Friday, March 30, 2012

Trust establishment 101

With thanks to co View Legal director Patrick Ellwood, this week’s post concerns a recent land tax case (Aston (Aust) Properties Pty Ltd v Commissioner of State Revenue, for a full copy of the judgment follow this link – that highlights how critical it is to ensure that new structures are established correctly.

In this particular instance the taxpayer was arguing that group land tax assessments were incorrect due to the ownership of various landholdings being via separate trusts.

The trusts that were alleged to exist were prepared by the taxpayer himself and he gave evidence that he had ‘become convinced that the process of creating multi tiered trust structures could be undertaken in an efficient manner without the need to purchase off the shelf trust deeds from solicitors’.

For a myriad of reasons the court held that the grouped land tax assessment was valid and that the purported trusts simply did not exist.

Some of the reasons the court concluded no trusts existed included:

1. there was no evidence of any settlement sum being contributed on the initial creation of the trusts;

2. no evidence could be shown in relation to funds changing hands or creation of bank accounts;

3. while the trusts were purported to be created via schedules that were recreated on numerous occasions with reference to ‘standard terms’, the link to the standard terms could not be shown;

4. of the documents that could be produced, there were a significant number of errors and inconsistencies; and

5. some transactions that had purportedly been entered into were by entities that did not exist.

With the aid of hindsight each of these difficulties identified by the court could have been very easily addressed by getting some level of specialist advice prior to the creation of the trusts.

Given the Easter break there will be no post for the next two weeks.