Trust structures are mainly used because of the plethora of tax benefits they host over other entity structures. The biggest advantage is the ability to stream income to beneficiaries which if done correctly (and the right beneficiaries can be found) can minimise a lot of tax.
Another advantage over trusts hold over company’s is a 50% discount on capital gains for assets held for over a year.
Other advantages being asset protection and limited liability for all parties with an interest in the trust.
Whilst all these advantages make for compelling advantages to choose a trust structure, there are however several drawbacks.
Company structures generally have an easier time acquiring finance through most institutions, as the loan applications for mosts trusts are based on the financial position of the trustee instead of the trust itself.
Another such disadvantage occurs upon cessation of the trust, where there are certain additional requirements in order for deregistration to occur.
The first issue to tackle when deregistering a trust is the distribution of assets:
In order to prevent GST complications, it is advisable to cancel the trusts ABN first (this will also deregister the trust from GST as well). This saves us from the hassle of accounting for any GST upon sale of the assets. The best way to accomplish this is by using your Auskey or contacting the Australian business register on 13 28 66.
Capital gains will also be an issue, should any capital gains arise from the sale of assets, they will need to be accounted for in the next tax return (a simple way around this is to sell any assets at the same value as they are in the books of the company).
Unfortunately even though the trust may not have traded over the current year, it is still required to lodge a complete tax return simply because any sale of assets constitutes activity and thus the requirement to lodge a return.
A common issue is having vehicles registered under the trust, with most owners of the trust opting to have the vehicles transferred to their personal names upon cessation. Stamp duty will have to be paid on the transfer.
Upon transfer, a capital gain/loss may be made. In order to save from complications, assets can be sold at the written down value in the trusts books. Should the trust have a loan to the director, one may simply reduce the loan to the director instead of paying cash.
Once all assets have been transferred, a minutes of meeting must be prepared. The minutes of meeting is a document which states that all parties wish the trust to cease trading and that all assets have been transferred out of the trust.
A final tax trust tax return will need to be lodged, but ensure you tick the further returns not necessary box.
Subsequent to this, the trust is no longer considered to be undertaking trading activity, and the trust can now be deregistered and the TFN of the trust can be cancelled.