On 18 February 2025, the Prime Minister of Singapore, and the Minister for Finance delivered the annual Singapore Budget. Entitled “Onward today for a better tomorrow”, the key theme of this year’s budget is a focus on the provision of support to Singaporeans to defray the increases in the cost of living.

Key Budget Initiatives

In line with this future-focused approach, the key initiatives that Prime Minister Wong outlined during his Budget speech were: 

1. Growing Singapore into an established technology hub 
2. Assisting individuals with new employment opportunities via training programs
3. Continued development of Singapore as an environmentally sustainable city 
4. Fostering a caring and inclusive society for Singaporeans

New SME Rebate And Cash Grant

For the SME sector, and as expected, Budget 2025 delivered a few changes to the status quo.  However, the Budget 2025 papers did outline two rebates for Singapore companies for the Year of Assessment 2025 (YA 2025):

1. Corporate Income Tax (CIT) Rebate
2. CIT Rebate Cash Grant (Cash Grant)

The CIT Rebate will be equal to 50% of the total tax payable by the company for YA2025.  

The CIT Cash Grant of $2,000 will also be paid to companies with at least one local employee in the 2024 calendar year. 

Eligibility For The CIT Rebate And CIT Cash Grant

The CIT Rebate is available to all companies incorporated in Singapore, whether they are tax resident or not of Singapore, who have a tax liability of at least $4,000. The CIT Rebate is also available to registered business trusts and variable capital companies (VCC). 

For the CIT Cash Grant, the company needs to be an active company and meet the local employee requirement.  An employee will be regarded as local if the company has made CPF contributions for them during 2024. 

An active company is a company registered as a taxpayer in Singapore (whether Singapore tax resident or not) which is active at the time that the CIT Cash Grant is paid.  To be active, the company needs to be carrying on any trade or business, not under liquidation or receivership.  

For example, pure investment holding companies will not be eligible to receive these payments. 

The maximum combined CIT Rebate and CIT Cash Grant that a company can receive is $40,000. 

Example: Applying The Rebate And CIT Cash Grant

ABC Pte Limited employed five local employees during the 2024 calendar year and made CPF contributions for them all.  

For YA2025, ABC Pte Limited has a tax payable of $75,000.

ABC Pte Limited will receive a rebate for YA 2025 of $39,500 which is split between:

CIT Rebate: $37,500 ($75,000 x 50%)

CIT Cash Grant $2,000

How To Claim The CIT Rebate And CIT Cash Grant

Payments for the CIT Rebate and CIT Cash Grant will commence from the second quarter of YA 2025. 

The Inland Revenue Authority of Singapore (IRAS) will automatically calculate the CIT

Rebate based on either:

1. The filed Estimated Chargeable Income (ECI) return for YA 2025, with assessment finalised by June 2025; or 

2. If the company has filed both their ECI and company tax returns for YA 2025, IRAS will calculate the CIT Rebate based on the final tax return, with assessment finalised by August 2025. 

A key element contributing to Singapore’s appeal is its corporate tax system, designed to encourage entrepreneurship and investment. 

This article provides an overview of the foundations of the corporate taxation landscape in Singapore, focusing specifically on compliance timelines, tax rates and statutory concessions available to all companies incorporated in Singapore.

Understanding Singapore’s Corporate Tax Structure

Singapore operates on a territorial tax system, meaning that only income generated within the country is subject to tax. This approach is conducive for businesses trading internationally, as income derived from foreign sources are generally exempt from tax. 

We will consider foreign-sourced income in a future article.  However, it is important to note that such income may still be subject to taxation in Singapore under certain circumstances.  The most common instance is where the foreign-sourced income is remitted into a bank account located in Singapore. 

The corporate tax rate in Singapore is currently a flat 17%.

However, there are statutory concessions that result in an effective rate of tax closer to 15% for SMEs operating from Singapore. 

There is no Capital Gains Tax (CGT) regime in Singapore, so the disposal of capital assets by a Singapore company are not subject to tax.

