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What about changing the domicile (don't know the correct term) of the o/s trust to Australia from the o/s country? That's effectively the objective – allow existing trust funds to be used to invest in Australian property, without first distributing them and then re-settling them in a new trust, during which process there seems to be tax/legal issues. The trust deed does provide for 'changing the law of the trust to another jurisdiction'.
Otherwise the idea of an "in-transit" distribution to Joe seems the best option.
Always good to have some general background knowledge before approaching a lawyer, so all the contributions here are much appreciated.
I should have provided all the background details at the start :
Funds have accumulated in the overseas trust, over a period of 10 years. Its a discretionary trust, in a tax haven, so is not subject to any taxes on income or distribution. No party to the trust has had any connection with Australia, and the trust income also has no link to Australia. But its possible that one of the beneficiaries ('Joe") will settle in Australia in the next year or two. He has a resident visa, and already directly owns one rental property in Australia, and so pays tax in Australia on the rental income, as a non-tax resident taxpayer.
If Joe wanted to set up a property owning trust in Australia in advance of his arrival, what would be the appropriate method of getting funds out of the overseas trust and into the local property trust, in a legal and tax effective way? If Joe received a distribution from the trust before coming to Australia, he would be taxed in his current country of residence – obviously he wishes to avoid/minimise that as far as possible.
The overseas trustee can specify additional beneficiaries, so the local trust could become a beneficiary, or he could lend the funds to the local trust, or to Joe.
Any ideas? Your advice will probably be to consult a tax lawyer – it seems to be quite a complex issue…..
Another question :
If it is usual in Australia to settle the trust with only $10, using a Joe Blow, in order to reduce stamp duty, how are the remaining assets introduced into the trustee's control? A loan from the holder of the funds, or does he gift it to the trust?
Merca
Terryw
If the overseas trust gifts the funds to the local trust, is this not income to the trust and accordingly taxable in Australia?
Regards
MercaSo if I understand correctly, it should be something like this :
Joe Blow settles the trust locally with $10. There are only local beneficiaries. The overseas trust still has the cash funds.
How would the overseas trust introduce funds into to the local trust – by way of a loan? I guess any other method (donation?) would have tax implications for the local trust?
Could the local trust pay interest on this loan, with a tax deduction? The o/s trust would be taxed then in Australia on interest income?
Thanks again for the feedback.
Merca
Thanks for the input.
The 'owner' of the assets (presently held in cash) is a foreign trust. Would the trustee be able to settle an Australian trust with these assets? Would he have to be present in Australia to sign the trust deed? This overseas trustee would have no further connection with the new trust, neither as beneficiary nor as trustee, so there should be no tax implications for him.
Surely if a Joe Blow is found to act as local settlor, there would be a question as to where he acquired the assets with which to settle a new trust, or am I missing something?
Merca
