Trusts in Australia

By on 15 Apr, 2022

Overview and Taxation of Trusts What is a Trust The principle of trust, or “Fideicommissum”, dates back to circa 200 BC, first mentioned by Publius Terentius Afer in the Roman comedy of Andria at 290–98 “tuae mando fide”, meaning “I commit to your faith”. The concept of Trust was used by the Romans where a testator would appoint a trustee as heir acting as a fiduciarius entrusted with passing the inheritance on to the beneficiaries, the so-called fideicommisarius. Around the 12th century and under the jurisdiction of the King of England, the first inter vivos Trust was developed which permitted the transfer of an asset or gift made during one’s lifetime, as opposed to a testamentary transfer that takes effect on the death of the giver. A Trust, therefore, is a fiduciary relationship in which one party, known as a Settlor, gives another party, the Trustee, the right to...

Testamentary Trusts

By on 26 Mar, 2022

What is a Testamentary Trust? A testamentary trust is a form of trust that is created under the terms of a will or a codicil of a will. It comes into effect only after the death of the testator/testatrix, the person who made the Will. The trustee of a Testamentary Trust may be the executor of the deceased estate or some other person, who will be appointed by the Will. As the trustee has full control in managing the assets, careful consideration must be given to protecting the beneficiaries from dishonesty or even incompetence. However, trustees (and executors) have the duty to act with due diligence, impartially, perform the trusts honestly, in good faith, and for the benefit of the beneficiaries. “The duty of a trustee to perform the trusts honestly and in good faith for the benefit of the beneficiaries, and the same applies to executors, is the minimum necessary to give substance to...

Understanding PSI Rules – Personal Services Income

By on 29 Jun, 2021

What is PSI PSI is income produced primarily from your own personal services, skill, or labour. Income is classified as PSI when more than 50% of the consideration you receive for a particular contract or transaction is for your labour, skills, or expertise such as consulting, professional or other services. This regardless income was earned as a sole trader or through a separate entity rather than being employed directly by the customer. PSI rules were introduced through the Alienation of Personal Services Income Act 2000, as an anti-avoidance measure to ensure an individual does not lessen or defer their income tax by diverting income received from their personal services through companies, partnerships, or trusts. The Act inserted Part 2–42 “Personal Services Income” into the Income Tax Assessment Act 1997. Subsequently, on 31 August 2001, the Commissioner of Taxation issued further...

What is Business Strategy

By on 20 Mar, 2021

Heraclitus, Greek philosopher, said “Change is the only constant in life.” ~ 500 BC Peter Drucker, whose writings contributed to the philosophical and practical foundations of modern business management, said “The greatest danger in times of turbulence is not the turbulence; it is to act with yesterday’s logic.” How can then business owners manage and secure the sustainability, growth, and profitability of their businesses in a competitive, ever-changing and unstable economic arena? How can a business survive a Covid-19, or a GFC or any other adverse market disruptions? STRATEGIC PLANNINGHelps businesses to adapt and get ready for tomorrowGives business owners directionCreates a measure for successIncreases business adaptabilityDrives business decisions Myth Business strategy is for large corporates. It’s a high cost long fancy document with complex jargon. I’m a...

Limited Recourse Borrowing LRBA

By on 18 Jan, 2021

Trustees of a SMSF are prohibited from borrowing monies, except in limited circumstances, as prescribed by section 67 of the Superannuation Industry (Supervision) Act 1993 (SIS Act).  Regulated SMSFs are permitted to invest directly in residential and commercial property as part of their overall investment strategy. Trustees can, under certain conditions, per sections 67A and 67B of the SIS Act, borrow funds from third-party lenders if the SMSF doesn’t have sufficient funds to cover the capital cost. This borrowing arrangement is referred to as a Limited Recourse Borrowing Arrangement (LRBA)  Therefore, an LRBA involves an SMSF trustee taking out a loan from a third-party lender. The trustee then uses those funds to purchase a single asset (or a number of identical assets with the same market value) to...