Tax Tip 286: Ongoing Costs for Trusts and Companies

Discussion in 'Accounting & Tax' started by Terry_w, 21st May, 2020.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I set up companies and trusts and I often get asked what the ongoing costs of these are. I am not an accountant so don’t get involved in the upkeep usually.

    Generally, a company will have only the annual ASIC fee of about $275 (increasing each year with CPI).

    Accountants may charge for the preparation of resolutions of the company and the tax return preparation and financial statements. If the company is only acting as trustee in may not need a tax return or it might be a nil tax return so this may be cheap.

    Trusts don’t pay tax usually, but they will need a tax return done as the trustee will probably want to distribute its income (to avoid being taxed at the top rate). Trust tax returns are generally more complex than those of companies and the trustee should plan together with the potential beneficiaries on who will receive the income in the most tax efficient manner. This might cost a bit more.

    Trustees also need to prepare resolutions to distribute income and this sounds simple, but it can be very complex depending on the type of income and if the trustee will stream different incomes to different beneficiaries.

    So, what’s it cost?

    This will depend on what the trust of company does and how complex it is. Is a business being run, are there capital gains, income from properties – how many will vary the price, dividend income, overseas beneficiaries etc.

    Can any accountant/tax agent give a ballpark?


    Every now and then the deed of a trust might need to be amended, perhaps due to changing circumstances or changes in the law. Lawyers will need to do this and the fee will depend on how and what is being amended and the type of property that a trust holds – there are stamp duty and CGT risks with amending a deed which need to be considered. If the only property is $10 there is no risk of duty or CGT. This would probably cost about $500 upwards.
     
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  2. thesuperman

    thesuperman Well-Known Member

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    A long time ago for our trustee company I believe we just sent a letter or some form to the ATO to notify them that the company was purely acting as trustee, therefore we didn't need to file a tax return from that point onwards. Is that still the case for new trustee companies being set up?
     
  3. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Why would a non-trading trustee company apply for a TFN ? I never do. It just clutters the ATO too. It doesnt need a ABN (not conducting a enterprise) and doesnt trade or produce income and wont have a need to lodge. On the rare ocassion that ATO ask I then explain it solely act as trustee.

    I see accountants who do trustee financials and tax along side the trust and it makes me think they are milking the client.
     
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  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I get heaps of these requests. For a basic trust cost can be in the range $880-$1200. That includes financials, tax etc. Where distributions and other matters are involved it starts to add cost and the advice associated with that. But even then in many cases its $1500 etc. Where we need to plan and address other strategies it can rise to $1800-$2100. We also have a fixed rate ASIC agent service and that includes all changes, documents and maintaining company etc. We also manage the forgetful clients who may pay ASIC late involving $80 + 333 (yes thats right $413 !! penalties) for paying the $269 ASIC annual fee late. So for $165 its pretty good value if they read our emails !

    I just did a basic yesterday and after discussion with client back in June they resolved to distribute all CGT income to a company and all other (franked) income to themselves as this produces refunds. This was fidddly and added $300. Saved paying tax on $69K.

    Tip : A trust should never ever just prepare and lodge a tax return. We wont accept any engagement like that. How can a trust not know what its assets and liabilities and net trust assets are ?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    inflation has pushed this out to $276 - going up again on 1 July 2022
     
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  6. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Other typical costs can also include late penalties imposed by ASIC. The first 28 days is around $83 and then its a further $344.

    So if you fail to follow the annual company review process the cost may be $703, or more, Nasty!!
    Annual statements | ASIC - Australian Securities and Investments Commission

    ts an increasing reason why our ASIC agent services for a fixed $170pa for Pty Ltd companies includes reminders for fees due to ASIC + resolutions and also any changes during the year has become very popular as a additional optional service for trustee companies, trading companies etc. Clients who dont use it but then require assistance for address changes face fees of $330 and more. One late fee is a killer. And if thats not paid deregistration can occur. WE also commonly hear about clinets who self lodge with incorrectly dated forms. This can backdate and trigger penalties.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I have had to pay late fees many a time - they are unable to waive them even f you have a good excuse
     
  8. Yson

    Yson Well-Known Member

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    So other than the assets protection ( not really a bullet proof) it may be a good idea to use a personal name to simplify things
     
  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I would NOT agree that is the case.
     
