Revocable Trusts

Section 102 of ITAA36 is an anti-avoidance provision. It basically says that if you settle a trust and you still have control of the trust assets, then you ignore the trust and pay tax as if you hadn’t created the trust.

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Keep Settlor and Trustee separate

If a settlor is a trust’s trustee and vice versa, if they are one and the same person, then the settlor has the right (through their power as trustee) to acquire a beneficial interest in the income. And that is exactly what s102 ITAA36 is about. So never make settlor and trustee the same person. If you do, you probably have a revocable trust and have the trustee paying the tax at top marginal rates. Not a good outcome.

Section 102 ITAA 36

s102: Where a person has created a trust …and:

(a) the person has power, whenever exercisable, to revoke or alter the trusts so as to acquire a beneficial interest in the income …; or

(b) income is… applicable for the benefit of a child or children of that person …under the age of 18 years; the Commissioner may assess the trustee to pay income tax…and the trustee shall be liable to pay the tax so assessed.

The income assessed to the trustee is not assessable in the hands of a beneficiary per s102 (3).

Paul Mackenroth of Cleary Hoare in Brisbane discusses this issue in more detail.

MORE

Control Test

Streaming Trust Income

Streaming Trust Income Example

Disclaimer: Tax Talks does not provide financial or tax advice. This applies to these show notes as well as the actual podcast interview. All information on Tax Talks is provided for entertainment purposes only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.

Last Updated on 04 May 2020

Tax Talks spoke to Paul Mackenroth - Senior Associate at Cleary Hoare - for more details.