If I was a single individual who had no one to distribute money to and was on the 46.5% tax rate, would I be able to set up my trust to distribute my income to a private company and let it be taxed and stay there. That what it would on be taxed at 30%. Would this still be legal and everything ok or is something the ATO would grab me on?
I noticed in hybrid trusts you can apportion the types of money to people. So all income can go to one person and all capital gains can go to another, this means all income can go to a company and be taxed at 30% and all capital gains could go to an individual and be taxed at the marginal rate., Would this be how it works, or would the capital gain receive the discount of 50% before distribution and therefore could be sent to a company with out the problems??With hybrids you have to be careful. There are different opinions out there on distributions. Some believe that the income cannot be distributed freely, but must go to the unit holder to justify their claiming of interest against their personal income.
Maybe once the units are redeemed by the trust and it is acting as a discretionary trust then the income could be distributed to a wide class of beneficiaries and if you trust deed is set up well this should include a company.
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
well if you need to distribute the income back to the individuals who own the trust, what is really different from a unit trust then? Would it be possible to have a mortgage on a property inside the trust but not own any units?
Also ive read everywhere that there needs to be a fixed distrobution from the trust to the owner, but no one has really said what that distrobution is? It would have to be an a fairly low amount for it to have its benefits so does anyone know or use a particular figure.
Cheers Terry
Hi Dave
I think the hybrids actually work more or less like a unit trust until there is enough growth to enable the units to be redeemed and from then on it reverts to the discretionary.
Each deed is different and the distributions etc have to be done in accordance with the deed, keeping in mind the tax regulations etc.
The ATO is looking at hybrids apparently and rumour has it that many will fail.
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
thanks for your help guys on this…
so when you mean many will fail, is that because poeple are taking the tax consessions to far? or because its seen as a general envasion of tax or a tax avoidance scheme?
so for someone using a trust to grow say a large portfolio, wouldnt the units sort of never be bought back, or would it basically get to one the trust gets good enough it will start borrowing inside the trust and not via the person, hence becoming discressionary…
its just getting a bit confusing as to a) how a unit trust is really different from setting up a company (as income is spilt as a portion of units held, exact same as a dividend in a company). amd b) why HDT are such good things, if the majority of money (im thinking fixed amount) needs to be distributed to the unit holders. Is the main benefit because that minority can be distributed to a non unit owner for the best tax circumstances?
Just trying to fully understand it all, cheers
Its a complex area with many accountants not even understanding things. I don’t use a hybrid, so have not really looked into these closely.
I think many will fail because there are some crap deeds out there, and some people or their advisors are not using them in an acceptable manner. eg all the tax deductions claimed by the individual on the higher income and then having the trust income distributed fully or partially to another person – the lower income person(s). They then get the trust to redeem their units at what they were initially valued at a few years down the track. I don’t think the ATO would be too happy about this.
A unit trust is like a company but different in a few ways. Companies are better for the limited liability aspects. Trusts are good because of the privacy aspects – the unit holders names and addresses are not publically available like with companies. ASIC doesn’t not administer trusts either and there are no annual fees either.
I think HDTs are good because they can allow negative gearing benefits in the early years when a property may be costing money to hold and later it can act as a discretionary trust giving tax benefits when rental income increases.
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
thanks for the terry, i can see why the trusts are good things and in addition if a company is used soley for investing then you cant distribute the captial gains, but for secure investing i think the company could be the better option, i guess it will also be worth waiting for the ato to make there decissions about how they want to work it…
it is a good debate to have with a skilled accountant, however its difficult to find one…
You must be logged in to reply to this topic. If you don't have an account, you can register here.
