A trust is a formal relationship between other entities, where one entity holds property for the benefit of another entity, such as a business or individual. Because a trust is not a person or business entity, its income is usually taxed differently, although this depends on the setup and type of the faith.
However, many other administrative aspects are the same for any taxpaying entity.
One of the most important administrative tasks is to hold a formal meeting before midnight on 30 June each year to document the basis of distributions to beneficiaries. This is a crucial step in ensuring that the trust complies with the law and that beneficiaries receive their fair share.
Another essential element of trust administration is record keeping. Although a trust may not be a legal taxpaying entity like a person or business, all records related to income and expenses must be kept for five years after lodgement of the income tax return.
This includes records for the trust’s property, income, and overseas interest or investment expenses. Capital gains, interest earned, and dividends received must also be documented.
The trustee must keep records of the trust deed, contact details, trustee resolutions, statements of assets and liabilities, all business contracts, and all documents relating to wages and superannuation for employing trusts.
Trust management can be complex but well worth the time spent keeping good records to maintain asset protection, streamline the tax return process, and maximise the allowable tax deductions.
AFP can help with record keeping, managing investments, checking trust deed compliance, and simplifying the administration. Contact us now and start preparing for your next trust tax return.