Singapore Corporate Tax Terminology

Before we go further, a quick overview of the Singapore corporate tax terminology:

a) The Singapore financial year ends on 31 December, however a company is able to elect to use another date throughout the year (e.g. 30 June) so that the tax compliance cycle is aligned to a parent company in another jurisdiction.

b) Year of Assessment (YA) refers to the year in which the company will receive a Notice of Assessment from the Inland Revenue Authority of Singapore (IRAS). As an example, the YA 2025 refers to a financial year which ends during the 2024 calendar year. 

c) Estimated Chargeable Income (ECI) is a submission due three months following the end of your financial year and acts as a preliminary estimate of what tax will be payable upon the filing of the corporate tax return. This is an additional submission to the annual company tax return.

Singapore’s Lodgement Timeline

The annual lodgement deadline for company tax in Singapore is as follows:

a) Lodgement Of ECI – three-months following the end of the company’s financial year.

b) Annual Company Tax Return – 30 November in the YA.

Singapore Company With A 31 December Year End

If a company adopts the default Singapore financial year which starts on 1 January and concludes on 31 December of a calendar year, then  for the financial year ending 31 December 2024, the due dates for submissions to IRAS are: 

a) ECI is due by 30 March 2025; and 

b) Company tax return is due by 30 November 2025.

Singapore Company With An Elected Year End

If we assume that a company has a 30 June 2025 year end, the two lodgement deadlines are

a) ECI – due by 30 September 2025

b) Company tax return – due by 30 November 2026

As the Company’s year end is within the YA2026, the tax return is due in 30 November 2026. 

Statutory Concessions Available To Foreign Owned SMEs

Partial Tax Exemption

As the name suggests, the Partial Tax Exemption makes a portion of a company’s first S$200,000 of taxable income exempt from taxation for each YA. 

The Partial Tax Exemption is available to all companies which are incorporated in Singapore.  Thus, a foreign company is not able to access this concession as it is not incorporated in Singapore. 

The current exemption is calculated as:

   – Exemption of 75% for the first S$100,000 of chargeable income.

   – A further 50% exemption on the next S$100,000 of chargeable income.

Meaning that the first S$125,000 of taxable income is not subject to tax.

Start-Up Tax Exemption (SUTE)

In the same vein as the Partial Tax Exemption, the Start-Up Tax Exemption allows for a portion of a company’s first S$200,00 exempt from taxation for its first three financial years. 

Qualifying new companies incorporated in Singapore can enjoy additional tax exemptions under the Start-Up Tax Exemption scheme. 

For the first three years of assessment (YA), qualifying companies may receive:

   – Exemption on the first S$100,000 of chargeable income.

   – A further 50% exemption on the next S$200,000 of chargeable income.

For the first three YA, the company will be exempt to pay tax on the first S$200,000 of taxable income. 

To qualify for this Start-Up Tax Exemption, your company must meet all of the following requirements:

a) Incorporated in Singapore; and

b) Derive trading income; and

c) Be a tax resident of Singapore; and

d) Have at least one individual owning at least 10% of the company – this individual does not need to be a tax resident of Singapore.

Given the requirement for an individual shareholder to qualify for the Start-Up Tax Exemption, it is important to consider the long-term implications from owning the shares in this manner.

Some of the issues to consider include:

– From an asset protection perspective, there may be a preference for the shares not to be held by an individual Founder; 

– In the event of a future disposal of the shares, the resulting tax payable (for example, capital gains tax) may exceed the benefits arising from the concession;

– In many cases, new companies often fail to generate significant income in the initial years of operations, and thus fail to maximise the benefits provided by the Start-Up Tax Exemption.

Key Takeaways For Foreign Owned SMEs

The key considerations for foreign owned SMEs operating in Singapore include: 

• Singapore operates on a territorial tax system which generally means that only income sourced in Singapore is subject to taxation. 
• Foreign-sourced income which is remitted to a Singapore bank account may still be subject to tax in Singapore at the 17% rate. 
• While the standard financial year ends on 31 December, a Singapore company is able to align its year end to a date which matches related companies based in other jurisdictions. 
• There are two forms of tax exemption available to companies incorporated in Singapore which reduces the effective corporate rate of tax.
• Whilst the Start-Up Tax Exemption provides a more generous concession, there are long-term planning and commercial issues to be considered before deciding to structure the company in a way to qualify for this concession. 
• The ECI return is due 3 months after the end of the financial year. 
• The annual corporate tax return is due on 30 November in the YA. 

