Foreign Shares -> Australian Trust -> Foreign Beneficiary - Tax Owing?

Hi all, am considering starting a DT to hold international shares in, but if I was to move overseas to retire in the future, would I still be forced to pay tax?

I know if I held in my own name i'd only have to potentially pay local taxes depending on which country I am in.

 

Is the trust a resident tax?

 

If you are the trustee of an Australian resident trust and you relocate: the Australian resident trust becomes a non-resident trust.

The change of trust residency will trigger a CGT disposal of all assets within the trust at market value.

Once that horrific event happens then the future income generated by the trust will now be free from the Australian tax system.

If you kept the trustee a company then you will keep the trust an Australian resident. And income allocated to a non resident will incur tax by the trustee level.

 

Yes Terry, I would create the trust in Australia so domiciled here.

 

Does that mean the tax rate will be fixed at the corporate rate? So 27.5-30%?

 

No.

 

It looks like it might be a minimum of 45%:

Taxation of trust net income - non-resident beneficiaries

Looks like its better to own in my own name in that case.

 

mid the trustee is overseas it could be a foreign trust even if set up in Australia

 

A trust cant have a domicile. The trustee and its ability to meet residency tests is a key factor. The central decision making and control must be in Australia at all times.

eg Fred has a trust and he is trustee. He moves overseas its fatal/. However before he left he setup a company as trustee and Fred and his Australian based father remain co-directors. This seems like it ay be OK. However Fred's father is a mere object on paper. All decisions and tarding is made from NY by Fred. Freds father has no bank access and wouldnt know how to trade shares if asked. This trust is non-resident despite Fred's efforts.

Note too that the CGT trigger onchange of residency is often a deemed event and then no beneficiary becomes entitled to that gain. The trustee is likley assessed under at least two or three elements of tax law.

Australian resident trusts also can have issues with attempting to pass profits on sale of investmnets (CGT amounts) tax free to foreign beneficiaries. While many read that this may apply SOMETIMES to a former resident individual it isnt the same for a disc trust.

If shares etc are held by a individual on the date they cease residency there are two alternative tax outcomes that need to be understood. One of them leaves THOSE investments liable to Australian CGT where one triggers CGT at that date. Advice on this and the issue of tax reidency is critical before departure. Property CGT should also be addressed and planning incl that of any former home. This is best planned well in advance.

There also can be legal implications surrounding trusts and residency. A affected beneficiary could lauch legal action in places unintended eg California under marital laws which may be far harsher than Australian law. US law doesnt see trusts the same way as our Westminster system.

 

that isnt accurate.

section 95(2) of the itaa 1936 says

(2) For the purposes of this Division, a trust estate shall be taken to be a resident trust estate in relation to a year of income if:

(a) a trustee of the trust estate was a resident at any time during the year of income; or

(b) the central management and control of the trust estate was in Australia at any time during the year of income.

an australian company is a tax resident of australia. its an OR test not an AND