What is a fixed trust?
A trust is a relationship where a person (the trustee) is under an obligation to hold property for the benefit of another person (the beneficiaries). In a fixed trust, the trust deed fixes the proportion of income and capital each beneficiary is entitled to throughout the income year. A trustee is bound to distribute the trust according to these fixed amounts.
This makes it different to a discretionary or family trust, where the trustee has more flexibility in distribution. If you are thinking about creating or varying a discretionary trust, our discretionary trust deed document is a great place to start. Alternatively, you can talk to one of our estate planning lawyers today!
Why Use a Fixed Trust?
A fixed trust can mean less conflict amongst beneficiaries because their share entitlement is predetermined and fixed. From a business standpoint, a fixed structure, such as a fixed unit trust, is useful where the beneficiaries are unrelated third-parties sharing property and shares. It also has important tax consequences.
What are the tax implications of a fixed trust?
A fixed trust is important for tax purposes under the Income Tax Assessment Act 1936 (Cth) and you may:
- Enjoy a Capital Gains Tax (CGT) discount on the sale of a trust asset;
- Be able to pass franking credits (from imputed dividends) to unitholders in a fixed unit trust;
- Benefit from the value-shifting regime;
- Find it easier to claim for borrowing deductions;
- Be able to carry forward tax losses.
In relation to the last point, If you can show you have a fixed trust, you will enjoy benefits of trust losses and deductions. You may be able to recoup losses more easily because of the lower threshold. Although the legislation makes it difficult to establish you have a fixed trust, the 2016 Practical Compliance Guidelines provide guidance for the ATO and gives greater discretion.
When creating or managing a trust, it is important to consider its objectives. Through LawPath’s lawyer marketplace, you can connect with estate planning lawyers and find out how to create or vary a trust to reflect your aims.
Still unsure? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our network of 600+ expert lawyers or to get answers to your legal questions.
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