Firstly I appologise if this has been answered before. I tried a search and just got lost in the 260+ pages of related topics.
My question is this;
Can a trust pay off its debts prior to paying the beneficiaries. For example if ABC Trust owns a buy and hold property with an outstanding loan (assume -ve cashflow) and also runs with a profit generating deal (buy reno sell, or develop scenario, or similar), can the Trust take the profit and pay down the other outstanding loan? What are the tax implications here? Is anyone able to give me an ATO reference if you feel uncomfortable about giving advice.
Thank you in advance.
TammyYes, but remember paying off debt is different to paying expenses and the trust may still make a profit which will have to be distributed.
Its just like yourself owning a property with a loan and earning $30,000 per year. If you paid off $30,000 in debt your income would still be $30,000 and you would have to pay tax accordingly.
Terryw
Discover Home Loans
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As terry said, paying out debt and taxable income are two unrelated actions.
You may pay out the debt, but any tax profit used to pay out the debt still has to be distributed to a beneficiary and taxed in their hands, even if no cash passes hands.Thank you both for your response.
Another question then, can a trust own a car?
Tammy
Yes, my trust owns my car. Though I would only claim MV expenses if I use the car for income producing purposes in the trust. It’s the same if you use your own car for your job and claim km’s etc.
Hope that helps.
JonnoHi
Yes, but I am not sure how it would differ to owning the car in your own name – you could still claim it anyway.
Tammy, why have you done it that way?
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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