“I don’t understand, Boon – we offered the landlord the price they wanted and agreed on everything last week, but now they don’t want to proceed because the share capital in the company is only $100.  Don’t they realise we are a multi-billion dollar shipping company?” 

This is a common issue for many companies entering the Singapore market who are unfamiliar with the local culture and protocols. A key aspect of Singapore’s corporate culture is the company’s share capital level. 

While many foreign jurisdictions are familiar with the idea of a “$2 company,” approaching Singapore with the same mindset will likely limit their ability to operate in Singapore.

The amount of share capital you inject into your Singapore company reflects how serious you are about building your presence in this market. If your company has a low share capital value, the market view is that you are not fully invested in Singapore as a market for your company. 

Your company is viewed as a risky counterparty to any agreement because it appears to have limited working capital to meet the company’s ongoing running costs. 

Share Capital vs. Loan 

Your counterparty in Singapore prefers share capital rather than a loan injection because share capital is more permanent and is covered by statutory provisions under the Companies Act 1967. 

Whilst the Companies Act does allow for a capital reduction, the process is covered by provisions that include the need for the company to be solvent when the capital reduction is made and, in some instances, approval from the company’s creditors and the court. 

In contrast, loans are usually undocumented and can be called upon for repayment at any time by the lender. 

The barriers to taking out the funds as share capital are higher than for a loan – the most significant being the costs involved to engage lawyers and company secretaries.  

Who Looks At Share Capital?

The share capital of a company is usually reviewed in the following circumstances: 

1. Opening A Bank Account – Singapore is renowned for its strong and secure banking system. The process of opening a bank account goes through a compliance review, which prefers to onboard a company with at least S$10,000 of share capital. 
2. By The Ministry Of Manpower When Assessing An Application To Sponsor A Foreigner On A Working Visa – A key obligation for a company sponsoring an individual on a working visa is the payment of their monthly salary.  It is not unusual for the Ministry to request that share capital equal 6 – 12 months of the gross salary figure for the sponsored employee. 
3. Suppliers (Including Landlords) Looking To Enter Agreements With The Singapore Company – When dealing with a new company, it is common for landlords only to enter into agreements with companies with an amount of share capital that reflects the planned operations (including the payment of rent) to minimise their exposure to risk. 

In Summary

The key consideration regarding share capital that companies need to consider include: 

1. The amount of share capital reflects how seriously a business is invested in making its mark in the Singapore market.
2. An injection of share capital is preferrable as it is viewed as more permanent than a loan, which can be quickly repaid.
3. If you are applying for a working visa for an employee, it is recommended that the share capital be equal to at least half of the total salary payable to the employee.
4. Given the importance of share capital, it is crucial that you have sufficient savings to inject such funds into the Singapore company’s bank account. 

Get insights from our CST Principal and international tax specialist, Matthew Marcarian as he shares his in-depth knowledge of the complexities of living and working as an Australian Expat in Singapore in a podcast episode of Money Side Up with Jarrad Brown and Will Cant.

This podcast episode will highlight the tax and residency obligations in Singapore, preparation for repatriation, and effective tax planning if you have already decided to move or work in Singapore.

To find out more about Singapore Tax for Australian Expats, you may listen to the podcast on Spotify.

In a podcast episode of Barely Legal in Web 3, hosted by Jamilia Grier, Boon Tan, the managing director of CST Tax Advisors, and Chris Holland from Holland & Marie discussed the crypto tax issues and challenges in the Web3 space.

In this episode, our tax experts discussed how to successfully launch token offerings and how the crypto tax system works in Singapore. Gain valuable insights as they delve into the tax issues facing crypto businesses to avoid common pitfalls.

You may also listen to the podcast on Spotify.

Here is a link to the podcast transcript.

In June 2023, the Ministry of Finance released a draft of the Income Tax (Amendment) Bill 2023. The contents of this Bill cover the announcements made in the 2023 Budget Statement and amendments which will bring the Singapore Tax Act inline with international standards. 

A key proposal in this Bill is the introduction of taxation on capital gains made from the sale of foreign assets, after 1 January 2024, where the proceeds are received in Singapore without the company having sufficient economic substance in Singapore.  

Section 10L, if enacted by parliament, is to align Singapore with the European Union Code of Conduct Group guidance in respect to these types of transactions.

