A bare trust is a trust where the trustee’s only duties are to hold the trust property, take reasonable care of it; and transfer the property to or as directed by the trust’s beneficiary. The duties of a bare trustee are passive (unlike the “normal” position where trustees have positive duties to manage and exercise their discretions and powers.
Bare trustees can arise as part of a commercial arrangement or where through circumstance property is held pending direction.
Once practical consideration is what liability the bare trustee has for taxation and in particular Goods and Services Tax. While as legal owner of trust property the trustee is normally liable for tax including GST, where the trustee is a bare trustee the relationship can be more akin to that of agency, in which case the specific agency provisions of the Goods and Services Tax Act 1985 can have application. See for example Trident Holdings; Collins v The Queen; and Butler (ed), Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009).
That said it is important to consider each case on its facts. It is also important to ensure that clear responsibility for GST is taken so that a game of “hot potato” does not result between the trustee and the beneficiary.
The following examples from Draft Question We’ve Been Asked PUB00224: Goods and Services Tax – GST treatment of bare trusts
Example 1 – Bare trustee enters into lease agreements on behalf of beneficiaries
- Starlight Nominees Ltd is the legal owner of three commercial rental properties as bare trustee on behalf of two business partners, Greg and Rhonda. Greg and Rhonda take care of the day-to-day activities of the rental business and instruct Starlight to enter into all leases and other contracts as required. There is no written agreement between Starlight and Greg and Rhonda under s 60(1B). In this case, Starlight is both bare trustee and agent for Greg and Rhonda, but the predominant relationship between Starlight and Greg and Rhonda is an agency relationship. The supply of the properties for rent is therefore treated as a supply made by Greg and Rhonda: s 60(1).
Example 2 – Bare trustee transfers trust property to third party
- Greg and Rhonda decide to sell one of the properties and instruct Starlight to enter into an agreement for sale and purchase of real estate with the purchaser and to transfer the property to the purchaser on settlement. In this case also, Starlight is both trustee and agent for Greg and Rhonda, but the predominant relationship between Starlight and Greg and Rhonda is an agency relationship. The supply of the property to the purchaser is therefore treated as a supply made by Greg and Rhonda: s 60(1).
Example 3 – Bare trustee transfers properties to beneficiaries
- Greg and Rhonda now decide to hold the legal title to the remaining properties in their own names. They instruct Starlight to transfer the legal title in the properties to them. The transfer of the legal title to Greg and Rhonda is not a supply to them for GST purposes, because Greg and Rhonda already own the properties beneficially.
- PUB00224: Goods and Services Tax – GST treatment of bare trusts
- Herdegen v FCT 88 ATC 4995 (FCA)
- Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370 (CA)
- ISPT Nominees Pty Ltd v Chief Commissioner of State Revenue  NSWSC 697
- CGU Insurance Ltd v One Tel Ltd (in liquidation)  HCA 26
- Paragon Development Corporation v Sonka Properties Ltd (2011) 103 OR (3d) 481 (ONCA)
- Bruton Holdings Pty Ltd (in liquidation) v FCT (2011) 193 FCR 442 (FCAFC)
- Trident Holdings; Collins v The Queen (2002) GTC 314 (TCC)
- Butler (ed), Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [16.6.1], fn 102;
- Laws NZ: Agency at 
- JD Heydon, MJ Leeming, Jacobs’ law of trusts in Australia (7th ed, LexisNexis Butterworths, Chatswood, 2006) at 
- Nuncio D’Angelo, Commercial trusts (LexisNexis Butterworths, Chatswood, 2014) at [3.34] and [3.46]
- Goods and Services Tax Act 1985 s 57(2),60(1) and 60 (1B)