Are you able to have the trust pay for personal expenses where the trustee is a company, even thou the business expenses can be claimed for a tax deduction ?
If yes what are the advantage of doing this ?
and
Do the personal expenses have to be in the trust name to be paid through the trust ?
Brief answers will suffice.
Thank you.
I guess a trust could pay for personal expenses of an individual. It depends on the wording of the deed. Many would be set up this way – eg if the kid is a loser and the parent is worried he will blow all the money when the parent dies.
Or the personal expense payment would be just a distribution.
Either way the recipient would have to be tax on this.
other than this if the trust is running a business it may be able to give employees or associated persons small infrequent gifts and possibly claim these as a tax deduction.
You could also possibily claim personal expenses by claiming they are business expenses – maybe this would be classed as tax avasion though. eg. claiming the pet dog as a guard dog for business premises, the baby sitter as an officer worker etc.
Who the trustee is shouldn't matter.
(I am not an accountant)
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
I think (but don't quote me) that if you use something claimed by the company as an expense for personal use, you need to include this as a fringe benefit, and therefore that part is actually taxable.
For instance, I was thinking of purchasing a couple of football memberships and claim them as client entertainment expenses. If I was to use the tickets myself, it would be considered a fringe benefit.
For tax purposes, a trust is taken to be an entity in its own right. Therefore, even though the trustee is a company (or any other entity for that matter), the entity type of the trustee is irrelevant.
The trust can pay personal expenses but beware of Division 7A issues – for instance, if the trust has made distributions to a corporate beneficiary and owes the company an unpaid beneficiary entitlement, any monies owed by an individual to the trust (assuming the individual is a shareholder of an associate of a shareholder of the corporate beneficiary) at year end will be caught by the Division 7A provisions. In the worst case scenario, the monies owing will be treated as an unfranked dividend, which will attract tax in the hands of the individual.
If the personal expense is treated as a business expense (rather than through the beneficiary's current account as drawings), then FBT will be payable on the private expense.
No substantial advantage in getting the trust pay private expenses but for some potentially small benefits through the FBT system.
Eddie
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