Companies Affected by the New Legislation

Currently Singapore does not have a capital gain tax regime – meaning that profits derived from capital transactions, such as the sale of real estate, equipment, rights are exempt from taxation. 

The absence of capital gains tax has made Singapore a popular location for companies to hold assets which are based outside of Singapore and exploited for the benefit of the consolidated group. It is important to note that this provision only applies to Singapore companies which are part of a wider consolidated group. Meaning that the use of Singapore as a jurisdiction to establish a special purpose vehicle company may still be appropriate. 

The key points regarding the application of the provision are:

1. The Singapore company which has disposed of the foreign asset must be part of a consolidated group. The company will be a member of a consolidated group if its financial accounts are consolidated by the parent entity.
2. The group in question must have at least one member which operates its business outside of Singapore. 
3. The foreign capital gain is either: 
   • Remitted to a Singapore bank account; or 
   • Applied against any debt incurred in relation to the operations carried out in Singapore; or 
   • The value of any immovable property brought to Singapore which has been acquired using the proceeds from the capital gain.
4. Provision for IRAS to apply the market value to a transaction where it deems that the disposal of the asset was not undertaken on an arm’s length basis.

Exclusion of Some Industries and Exemptions

As a major commercial hub in the world, the proposed Bill does provide for the exclusions of some industries (e.g. financial) and Groups which have been awarded concessionary or exempt tax status. 

Where a company does not fall into these exemption categories, the Bill does define an “excluded entity”, which would not be subject to this change. This definitional exclusion is where the economic substance test comes into play. 

The definition allows for pure equity holding companies, and non-pure equity holding companies. A pure entity holding company’s main function in the group is to hold shares and derive income from dividends and the disposal of shares. 

If the company is a pure equity holding company, to be excluded from Section 10L, it must demonstrate that:

1. The company complies with its annual lodgement obligations, and 
2. The operations are managed and performed in Singapore. 

For a non-pure equity holding company, there are additional conditions to satisfy:

1. The company carries on a trade in Singapore; and
2. Operations are managed and performed in Singapore; and 
3. There is sufficient economic substance in Singapore taking into account: 
   • The number of employees in Singapore performing the operations; 
   • The qualifications and experience of the employees in Singapore; 
   • The amount of business expenditure incurred in Singapore relative to its income; 
   • Whether key business decisions are made in Singapore. 

Should the Bill pass as drafted, a greater emphasis is required on multinational companies to ensure that they establish themselves appropriately in Singapore, with an office, employees, and senior management. Demonstrating the significance of the Singaporean operations will be key to ensuring that concession tax regimes are accessible. 

It should be noted that the introduction of Section 10L is primarily an anti-avoidance measure and not a hindrance to the many businesses that choose to expand to or establish operations in Singapore.

What are the tax consequences of arriving in Singapore and becoming tax resident?

Resident individuals are subject to tax on income accruing in or derived from Singapore or received in Singapore from outside of Singapore.
However, overseas income received in Singapore on or after 1 January 2004 is generally not taxable.

Taxpayers are assessed on a calendar year and tax is computed on a preceding year basis. Taxpayers must file a tax return by 15 April in the following year.

In addition, expatriate individuals can opt for the Not Ordinarily Resident scheme if he spends at least 90 days outside of Singapore for business reasons in respect of his Singapore employment and his total Singapore employment income is at least SGD160,000.

What is the minimum time I can remain in Singapore without being tax resident?

182 days.

Does Singapore tax its residents on a world wide or territorial basis?

Income tax is imposed on the basis of territoriality.

Is foreign income taxable in Singapore e.g. foreign rental income, foreign interest income and foreign dividend income?

All foreign income received by individuals in Singapore is exempt from tax where the tax authority is satisfied that the exemption will be beneficial to them, unless received through a partnership. Foreign dividends, branch profits and service fees received through a partnership may be exempt subject to conditions.

Does Singapore tax on a remittance basis?

No.

Does Singapore have a sales tax or VAT tax on purchases?

Singapore impose a Good and Services Tax of 7%.

Does Singapore have a capital gains tax that taxes me when I sell foreign assets?

There is no tax on capital gains. However, gains from the realization of capital assets can be included in ordinary business income and subjected to income tax if the sales were carried out in the course of a trade carried on by the taxpayer.

