cheap lenses australia

Variation of trusts can have tax consequences

Variations run from changes to deeds of trust for administrative reasons or to reflect legislative amendment; to changes that affect beneficial interests.
The consequences of a variation depend on the extent of variation. A variation of a minor nature such as a change of the trust’s name will not have tax consequences because there is no alteration to the rights or obligations pursuant to the trust.
However, where a fundamental variation of trust occurs, such that there is in fact a new trust or trusts, it is necessary to consider the tax consequences of the variation.
That said, difficulty lies in determining the nature of a variation at trust law so that any tax law consequences can be correctly identified. These tax consequences arise, not from the fact of the variation, but owing to the disposition of property in the tax base.
Generally these are the consequences that arise from a loss of continuity of a trust or from any disposition of property onto new trustees as is the case in a resettlement.
Other variations may have no effect on the trust structure but can have tax effect because of a resultant impact on tax revenue following the variation. Where this is the case, although a Court will not decline to approve a variation because of a loss of revenue to the Inland Revenue Department (See Dalziell v Dalziell (2008) 27 FRNZ 276 where a variation to the trust period prevented the realisation of a tax liability before the trust would have the ability to meet the tax impost), the trustee would be wise to assess any avoidance risk.
The following statement from the report of the Australian Review of Business Taxation: A Tax System Redesigned: More Certainty, Equitable and Durable, July 1999, p. 479 summarises the uncertainty that prevails regarding the consequences of variation:
“An existing trust may cease and a new trust may be created as the result of changes to a trust deed, changes to the substance or nature of a beneficiary’s interest in the trust or changes to the operation of a trust. Such changes can give rise to the resettlement of a trust for some legal purposes. However, neither trust law nor taxation law is clear about exactly what changes to a trust deed constitute the creation of a new trust.”
Given the uncertainty that surrounds any variation of trust, extreme care is required to ensure no unanticipated tax effects. As a practical matter, the development of guidelines by the Inland Revenue Department could provide assistance.

No Responses

Be the first to leave a comment!

Write a Comment

Take a moment to comment and tell us what you think. Some basic HTML is allowed for formatting.

*

Recent comments

  • Peter: When you have more than one job all your income is added up and you pay tax on the total income amount. For...
  • Joanne Martin: Hi Would you be able to email me to discuss a small company that is an LTC which I need some advice on...
  • Rizwana Saheed: You are on the right track that there is an exemption when employees work overtime but whether or not...
  • bryan: as a group of employees we get paid meal money if we exceed 11hrs on any day. Employer says he wants to tax...
  • linda: My mother is 94 and has dementia. With govt assisted carers she is still living in a home gifted within the...
  • Sharon: Hi Daniel, Can you please advise how owners of a profit-making LTC pay themselves? The owners used to pay...
  • Another Anne: My Dad is in care on full subsidy. I am EPOA. Are we able to gift some money to my brother in UK so...
  • Twagilayesu Isaya: I agree with the author of this article that Inland Revenue Department need to provide clear...
  • Quinn: Hi. I would like some clarification regarding the valuation of the investments component of the owners basis...
  • QROPS Pensions: Interesting piece of writing, you always write the most useful content & TalkTax is no exception...

Upcoming Events

  • No events.

Poll

In the past 12 months, do you think the amount of IRD investigations being undertaken has?

View Results

Loading ... Loading ...

Authors

    For the moment, we have no authors