Hey guys,
Just wanted to clear something up. Having a discussion with my dad in regards to this setup.
If a company is trading on behalf of a trust and that company is also the trustee of the trust. When the company makes a profit and those funds are transferred to the trust if the funds are not disbursed as distributions to the beneficiaries do those funds get taxed or just sit in the trust account and only get taxed after they leave the trust?
I'm a bit loose on my trust taxation law from university. Just wanted to verify this.
Thanks
JasonI've just some more googling and found: "Undistributed income is taxed in the hands of the trustee at the top marginal tax rate of 45% for the 2006/2007 year, giving a strong incentive to family trusts to fully distribute the trust's income before the end of each financial year." (http://www.cleardocs.com/extra_family_trust.jsp)
Does this apply to all types of trust structures or only discretionary trusts?
Good link thanks it will help my education
Hi Jason,
All profits from a Discretionary Trust must be allocated each financial year against the trust beneficiaries, at the discretion of the Trustee, which in your case is the company. However this can be done via a journal entry by your Accountant and doesn't actually need to be paid directly to each person in cash. Any un-drawn trust distributions are held by the trust on your behalf. This is quite common for trust distributions made to minors and they just accumulate over the years, and most grandparents pay the lump sum out on their 18th birthday.
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