Does Singapore have an estate tax or death tax?

No.

What is the top tax rate in Singapore?

Individuals are tax at progressive rates and the top tax rate is 20% for income over SGD320,000.

Does the tax rate vary for different types of income and if so what are the rates?

Royalties received in connection with literary, dramatic, musical or artistic work or from a local or branch of a foreign publisher are taxed at a concessionary rate of 10% of the gross amount.

What are the common tax deductions available in Singapore?

• Self, Spouse and Child reliefs;
• Life Insurance premiums and pension funds contributions

Does Singapore require joint tax returns to be filed for me and my spouse or are separate tax returns required?

Separate tax returns are required.

If I have a foreign company or foreign trust before I arrived in Singapore is the income of that company or trust taxable?

No.

Do children under 18 pay a higher rate of tax on certain types of income?

No.

Is there a gift tax in Singapore?

No.

What are the personal tax exemptions in Singapore e.g. a gift from an overseas relative or a foreign insurance payout?

None.

When I leave the country is a ‘termination payment’ taxed by Singapore before I leave?

Termination payments which are compensation attributable to the loss of employment such as redundancy are not taxable.

If I receive shares as part of my salary is this taxed in Singapore?

Yes. Share options granted by virtue of an employment are a taxable benefit and the gains accrue as income in the year in which the option is exercised. The taxable value is the open market value at the time of the exercise less the amount paid for the share option.

What are other tax consequences of leaving the country?

An individual who leaves Singapore permanently is deemed to have derived a gain from the unexercised or restricted stock option plan, unless his employer is granted approval to keep track of the options. If the subsequent actual gain is less than the taxable gain, the taxpayer can apply for a reassessment of his tax liability.

The employer of an expatriate is required to notify the tax authorities and withhold the salary for the purposes of tax clearance should the expatriate cease employment in Singapore, or leave Singapore for a period of more than 3 months.

Are there any tax consequences of me transferring money from Singapore to my say home country?

None.

Celebrating Singapore’s 50th year of independence, the 2015 budget was delivered by the Deputy Prime Minister and Minister for Finance on 23 February 2015. Also known as the “Jubilee Budget”, much of the focus in the budget has been placed on the country’s ability to provide the required resources to Singaporeans for their future, for example, through promoting innovation and by providing tax incentives to encourage the businesses for their international efforts.

Below are some of the highlights:

Corporate Income Tax Rebate

The Corporate Income Tax Rate remains at 17% and the partial tax exemption of a company’s first $300,000 of normal chargeable income (CI) is also to stay in place. The Corporate Income Tax Rebate which allows companies to receive a 30% rebate on their tax payable to a cap of $30,000 will be extended for another two Year of Assessments (YAs) until 2017 YA. However, the maximum rebate will reduce to $20,000 in 2016 and 2017 YAs from current $30,000. Companies that have chargeable income less than $540,000 (ie. in YAs 2016 and 2017) will not be affected by the new measure.

Change in Top Marginal Tax Rate

The marginal tax rates for the highest income earners with chargeable income above $320,000 will increase from 20% to 22%. However, the government has also announced a personal income tax rebate of 50% capped at $1,000 per taxpayer, which is be granted to all tax resident individual taxpayers for YA 2015.

Double Tax Deduction for Internationalisation Scheme

Businesses may claim 200% tax deduction on qualifying expenditure incurred on qualifying market expansion and investment development activities. The scope of qualifying expenditure supported under the Double Tax Deduction (DTD) for Internationalisation scheme will be enhanced to include qualifying manpower expenses incurred for Singaporeans posted to new overseas entities.

The amount of qualifying manpower expenses to be allowed a DTD will be capped at $1m per approved entity per year for expenses incurred from 1 July 2015 to 31 March 2020.  Businesses will have to apply to International Enterprise (IE) Singapore to enjoy the concession on manpower expenses. Further details to be released by May 2015.

Introduction of International Growth Scheme (IGS)

This is a new scheme by the Government with the aim of providing greater and more targeted support for larger Singapore companies in their internationalisation efforts. Under the IGS, qualifying Singapore companies will enjoy a concessionary tax rate of 10% for a period not exceeding five years on their incremental income from qualifying activities such as headquarter functions and specific business lines. IE will release further details by May 2015.

