• Discretionary trust estates

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    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    The transferor trust measures do not apply to a transferor who has transferred property or services to a discretionary trust estate if both of the following conditions are satisfied:

    • the transfer was made in the course of carrying on a business, and
    • the transfer was made in terms identical or similar to those that relate to transactions undertaken by the transferor, at or about the time of the transfer, in the ordinary course of business with ordinary clients or customers - that is, on an arm's length basis and subject to similar terms and conditions.

    If the transfer was not made on an arm's length basis in the course of carrying on a business, the transferor trust measures will normally apply if at any time after the transfer the transferor or the transferor's associates were in a position to control the trust estate. However, if the transfer was made before 12 April 1989, the transferor trust measures will only apply if the transferor or the transferor's associates were in a position to control the trust after 12 April 1989.

    If a transferor subsequently gains control of the discretionary trust estate, all years before the commencement of the transferor trust measures become subject to the measures.

    A transferor is taken to be in a position to control a non-resident trust estate if the transferor or any associates:

    • have power, by whatever means, to obtain the beneficial enjoyment of the corpus or income of the trust estate
    • were able to control, directly or indirectly, the application of the income or corpus of the trust estate
    • were capable, under a scheme, of gaining the enjoyment or control referred to in the above two points
    • could expect the trustee to follow their directions, instructions or wishes, or
    • have the ability to remove or appoint any trustees of the trust estate.

    All factors must be taken into account in determining whether the trustee of a trust estate was accustomed, or might reasonably be expected, to follow directions, instructions or wishes of a transferor or an associate of the transferor.

    For example, a requirement in a trust deed for the trustee to ignore directions, instructions or wishes would not pre-empt the examination of the actual circumstances to determine whether the transferor or an associate controls the trustee. The way in which the trustee has acted in the past, the relationship between the transferor or transferor's associate and the trustee and the amount of property or services transferred to the trust estate, are some of the other matters that need to be considered.

    Last modified: 05 Dec 2006QC 18000