  10. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    What if the individuals had already used up their land tax thresholds?
     
  11. JamesC

    JamesC Well-Known Member

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    Suppose an individual did not have or did not want to involve family or friends as beneficiaries, can they list another company as a beneficiary where that company is a corporate trustee for another trust that the individual uses to hold property?
     
  12. shorty

    shorty Well-Known Member

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    When I updated our address for a company my wife and I are sole directors and shareholders of, I did the Director address but missed the shareholder part. Realised about 18 months later - $1300 oversight. :mad:
     
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  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Assuming that individual is the trustee or controller of the trustee? They can only do what the deed allows them to. Listing a company as a beneficiary might mean the deed would need to be amended. But there may be no need to do this if the company as a beneficiary. Same for trustees of other trusts, they would need to be beneficiaries, in their capacity as trustee or the deed would need to be amended.
     
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  14. JamesC

    JamesC Well-Known Member

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    I'm pretty infantile in my knowledge of trusts!
    Yep, the individual is the director of the Corporate Trustee for Trust A. If the deed was set up such that Company A is the Corporate Trustee for Trust A, and the beneficiaries were Company A and the individual, that would be acceptable right? If we were to add another beneficiary, Company B (for which the same individual is the director), right at the start of the initial set up and deed, that would also be OK Right?
    And subsequently, Company B can be the corporate trustee of Trust B, and the process can repeat for future properties.
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    To receive income or capital from a trust a person or a company has to be a beneficiary. Beneficiaries can't just be added, unless the trustee has the power to add them under the deed. Then the trustee would need to consider the stamp duty and CGT implications.
    The trustee should seek legal advice.

    The the trustee distributes to company B and later company B becomes trustee of another trust, there will be issues. The assets of Company B will not be part of that trust and getting them into the trust will trigger tax.
     
  16. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I have to ask...why did you backdate the change ? ASIC dont impose a penalty if you make the change now.
     
  17. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    It may be a poor choice to distribute to the trustee company. Does the deed permit ? Reading the deed will indicate when a company or even another trust may be a potential beneficiary. Usual wording is made with reference to primary beneficiaries who may be named and then it cascades like a family tree usually. A interposed entity election and family trust election may, or may not, be required too. You dont need to have the new beneficiaries written into the deed if the cascading beneficiary clause already considers theim a potential beneficiary.

    Rule 1 is read the deed. It contains the legal limits and rules for the trust.
     
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  18. shorty

    shorty Well-Known Member

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    Because it had an 'effective from' date and I didn't want to lie to them. I had no idea it would result in a $1k bill otherwise I would have checked the requirements further.
     
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  19. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Its not lying to effect a change now. Corporations Act only requires the annual company statement be considered by a non-disclosing entity and AFTER receipt of it update any particulars that arent correct. It doesnt say to backdate it. However if ASIC make enquiries under s346B you can face a penalty. Silence is golden. Its why our ASIC agent services with reminders and included changes are so popular. The issue of the statement assists prompt review and correction.

    Read s346A & C. It doesnt mention correcting past data. It mentions updating particulars after review of the statement. Other laws may affect disclosing entities etc audited entities however. A company that is not a non-disclosing entity should be OK to merely comply with s346A. Then consider s346C which doesnt mention backdating things but it does caution if you do the company will face a penalty. If the corrections are effected the review of the statement can be perfectly acceptable and the variances are explained and known.

    CORPORATIONS ACT 2001 - SECT 346A ASIC must give an extract of particulars each year.
    CORPORATIONS ACT 2001 - SECT 346C Requirements in relation to an extract of particulars
     
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