Approved Royalties Incentive (ARI)

The ARI was introduced to encourage companies to access cutting-edge technology and know-how for substantive activities in Singapore. Under the scheme, tax exemption or a concessionary tax rate may be granted on approved royalties, technical assistance fees or contributions to R&D costs made to a non-resident for providing cutting-edge technology and know-how to a company for the purpose of its substantive activities in Singapore.  A review date of 31 December 2023 will be legislated for this scheme to ensure that the relevance of the scheme is periodically reviewed.

Productivity and Innovation Credit (PIC) Scheme & PIC Bonus

The Productivity and Innovation Credit (PIC) scheme was enhanced in 2011 to grant a total of 400% tax deduction or allowance for the first for the first $400,000 of expenditure for qualifying expenses incurred from YA 2011 to YA 2018. The qualifying activities are (subject to conditions):

• R&D activities
• registration of intellectual property rights (IPR)
• acquisition of IPR
• investments in design done in Singapore
• spending on equipment or software aimed at automating processes; and
• costs of training employees so as to upgrade skills and capabilities

To encourage small businesses to undertake meaningful productivity investments, businesses that invest a minimum $5,000 per YA in qualifying activities under the PIC scheme are entitled to the cash bonus (PIC Bonus) equal to the PIC expenditure incurred up to an overall cap of $15,000 for all three YAs combined (YA 2013 – YA 2015). There has been a good take-up of the PIC scheme and the PIC Bonus will be allowed to expire after YA 2015 as it was intended as a transitional measure. However, businesses will continue to benefit from the PIC scheme extended until YA 2018.

1. What Is A Trust?

• Trustee;
• Trust Property;
• Equitable Obligation;
• Beneficiaries;

To restate the above in slightly more legalistic terms “a trust is a fiduciary relationship where one person, a trustee, holds an interest in property but has an equitable obligation to use or keep that property for the benefit of another person(s) (beneficiaries) for some committed object or purpose.

There are many types of trusts, however the common ones are:

• Express Trusts;
• Settled Trust;
• Discretionary Trusts;
• Unit Trust;
• Will Trust;

Express Trusts

Are trusts created by the express and intentional declaration of the settlor. Trusts dealt with in practice usually evidence this declaration by way of a formal trust deed.

Settled Trust

One form of an express trust is a settled trust created by settlor (or director). The settlor will intentionally create a trust by gifting the initial trust property to be held on trust by a trustee under an equitable obligation.

The most common trusts we implement are a discretionary trust, unit trust and a will trust (or deceased estate).

Discretionary Trust

A common settled trust dealt with in practice is a discretionary trust. A discretionary trust, which may also be known as a family trust, allows the trustee (who is usually the head of the family) to exercise discretion on an annual basis as to which beneficiaries will receive a distribution and to what extent each beneficiary shall benefit.

Unit Trust

Unit trusts are commonly used when arms length parties wish to enter into a commercial undertaking together.

Each party’s entitlement to income and capital from the trust is proportionate to the units held.

Will Trust

A will trust or a deceased estate arises on the death of a person. Upon death, property of the deceased passes to his or her estate.

The fiduciary obligation to administer the estate and the assets therefore falls upon the executor or administrator who assumes the role of trustee in respect of the property of the deceased estate.

The beneficiaries of a deceased are those nominated in the Will of the deceased.

2. Why Choose A Trust?

3. How Do You Set Up A Trust?

If you have made the decision that a trust is an appropriate structure the next step is to establish a trust.

Approaching a Solicitor

Prior to approaching a solicitor you should not only have considered the commercial and taxation issues noted previously, but you should also have determined:

• The purpose and activities of the trust;
• Nominated beneficiaries and future beneficiaries;
• Who is to be the trustee and settlor;

Review and Understanding

The solicitor will draft the trust deed in accordance with the client’s requirement and at this stage it is critical that a thorough review is done to ensure that the trust deed (or governing rules) reflects your commercial and legal requirements and allows flexibility for future contingencies.

If a solicitor who specialises in trust law is consulted you will often receive an information booklet setting a basic outline of a trust for administration purposes.

At this stage also it is critical that you read through the draft deed and that questions are addressed prior to creating the trust. In this regard the family or business solicitor (if he or she did not draft the deed) may be used to add his/her comments and to provide a different perspective and extra level of comfort to both the client and accountant.

