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Constructive Trust and Implied Trust

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Constructive trust

A constructive trust arises where an individual can establish that in spite of being the legal owner of an asset, that they only hold this asset on behalf of someone else. Constructive trusts are not common and in most cases a legal opinion will need to be sought to confirm the existence of such a trust. A constructive trust is imposed on a person by a court whenever the court considers that it would be unconscionable to deny another person's claimed interest in that property. As a constructive trust is always determined by a court, the terms of the court order need to be examined to determine the interests in the property of the parties.

The private trusts control test and source test (where applicable) are to be applied to constructive trusts. This is irrespective of when the constructive trust was created.

Implied trust

An implied trust (and a resulting trust) arises where an individual can establish that in spite of being the legal owner of an asset, that they only hold this asset on behalf of someone else. These mainly relate to situations where a person has purchased property in the name of another person. Implied trusts are not common and in most cases a legal opinion will need to be sought to confirm the existence of such a trust. The private trusts control test and source test (where applicable) are to be applied to implied trusts. This is irrespective of when the implied trust was created. Special care should be taken to ensure that the implied trust is not a testamentary trust or a protective trust.    

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There are two control tests, one is in relation to private trusts and the other one is in relation to private companies.

 

Control test (private companies)

An individual passes the control test in relation to a company if:

  • the aggregate of the direct voting interests in the company held by individual or their associates is 50% or more,
  • the aggregate of the direct control interests in the company held by an individual or their associates is 15% or more,
  • the company is sufficiently influenced by the individual, their associates or 2 or more entities covered by the preceding dot points, or
  • the individual, either alone or with associates is in a position to exercise control over the company.

 

Control test (private trusts)

According to section 52ZZH(2) of the VEA, an individual passes the control test in relation to a trust if:

  • the individual, or their associate (VEA section 52ZZH(2)) (other than an associate covered by paragraph 52ZQ(1)(j) of the VEA), is a trustee,
  • a group (VEA section 52ZQ(1)) in relation to the individual can remove or appoint the trustee/s,
  • a group in relation to the individual can vary the trust deed or veto the trustee's decisions,
  • the total of the direct or indirect beneficial interests in the body or income of the trust held by the individual or their associates is 50% or more,
  • a group in relation to the individual had the power (by means of the group exercising any power of appointment, revocation or otherwise) to obtain, with or without the consent of any other entity, beneficial enjoyment of trust income or assets,
  • a group in relation to the individual was able in any manner whatsoever, directly or indirectly, to control the application of the trust income or assets,
  • a group in relation to the individual is capable under a scheme of gaining beneficial enjoyment or control of the application of the trust, or
  • a trustee of the trust was accustomed, obliged (formally or informally) or might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the individual.

 

 

An individual passes the source test in relation to a trust or company if:

  • the individual has transferred property or services to the entity after 7.30 pm, by standard time in the Australian Capital Territory, on 9 May 2000, and
  • the underlying transfer was made for no consideration or for a consideration less than the arm's length amount in relation to the underlying transfer.

 

 

There are two control tests, one is in relation to private trusts and the other one is in relation to private companies.

 

Control test (private companies)

An individual passes the control test in relation to a company if:

  • the aggregate of the direct voting interests in the company held by individual or their associates is 50% or more,
  • the aggregate of the direct control interests in the company held by an individual or their associates is 15% or more,
  • the company is sufficiently influenced by the individual, their associates or 2 or more entities covered by the preceding dot points, or
  • the individual, either alone or with associates is in a position to exercise control over the company.

 

Control test (private trusts)

According to section 52ZZH(2) of the VEA, an individual passes the control test in relation to a trust if:

  • the individual, or their associate (VEA section 52ZZH(2)) (other than an associate covered by paragraph 52ZQ(1)(j) of the VEA), is a trustee,
  • a group (VEA section 52ZQ(1)) in relation to the individual can remove or appoint the trustee/s,
  • a group in relation to the individual can vary the trust deed or veto the trustee's decisions,
  • the total of the direct or indirect beneficial interests in the body or income of the trust held by the individual or their associates is 50% or more,
  • a group in relation to the individual had the power (by means of the group exercising any power of appointment, revocation or otherwise) to obtain, with or without the consent of any other entity, beneficial enjoyment of trust income or assets,
  • a group in relation to the individual was able in any manner whatsoever, directly or indirectly, to control the application of the trust income or assets,
  • a group in relation to the individual is capable under a scheme of gaining beneficial enjoyment or control of the application of the trust, or
  • a trustee of the trust was accustomed, obliged (formally or informally) or might reasonably be expected to act in accordance with the directions, instructions or wishes of a group in relation to the individual.

 

 

An individual passes the source test in relation to a trust or company if:

  • the individual has transferred property or services to the entity after 7.30 pm, by standard time in the Australian Capital Territory, on 9 May 2000, and
  • the underlying transfer was made for no consideration or for a consideration less than the arm's length amount in relation to the underlying transfer.

 

 

A trust created by a will (testament) which usually takes effect upon the death of the writer of the will.