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Tax Return for Trusts

A trust is not a legal entity but a relationship where a trustee holds property on behalf and for the benefits of beneficiaries.

However, trusts are treated as tax entities for tax administration purposes. Trusts must have their own TFN, register for ABN (if carrying on a business) and GST if annual turnover exceeds certain thresholds. Trustees are responsible for lodging Trust Tax Returns and pay tax liabilities.

Trusts can be very effective vehicles for asset protection and tax minimisation if administered correctly. Discretionary Trusts have been a popular choice as a business or investment structure as they allow to minimise taxes by distributing income to beneficiaries in lower tax brackets.

In addition, income distributed through a trust preserves its character, allowing to pass certain benefits to beneficiaries, such as imputation credits, small business offsets and capital gain discounts. Discretionary trust give flexibility over income and capital distribution.

However, taxation of trusts is a complex area. As trusts are governed by trust deeds, the terms of the deed may have legal and tax implication. It is important to ensure trust deeds terms are adhered to when making resolutions to make them effective.

Other common issues arising around Tax Return for Trusts include:

  • Family Trust Elections
  • Trust Losses
  • Ineffective trusts resolutions
  • Undistributed trust income
  • Distributions to minors
  • Unpaid Present Entitlements (UPE)
  • Impact of trust distributions on Small Business CGT concessions
  • Administrative requirements
  • Anti-avoidance provisions

It is important to get professional advice to ensure the trust is set up and managed correctly to make it effective.