The extract below is from the Australian Taxation Office. This information provides a basic summary of general trust tax return and associated trust tax and business tax reporting obligations.
Setting up a trust can be expensive, as a formal deed is required and there are formal yearly administrative tasks for the trustee to undertake. A trust deed outlines how the trust will to operate.
A trustee is legally responsible for the operation of the trust. The trustee can be an individual or a company. Profits from the trust go to beneficiaries.
The main features of a trust business structure are:
- a trust must have its own TFN for lodging its annual tax return and must show all income and deductions of the business, plus any distributions to its beneficiaries
- a trust must have its own ABN
- a trust must be registered for GST if annual turnover is $75,000 or more ($150,000 for non-profit organisations)
- a trust may be liable to pay tax depending on the wording of its deed and whether any income the trust earns is distributed to its beneficiaries
- the trust may be able to access tax concessions
- beneficiaries of the trust may be liable to make Pay As You Go (PAYG) instalments on distributions they receive from the trust
- the trust must pay super for any of its employees (this may include the trustee if they are also employed by the trust).
Who pays income tax?
How the trust income is (or is not) distributed to its beneficiaries is what determines if the trust pays tax.
Where all trust income is distributed to adult resident beneficiaries, the trust is not liable to pay tax.
Where all or part of the net trust income is distributed to non-residents or minors, you as the trustee are assessed on that share on behalf of the beneficiary. In this case, the beneficiaries must declare that share of net trust income on their individual income tax returns, and also claim a credit for the amount of tax you paid on their behalf as the trustee.
Where the trust accumulates net trust income, as the trustee you are assessed on that accumulated income at the highest individual marginal rate.
Personal services income
A trust may treat income and deductions relating to personal services income (PSI) differently. The income may be treated as your individual income for tax purposes.
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