I’m trying to understand the difference between benifits of using a trust versus using a company. I have done a lot of reading on companys but still don’t know much about trusts.
I have contacted Dale wanting to purchase his books as advised by Mortgage Hunter, and have found the topic “To set up a Trust?” had some very helpful posts.
If your company aquired a positive cashflow property under the Company structure earning $100 per week you would have to pay $30 per week in tax. The remaining $70 remains in the company for as long as you like untill you want to move it to the shareholders as dividends (wherby the remainder of the tax is payed which may vary depending on your income)
If a trust aquired a positive cashflow property earning $100 per week does the $100 have to be issued immediately to the beneficiaries. If not, does the trust have to pay tax in the interim or can that money be used to aquire other assets for the trust?
Thanks for all your help,
JamesJames,
Another good book on trusts is Nick Renton’s “Family Trusts”. The latest edition is only a few months old, and it’s much cheaper than Dale’s book (although Dale’s is very good).
My understanding of trusts is that any profits in the trust at the end of the financial year have to be distributed to beneficiaries, otherwise I think they’re taxed at the top rate. However, unlike a company, the trustee has total discretion with regard to who gets how much (unless it’s a hybrid or unit trust with outstanding units). With a company, it has to go to the shareholders based on the number of shares each holds. This gives the trust advantages if it has a number of low-income beneficiaries.
Also, a trust allows the 50% CGT discount to pass to the beneficiaries for anything held longer than 12 months, whereas a company doesn’t.
If it’s worth the extra cost, I believe you can also have a company as a beneficiary of the trust. Then if the trust has no low income earners left to distribute to, the money can be distributed to the company and still receive the 30% tax rate. If the trust also owns all the company shares, then dividends later paid by the company go back into the trust, along with associated franking credits, for distribution to whichever low income earner you like (preferably one who can make use of all the franking credits). You’d have to look at the issue though of how the company would give its money back to the trust to use until you wanted to dividend it out.
You should speak to a good accountant or structure specialist about all this.
GP
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