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Corporate trustee, Income Tax, Rules of association, Trustees

Corporate trustees are not always the answer

Corporate trustees are an increasingly common feature of modern discretionary trusts.  As the increasing risks of trustee liability become more apparent, it can only be presumed that the use of corporate trustees will continue to increase.

However, corporate trustees are not an absolute panacea and it is important to appreciate that the structure of any corporate trustee appointed must be carefully considered, not just to ensure that the appointment is permissible in accordance with the deed of trust; but to consider whether the corporate trustee is an appropriate trustee for the trust in question.  The starting point here would be to establish firstly that the appointment is permitted by the deed.  Other factors to consider might include does the deed permit the corporate trustee to be controlled by a settlor (if that is what is intended), and where the director of the corporate trustee is a professional – can the professional charge fees as a director of the trustee (compared with if the directors acts personally).

The risks associated with the appointment of an un-capitalised trustee that accepts multiple appointments has been well traversed.  Even if largely ignored. See for example Corporate trustee in the firing line; Corporate trustees – whine, whine, whine and Insolvent trustees should be liquidated.

Another important facet to consider is could there be other unintended consequences from the interplay of legislative tests of control and association?  While a corporate trustee is recognised as a separate legal person, the rules of association in the Goods and Services Tax Act 1985 and the Income Tax Act 2007 may look through the company to its ultimate controller.  Where this control is not sufficiently diluted unintended consequences can arise. For example consider the position where a company expects to receive a second hand goods credit, but then is denied it, because the control of a corporate trustee created an unappreciated association for GST purposes. See Corporate Trustee Associated for GST Purposes

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