18.104.22.168 Determining a Controlled Private Trust from 01/01/2002
Date of effect
This topic has effect to designated private trusts from 1 January 2002.
In this topic
This topic contains information on the following:
- determining a controlled private trust,
- control test for private trusts, and
- factors for establishing control of a private trust.
Determining a controlled private trust
A trust is a controlled private trust in relation to an individual if:
- the trust is a designated private trust, AND
- the individual passes the control test, OR
- the individual passes the source test.
Note: When deciding whether an individual passes the control or source tests the assessor must have reference to the associates of the individual.
Act reference: SSAct section 1207V Controlled private trusts, section 1207V(3) Source test, section 1207P Designated private trusts, section 1207C Associates
Control test for private trusts
The control test, in conjunction with the associate rule, is used to determine the level of control a stakeholder exercises in relation to a designated private trust. Although a trustee often undertakes the day to day management of a trust, effective control of a trust generally rests with the person/s who can:
- dismiss and appoint a trustee, OR
- veto a trustee's decision, OR
- exercise control over the trustee in another manner, OR
- change the trust deed.
This person is commonly known as the APPOINTOR, or alternatively the PRINCIPAL or GUARDIAN. In the event that the trust does not have an appointor, or the trust deed does not provide the appointor with these powers, it may be that the trustee has effective control of the trust. Control can rest with one person, a couple or multiple stakeholders.
Note: While being an appointor or trustee is a strong indicator that control of the trust may rest with that person ALL factors relating to control should be considered before a decision regarding the attribution of the assets and/or income of a trust is made.
Factors for establishing control of a private trust
Factors to consider when establishing who has control over a private trust when determining the attribution percentages of stakeholder/s are:
- if there is a SOLE appointor, attribution will generally be made to that appointor,
- if the appointor is a professional, attribution will generally be made to the person/s instructing the professional in relation to the affairs of the trust. If the professional is receiving instructions from an entity, attribution may be made to the controller/s of that entity,
- if there is no appointor, attribution may be made to the trustee (or trustees) of the trust. If the trustee is a company, attribution of the trust assets and/or income would generally be to the person/s who control the company,
- if there are multiple trustees but one trustee clearly directs the exercise of the trustees' power, attribution will be made to that trustee,
- if there are multiple trustees but there is a partnered couple, whether of the same sex or a different sex, acting as trustees who can JOINTLY exercise control, attribution may be made to the members of that couple,
- in any other circumstances, where there are multiple trustees, attribution may be made amongst those stakeholders who jointly exercise control. Attribution will be made in proportion to the capacity of those stakeholders to exercise control,
- whether a person/s is capable under a scheme of gaining control,
- whether the trustee might reasonably be expected to act in accordance with the directions or wishes of the person/s,
- for the purposes of the Guidelines, it is permissible for the assessing officer to look beyond the presumptions raised under the law of trusts.
Example: George, aged 59, sets up a discretionary family trust with himself as appointor. The trust assets consist of a $500,000 investment portfolio and the family home, which is worth $120,000. He attends an investment seminar in June 2000 and learns that from 1 January 2002 he may be attributed with the assets and income of the trust, which will make him ineligible for Age when he turns 65. George appoints his child David as trustee, assured that he retains control via his power to unilaterally veto David's decisions or to replace David as trustee.
George receives annual distributions from the trust at a level decided by himself. Other trust income is officially distributed to children and grandchildren, however in reality George pays any taxation liability on behalf of his family and either unofficially retains the distributions or arranges for the distributions to be officially returned to the trust as a 'loan'.
Under the control test, George would still be attributed with the trust assets and income and would not have entitlement to an income support payment.