Trusts 2020

Tax due diligence in a trust context

Source: The Tax Specialist Journal Article

Published Date: 1 Apr 2020


While it is true to say that trusts are generally flow-through entities, in the sense that the beneficiaries are usually subject to tax on the taxable income of the trust each year, rather than the trustee, there are a range of circumstances where this is not the case such that the acquirer becomes exposed to tax liabilities (or a retiring trustee tax indemnity) relating to pre-acquisition transactions or events. Investors should be aware of the differences in the nature of tax risks involved when acquiring a trust (including trusts subject to the attribution managed investment trust regime) as compared to the issues that can arise on the acquisition of a company, and the different tax due diligence enquiries that should therefore be undertaken. This article outlines the types of tax exposures that can arise in a trust context, together with mitigation strategies, as well as historical matters that can impact on after tax returns following acquisition, such as the ability to access managed investment trust tax concessions and managing built-in capital gains.

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Trusts 2020

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