Australian Trust

Trusts Discussion
1

I have a client whose domicile of origin is Australia. They are currently resident in the UK but not domiciled for IHT purposes. They moved to the UK approximately 4 years ago and the intention will be to return to Australia at some undetermined point in the future.

Some time before moving to the UK a trust was set up in Australia. The trust was created by my client’s Australian accountant with AU$10. This money was then used in setting up a UK property development Company the value of which is now significantly greater than the original AU$10. We are therefore trying to determine the settlor for tax purposes. The Australian accountants are insisting that the settlor is the principal involved at their firm and not our client. I do not see how this can be correct but have any forum members come across this before? To add further complexity, my client and his minor children can potentially benefit from the trust. Client’s children are Australian nationals and continue to live in Australia with their mother, who is divorced from my client.

Alternatively does anyone know of a solicitor/accountant in Australia who would be able to answer this question.

Graham Bevan
Silverdale Inheritance

2

Whilst the accountant may be the nominal settlor, who is the economic settlor?

For the first AU$10, it looks to be the accountant, but how were further funds introduced in to the settlement?

If the structure was funded purely through commercial borrowing, it is likely that no one other than the accountant is the settlor.

If the client provided funds, then they will also be a settlor, and the value should probably be apportioned between them and the accountant (and any other economic settlor) when looking at the tax consequences.

If, instead of making gifts into the settlement, the client merely made loans to it, there may be deeming provisions that would cause the client also to be a settlor for, say, tax purposes (I have no relevant knowledge of Australian tax law).

There is also another basic question, which may impact the situation, and that is whether the initial AU$10 was provided out of the pocket of the firm’s principal, or whether the client was billed for this? If the later, can the principal really be an economic settlor?

Paul Saunders