Save
Do you have to pay taxes on a trust?
Trusts are usually set up for business, estate planning and investment purposes to separate the legal and beneficial ownership of assets held within the structure.
Do you have to pay taxes on a trust?
Trusts are usually set up for business, estate planning and investment purposes to separate the legal and beneficial ownership of assets held within the structure.
However, separation of ownership isn’t the only reason why this tax vehicle is popular. For many, trusts provide a way to minimise tax.
Do trusts have to file tax returns?
To answer simply: Yes, trusts are required to turn in their income tax return annually, and trustees are responsible for meeting all of the trust’s tax obligations.
Trustees must manage the trust’s tax affairs – from registration in the tax system, lodging trust tax returns and paying some tax liabilities.
Despite this, some people establish trusts because of the structure’s perceived tax advantages, such as tax splitting.
Do beneficiaries of a trust pay taxes?
Beneficiaries are required to report their share of the trust’s net income as part of their assessable income.
This means that all income they receive from the trust are taxed at their marginal tax rate.
Any capital gain or capital loss that the trust incurs when assets are disposed are allocated to beneficiaries according to the proportion of their entitlement. The gain or loss must be reported in the individual tax return of beneficiaries, but ATO trust rules also allow the trustee to pay capital gains tax (CGT) on behalf of the beneficiary.
However, if none of the beneficiaries are entitled to the capital gain – according to the trust deed – then the trust is automatically payable for CGT.
There’s usually a CGT discount if individuals and trusts satisfy certain conditions, but current trust rules disallows the discount entitlement if the trustee is taxed at the highest marginal tax rate.
Who can be a beneficiary of a trust?
Beneficiaries of a trust are entitled to any income or capital that the trust owns, but they may only receive income or capital if it is indicated in the trust deed.
A trustee may also be a beneficiary of the trust except when they are also the sole trustee. If the trustee is to be a beneficiary, the trust must have at least two trustees.
Non-residents for tax purposes may also be a beneficiary provided that the trustee withholds the taxes they are liable to pay via PAYG and lodge a report on it.
How will the ATO know if a beneficiary doesn’t pay tax on trust income?
As part of the reporting requirement, trust rules require trustees to include a trustee beneficiary (TB) statement with the trust’s tax return.
The TB statement must include details of beneficiaries and their entitlements.
The ATO will then use the TB statement to check the beneficiary’s own tax return and determine if they correctly declare their entitlements and pay tax on it.
Explore nestegg to learn more about trusts and taxes.
About the author
About the author
Tax saving
How are Australians planning on spending their tax savings?
Essential bills, savings accounts, Christmas gifts and exchange-traded funds appear to be the big winners from the latest round of tax cuts, new research has revealed. ...Read more
Tax saving
First in the world: SA imposes EV tax
The South Australian government is the first government in the world to introduce an electronic vehicles tax following an announcement by the treasury. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Tax saving
ATO warns businesses of JobKeeper scam
The ATO is warning the community about a JobKeeper scam which is asking members to enter personal information. ...Read more
Tax saving
Why fast-tracking tax cuts won’t stimulate the economy
Treasurer Josh Frydenberg has flagged that previously legislated tax cuts could be moved forward in a bid to help stimulate the Australian economy. ...Read more
Tax saving
Last-minute items to check off before 30 June
With the end of the financial year almost here, an accounting firm has outlined key changes with tax returns this year and flagged some last-minute tax strategies to consider before 30 June. ...Read more
Tax saving
Australia’s richest owe the Tax Office $772m
Australia’s elites and private companies fell $772 million in taxes due to miscalculations and deliberate tax avoidance, the Australian Taxation Office has revealed. ...Read more
Tax saving
Government rebuffs regional allowance and tax concession reform
A review’s findings into the viability of area tax concessions and payments for regional and remote Australians has had its recommendations shut down by the same government who requested the report...Read more
Tax saving
How are Australians planning on spending their tax savings?
Essential bills, savings accounts, Christmas gifts and exchange-traded funds appear to be the big winners from the latest round of tax cuts, new research has revealed. ...Read more
Tax saving
First in the world: SA imposes EV tax
The South Australian government is the first government in the world to introduce an electronic vehicles tax following an announcement by the treasury. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Tax saving
ATO warns businesses of JobKeeper scam
The ATO is warning the community about a JobKeeper scam which is asking members to enter personal information. ...Read more
Tax saving
Why fast-tracking tax cuts won’t stimulate the economy
Treasurer Josh Frydenberg has flagged that previously legislated tax cuts could be moved forward in a bid to help stimulate the Australian economy. ...Read more
Tax saving
Last-minute items to check off before 30 June
With the end of the financial year almost here, an accounting firm has outlined key changes with tax returns this year and flagged some last-minute tax strategies to consider before 30 June. ...Read more
Tax saving
Australia’s richest owe the Tax Office $772m
Australia’s elites and private companies fell $772 million in taxes due to miscalculations and deliberate tax avoidance, the Australian Taxation Office has revealed. ...Read more
Tax saving
Government rebuffs regional allowance and tax concession reform
A review’s findings into the viability of area tax concessions and payments for regional and remote Australians has had its recommendations shut down by the same government who requested the report...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
