land Tax exemption for a property held in a discretionary trust however can be possible in some circumstances.
I hope this was helpful, but please post up any further Q's
Hi Jonathon,
To the best of my knowledge it's impossible for a standard discretionary trust to obtain the CGT exemption. I am only aware of certain circumstances whereby a Deceased Estate Trust or Testamentary Discretionary Trust can obtain the benefit of the exemption and then only if disposed of within certain time limits and other criteria are met.
With regards to Land Tax in QLD (i'm Brisbane based) I believe a trust can obtain a Land Tax exemption for a PPOR where all the beneficiaries of the trust use the house as their PPOR.
Cheers
Aaron
Ah, I though the limited circumstances you referred to were going to be a little less limited that the 2 examples you give, although I would have been surprised had that been the case.
Here in Vic I think the land tax rules changed a while back, such that beneficiaries can no longer get a full land tax exemption, however I think they can avoid the trust surcharge and only pay the non-trust rate of land tax, but don't quote me on that!
Cheers
Jonathon
Here in Vic I think the land tax rules changed a while back, such that beneficiaries can no longer get a full land tax exemption, however I think they can avoid the trust surcharge and only pay the non-trust rate of land tax, but don't quote me on that!
Cheers
Jonathon
hi APJ,
Is there any implication or things that i need to be aware of for this type of operation?
I have also been told that if a Trust transfer a property to a beneficiary, the beneficiary would have to pay ZERO CGT!!! Which is totally against what i know about trust and CGT, any comments (anyone)??
thanks
BTC
This is generally not the case. A beneficiary becoming entitled to Trust property would be CGT event E5.
CGT would be:
for a trustee –market value of the CGT asset at that time less its cost base;
for a beneficiary – that market value less the cost base of the beneficiary's capital interest
http://www.ato.gov.au/individuals/content.asp?doc=/content/36547.htm&page=5&H5
CGT would be:
for a trustee –market value of the CGT asset at that time less its cost base;
for a beneficiary – that market value less the cost base of the beneficiary's capital interest
http://www.ato.gov.au/individuals/content.asp?doc=/content/36547.htm&page=5&H5
One exception is transferring from a bare trustee to beneficiary. Another exception is the trustee of a testamentary trust transfering property of the trust to a beneficiary.
PS LA 2003/12
http://law.ato.gov.au/atolaw/view.htm?locid=psr/ps200312/nat/ato
PS LA 2003/12
http://law.ato.gov.au/atolaw/view.htm?locid=psr/ps200312/nat/ato
hi Terry, thanks for all the inputs.
Can you expand further regarding the above statement? and possibly give an example.
to my understanding, a testamentary trust = will trust, this is about all i know
Can I actually change the beneficiary in the future as our circumstances change overtime?
And what is the difference between testamentray and family trust?
A bare trust is when A owns something for B. There is no discretion, B is the beneficial owner with A just being legal owner. So when an asset is transfered into B's name, it is just a name change with ownership remaining the same.
A testamentary trust is one which is set up in the will. It could be any type of trust really, a unit, bare, discretionary etc. A family trust is usually just a discretionary trust set up prior to death. If your testamentary trust is set up as a discretionary trust then you can have a whole list of beneficiaries. The beneficiaries won't actually change, but the trustee can have discretion on who to distribute to each year - subject to the trust deed.
A testamentary trust is one which is set up in the will. It could be any type of trust really, a unit, bare, discretionary etc. A family trust is usually just a discretionary trust set up prior to death. If your testamentary trust is set up as a discretionary trust then you can have a whole list of beneficiaries. The beneficiaries won't actually change, but the trustee can have discretion on who to distribute to each year - subject to the trust deed.
