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Taxation of Trusts & Other Entities

Taxation of Trusts

Trusts are taxed at different rates, depending on their status.

Unit Trusts
Unit trusts are defined as broadly held trusts whose units are listed for sale on a stock exchange or are widely offered for sale to the public. Unit trusts are taxed as a resident trust unless the following broad conditions are satisfied:

At least 95% of the units are able to be redeemed and sold back to the trust;
The trust is a resident of Papua New Guinea;
It acts solely as an investment vehicle;
It has a widely spread portfolio;
It complies with conditions set out in the income tax regulations.

Unit trusts that meet these requirements are taxed at 30% and distributions of income to the beneficiaries are exempt from income tax.

Property unit trusts

Property unit trusts must satisfy similar requirements as a unit trust. The trustee of the property trust is taxed at the rate of 30% on the net income of the trust. Distributions to beneficiaries are exempt from income tax.

Landowner resource trusts
The Minister for Finance may approve a trust holding landowner interests certain natural resource projects to be a Landowner resource trust. The trustee of a landowner resource trust is liable to pay tax at 25% on the net income of the trust.

Distributions from the land owner trust to beneficiaries are exempt from income tax.

Landowner resource trusts deriving assessable income from gas operations may also be liable to additional profits tax

Superannuation Funds
Resident superannuation fund is subject to pay tax at a rate of 25%.

Dividends paid to a superannuation fund qualify for the dividend rebate (LINK) and are exempt from dividend withholding tax (LINK).

The assessable income of a resident superannuation fund will include an employer’s contribution to the extent that they exceed 15% of an employee’s fully taxed salary or wages.

Other Trusts

The income of a trust is taxed at 28%.

Distribution by Other Trusts

Distributions to non-resident beneficiaries are subject to an additional final withholding tax of 10% of the distribution.

Resident beneficiaries are taxed again, at their marginal tax rate, on the net share of the trusts income to which they are entitled, whether or not it has been distributed to them.

Generally, resident beneficiaries are not allowed a credit for tax paid by the trustee on the trust income. Exceptions to this rule are:

  • where a beneficiary is liable to pay tax on a present entitlement of a share of trust income which has not in fact been distributed to him; or
  • If the trust has been established by a Court, or by the Will of a deceased person.
  • In those cases, the beneficiary is entitled to a tax credit against his personal tax liability, equal to either his average tax on his trust income distribution or the proportionate tax paid by the trustee, whichever is the lesser.

Partnerships

A partnership is an association of persons in receipt of joint income (other than a company). The partners of a partnership include their individual share of the profit or loss of the partnership in their own tax returns.

Partnerships are not subject to income tax in its own right, however, it is required to file an income tax return.

Joint Ventures

Unincorporated joint ventures can undertake mining and petroleum operations. The joint vernturers are assessable on the income/loss of their individual share of the Joint venture’s income calculated on a project basis.

The joint venture itself is not subject to tax and is not required to file an income tax return. However, the operator of a joint venture carrying out a resource project must lodge a “consolidated financial statement” for the joint venture as a whole, within two months of the end of the year of income.

The consolidated financial statement must list details of all expenditure incurred during the year.

When lodging their respective income tax returns, the joint ventures are required to reconcile their tax return to the consolidated financial statement.

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