4. Parties To A Trust

The Settlor

The Settlor is the person who brings the trust into being.

Typically the settlor is a family friend or business associate who will contribute initial capital to settle the trust.

For Australian tax purposes it is important that there is not any reimbursement by the trustee in respect of distributions made for children under 18 years old if a parent, who will usually act as trustee or a director of the trustee company of a family trust, settles or creates the trust.

It is also advisable that the advisers to the trust are not the Settlor, for the reason that many trust deeds contain clauses that the Settlor is excluded from any benefit or income under the trust.

The Trustee

A Trustee is the person who holds an interest in trust property for a committed trust object or purpose.
In a discretionary trust situation the trustee exercises control over trust property so the trustee can deal with it on behalf of beneficiaries.

The choice of a trustee is worth proper consideration for the reason that the trustee’s powers and duties are significant. In that regard the person who is appointed to the position must understand his/her role and responsibilities.

Trustees may be individuals but more commonly will be companies to limit liability.  In a family trust a parent or both parents will usually act as directors of a corporate trustee.

The Appointor or Protector

The Appointor or Protector is the person or persons who have the authority under the trust deed to appoint or remove the trustee of the trust. As such the appointor is often said be the controller of the trust.

Many trust deeds empower the appointer to remove the trustee and appoint a new trustee at any time in writing.

Unless specified in the trust deed or in the will of the Appointer, on the death of the Appointor, the legal personal representative of the deceased Appointer will become the Appointor.

Income Beneficiaries

These are beneficiaries who may at the discretion of the trustee receive entitlement to trust income. Most modern trust deeds are drafted very widely in this area to give the trustee very wide discretionary powers for the advantage of flexibility of distribution for taxation purposes. Common classes of beneficiaries are:

• Family members, including children;
• Unborn children of family members such as direct lineal descendants;
• Eligible entities in which the abovementioned beneficiaries of the trust itself has an interest (such as a corporate beneficiary)

Capital beneficiaries

These are beneficiaries who are entitled to the corpus of the trust or the capital in the trust.
This entitlement does not usually arise until vesting day, or the day the trust is to be wound up, but entitlements to capital or corpus of the trust may occur earlier if permitted by the trust deed or agreed to by all beneficiaries.

Default Beneficiaries

A default beneficiary is simply the beneficiary to whom a distribution may default to in the absence of any other nominated beneficiary.
For example should an amended assessment be raised increasing assessable income that income will be distributed primarily in accordance with the relevant trustee’s distribution minute.

However in the absence of any guidance contained therein or in the event the resolution or minute cannot be located or was not made for the reason there was considered to be no income, the distribution may revert to the default beneficiary rather than be assessed in the hands of the trustee at the top marginal rate.

There are very few restrictions on who may be a beneficiary.  A beneficiary may be a resident or non-resident natural person (such as a company) or any legal entity.
Further, persons who have not yet been born or legal entities that have not yet come into existence may subsequently become beneficiaries.  However it is important to nominate who will be and who can become a beneficiary on drafting of the deed.

A trust, as stated above, is a fiduciary relationship.

The adding of unanticipated beneficiaries at a later stage may, in a worst case scenario, lead to a resettlement of a trust or the ceasing of the former relationship and creation of a new relationship, being the creation of a new trust.

Should there be considered to be cessation of one trust and the creation of a new trust, a myriad of unwelcome income tax, capital tax and stamp duty issues may arise.
Thus, upon reviewing the deed detailed consideration must be given to who and who might potentially become income, capital and/or default beneficiaries.

Contact us

Should you be interested in discussing further how a trust may suit your purposes please do not hesitate to contact us at our offices.

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Disclaimer:
This document is intended as an information source only. The comments and references to legislation and other sources in this publication do not constitute legal advice and should not be relied upon as such. You should seek advice from a professional adviser regarding the application of any of the comments in this document to your fact scenario. Information in this publication does not take into account any person’s personal objectives, needs or financial situations. Accordingly, you should consider the appropriateness of any information, having regard to your own objectives, financial situation and needs and seek professional advice before acting on it. CST Tax Advisors exclude all liability (including liability for negligence) in relation to your reliance in this publication.