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bare trust, GST, Trusts

Trading Trusts

Transactions between GST-registered trusts and beneficiaries need careful scrutiny to ensure that GST obligations are not overlooked or obfuscated by the relationship between the trustee and the beneficiary.

Although GST registration is in the name of the trust, the obligations fall to the trustees.

For tax purposes a GST-registered trust and its beneficiaries are associated persons.  This means that GST must be accounted for  in respect of any distribution of assets that form part of the trust’s taxable activity, regardless of whether or not the distribution is for consideration.   If the beneficiary is not GST registered, and the supply is not acquired for the principal purpose of making taxable supplies, as a general rule the value attributed will be market value.  See Goods and Services Tax Act 1985, s 10(3), 10(3A) and 10(3B).

Note that where assets are sold by a trust to a beneficiary in the ordinary course of business the sale should be treated as a sale not a distribution.  See The Trustee, Executors and Agency Company New Zealand Ltd v CIR.

Where there is a resolution to make a distribution from a GST registered trust to a beneficiary, the property to be transferred may be subject to a bare trust until the transfer occurs.  Where this is the case GST (if any) will be required to be accounted for  at the time the resolution was passed (see Case R1).  However, GST will not then need to be accounted for when the distribution is made from the bare trustee to the beneficiary.   The timing issues that relate to value and accounting for GST need to be taken into consideration where distributed assets remain in the hands of the trustee.  See Exposure Draft PUB00281, which considers the GST treatment of distributions made from a GST registered trust to a beneficiary, which also includes practical examples.

Note that this Exposure Draft is currently a draft for comment and discussion only.

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