Trust, company and tax

The company is just the trustee of the trust, the trust is the ‘entity’ earning the money, but trusts do not get taxed. What happens is the trust deducts expenses and any profit left over is distributed to the beneficiaries – at the trustees discretion (if a discretioanry trust).

So in the above example, if $50,000 was left over after all expenses this would have to be distributed. If you do not have any beneficaries on low tax rates (generally any relative), then all this money would go ontop of your income and you would pay about $25,000 tax. In this case you could distribute the $50,000 to a company you have jsut setup and pay $15,000 tax (30%). But if you had 9 nephews and neices who were going to uni (ie adults) and not working, then you may pay no tax at all by distributing to them.

Terryw
Discover Home Loans
North Sydney
[email protected]

Sorry can i tack this on to this most interesting post,
Terry, when income is allocated to a trusts beneficiaries (?) is the money actually theirs.Can the Trust appointee (me) still use it even though i have ‘given’ it to the bennes, or is it all just paper play

fjficm

if you distribute money to the company, and get taxed at 30%, if you then give that to yourself as a dividend, you will still pay your marginal rate of tax on it.

I guess if you were planning on reinvesting, you could distribute to the company, who would then lend it back to the trust to reinvest.

Bearing in mind that that money then becomes an asset of the company, which can be called upon by creditors etc. etc.

Cheers
Mel

Mel

You are right that the Pty Ltd Company will pay tax at the Company Rate of 30% on its profits.

If you distribute the profit from the Company to yourself you will received a franking credit for the tax already paid and only get taxed on the difference between your marginal rate and 30%.

fjficm

I think if you reread Terry’s post it might make things a little clearer for you. The Pty Ltd Company is the Trustee of the Trust.

If you distrubute to relatives they will have to include this deemed income in their tax return. Remember older relatives maybe in receipt of pension entitlements which maybe lost or reduced under an income capacity test.

Cheers Richard
richard at fhog.com.au
http://www.fhog.com.au

There is no such thing as a problem.
Just a solution waiting to be found

Companies that you are a director of, or shareholder in, should automatically be included as possible beneficiaries.

Absolutely. It’s the settlor you don’t want to be.

You would have to have your company invoice whoever is paying you – then the company will pay you, but I don’t believe it would cut your tax level at all – sorry.

Only for company matters – or for company ‘expenses’ that can be legally done for you – in fact, the trust can ‘gift’ things to beneficiaries at various times, ie CDs, etc.

No idea. I believe you borrow to purchase units in the trust (same as for a unit trust). The trust will use your funds to purchase a property (your loan can be secured against the property). The trust will distribute its profit to you as owner of the units. If it’s less than the interest YOU pay (the trust has no loan, therefore pays no interest), then you can claim the difference against your income. Speak to an accountant to clarify this.

You can lend your money to the trust. The trust must open it’s own bank account, and be completely separate to yours.

Dale GG is really sold out? http://www.gatherumgoss.com I wouldn’t think that would be the case, or it would be for very long as his manual shouldn’t be too hard to print!!

For clarification (I think you are in Melby?) give Dale GG a call and go see him.

Cheers
Mel

Just be careful of the value shifting provisions. If a taxpayer operates a business through a company, unit trust or hybrid trust and a family member (or any other person) is admitted to the business, then the general value shifting rules may apply. Generally, the GVS rules will not apply where the business is carried on through a discretionary trust.

You can run a business thru a trust, but watch out for alienation of personal services income. If the ATO deems the money was earned by your own personal exertion, then the money will be taxed as if you earned it yourself. there are various rules you have to fulfill to avoid this.

Terryw
Discover Home Loans
North Sydney
[email protected]

Is it true that initially your trust / company is maily beneficial for asset protection then as the money starts cascading/dripping in the tax benifits kick in…..