Broad Tax Implications: Trusts
Australian Trusts - Proceeding Overseas
Trust structures in Australia are quite ubiquitous; extending from family trusts which are used to manage family estates and through which many family businesses are operated to self managed superannuation funds (SMSF), which are also trusts.
In general terms, the residency of a trust follows the individual residency of the trustee(s) and therefore this can be problematic when expatriates move overseas - sometimes requiring, in the case of SMSF's, that personal or corporate representatives need to be appointed in lieu of the current trustees to retain the trust's Australian tax residency.
What is probably less appreciated is that simply being a beneficiary of an Australian trust - a "foreign trust" for the purposes of other tax authorities - can give rise to significant tax issues. For example, simply being the beneficiary of an Australian trust as a US tax resident can generate significant compliance costs and issues.
Individuals who are the trustees or beneficiaries of an Australian trust, are recommended to seek specific tax advice prior to leaving Australia and becoming non-resident for Australian tax purposes - to ensure that any adverse tax consequences are addressed, or minimised.
Foreign Trusts - Returning to Australia
Different employers have varying remuneration structures which most effectively suit their policies and employees. In some countries - and this has previously been the case with expatriates working in the UK - it had been relatively common for some part of an employees or consultants remuneration to be provided by, or routed through, an offshore trust (often referred to as an "Employee Benefits Trust").
More often than not these are legal, tax effective vehicles in the foreign jurisdiction. However, when an individual enters Australia there can be severe tax consequences if you continue to hold an interest when you again become an Australian tax resident. We strongly recommend that Australians returning to Australia with any sort of residual interest in an offshore fund - or indeed company - seek specific tax advice well in advance of their again becoming an Australian tax resident.
||The need for advice well in advance, apart from the greater flexibility it provides, is prompted by the fact that some provisions with Australian tax legislation provide that trust distributions made before you have even returned to Australia may need to be included in your assessable Australian income if you received the distribution within the Australian tax year of income. This can potentially result in large tax bills and possible double taxation.|
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