Just trying to get one account code straight in my head. Formation expenses..e.g. costs to setup the trust. Does that get coded to Asset or expense or owners capital...
probably wouldnt be a tax deduction as its costs of forming, so id say it goes straight off as a non deductible expense or against owners capital...
I'd say maybe asset to be written off over 5 years (similar to borrowing costs). Capital allowances: overview The following types of business related expenses may now qualify for deduction: establish a business structure convert your business structure to a different structure raise equity for your business defend your business against a takeover unsuccessfully attempt a takeover, and stop carrying on business (including liquidating a company). You deduct 20% of the expenditure in the year you incur it and in each of the following four years.
I presume you are referring to the old grubby & misleading practice of capitalising these costs as an 'asset', then subsequently amortising in financial reports. This was a great way of lulling the early investors about net assets, whereas later investors were getting the benefits at their expense. If your trust needs to provide financial reports according to current standards (e.g. a Managed Investment Scheme) then you must expense these costs as incurred. Even if your reports are informal, could you be accused of misleading investors or beneficiaries by using a discredited practice ? Cheers, Rob
Generally, costs of establishing, varying and winding up a **BUSINESS** structure are deductible at 20% pa on prime cost (no pro rating). s.40-880 So if this were a trust to run a business then it would be worth investigating further. This is doubly confusing for your accounts as it appears under the Uniform Capital Allowances and so formation costs get mistaken for a depreciating asset for financial reporting purposes. Cheers, Rob
so if the costs to set up the original trust, is that deductible? (is it in the business or the shareholders eyes?) I understand the deductibility of say an operating trust opening a new company (subsidary) but not the first inital move. However if its deductible thats great....
Yep, all those non-deductible capital costs for a business (provided it cannot be deducted elsewhere nor form the cost base of an asset). This includes establishment costs. Not for your simple investment activities, but you may have to establish a trust in the course of your business activities - e.g. a contract requires you to hold funds/assets for a special purpose separate from your other working funds. Cheers, Rob
but say a property investor establishing a trust to acquire a property in would not be deductible as its a simple investment?
If you can claim the formation expenditure as a deduction (over 5 years), I would capitalise and then amortise. But, if you cannot claim the formation expenditure I would just wirte it off and add this back in your tax entry. No point keeping formation expenses on the balance sheet.
Unless it is a GPFR - in which case expense immediately and tax effect any possible tax deductions over time. Cheers, Rob
