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In managing a trust the trustees may incur expenses in the course of exercising their duties and powers. These are ‘trust management expenses� (TMEs). TMEs are not like any other expenses for tax purposes.

There is a common misconception that TMEs are on a par with tax deductions for trading. Where a trust carries on a trade, the normal trading income rules apply to the computation of the profit/loss of that trade. In contrast, TMEs are expenses incurred in the capacity of trustee, not in any other capacity such as a trader. They are not related to the expenses or deductions of a trade or rental business. Even if a large trust is run like a business, for TMEs purposes the rules for allowable trading deductions are not in point. A separate set of principles, legislation and case law apply. The more common tax notions of ‘capital� and ‘income�, e.g. construction of a new building versus repairs, do not apply. What is relevant is ‘capital� and ‘income� in trust law, which is completely separate.

The allowance of TMEs for tax purposes is based to a large extent on trust law.