What is  TRUST?   Trusts are widely used for Investment and business purposes.   A trust is not a separate legal entity, as is a company. Rather, a trust is a legal relationship that exists between a trustee and beneficiaries….

What is  TRUST?

• Trusts are widely used for Investment and business purposes.
• A trust is not a separate legal entity, as is a company. Rather, a trust is a legal relationship that exists between a trustee and beneficiaries. The legal relationship typically comes about and is regulated by a trust deed, which a lawyer usually drafts.
• Essentially, the trustee becomes the legal owner of the trust property. For instance, the trustee would own and carry on the Business and all the assets comprising the Business. But importantly, the trustee agrees to hold the trust assets, including all the revenue generated from the trust assets, for the beneficiaries.
• The Trustee is usually responsible for managing the Trust tax affairs, including lodging the tax returns and paying the liabilities to ATO.

TYPES OF TRUST?

There are different kinds of trust, and the most common types are:

• Discretionary trusts – as the name suggests, where the trustee has full discretion about certain matters for example how to distribute any profits to beneficiaries in a tax effective manner.
• Unit Trust- is the opposite of discretionary trust where the trust does not have such discretion and is generally required to distribute income and capital in accordance with the unit holdings. Units in a unit trust resemble, in some respects, shares in a company.

ELEMENTS OF TRUST

There are many benefits of trust:

• Flexibility to distribute income to many or one beneficiaries.
• Assets are generally protected and passed down easily.
• If a capital asset is held for more than 12 months by the Trust, then it can apply the 50% discount to any capital gains while you do not receive this benefit under the company structure.
• The trust can conduct business with its own GST and Tax file number.
• The trust can borrow on its own accord.
• Trust can carry forward losses like a company.

Trust Income

• As mentioned, Trust is not a legal separate entity like a company, and therefore, the trust income, if any, is distributed to beneficiaries according to the Trust deed at the end of the financial year.
• The beneficiaries then include that income in their own tax return and pay tax.
• If the trust’s net income is not distributed for any reason, then the trust is taxed at the highest marginal tax rate.

Trust VS Company

• Trusts are generally good for investment purposes like holding investment properties and shares. The biggest reason for this is that the trust gets a 50% discount on any capital proceeds from the above investments.
•  A lot of small businesses in Australia are also run through a Trust structure, but the disadvantage with this is that under the company, you can cap profits and pay tax at 25%, while any profits made under the trust will need to be distributed.
• Trust works really well if you have more than one beneficiary and can distribute more income to the less earner for a better tax benefit.