Reading the previous posts about structure and tax has left me with more questions than answers (which is a good thing)
So let me get this straight:
A Pty Ltd attracts 30% tax and 10% GST (after a certain income level) and no discount for CGT.
As a beneficiary earnings received from a Family Trust attracts a normal income tax of up to 45%.Sooo
If a certain ABC Investment Pty Ltd that was the trustee of ABC Family Trust earned a profit of say $100,000 by selling a property, then this attracts 100% capital gains tax (at 30%). Anything left over is trickled to the beneficiaries which FURTHER attracts income tax.
The double tax seems hardly fair. Or am I missing something? IS ABC Investment Pty Ltd that is a trustee of ABC Family Trust any different to a normal company as far as tax is concerned?
That would be unfair, but luckily it doesn't work like that.
Trusts don't pay tax at all, unless the money is not distributed.So if ABC Trust made a profit the company would pay no tax at all. The company's only role is trustee which is like a manager of the assets for the trust. It is the trust that makes the profit.
The trust would then distribute the profit to a wide pool of beneficiaries. So it pays no tax. It is received by the beneficairies and the trust income is added to their other income. If it is a CG the 50% discount can be applied when it hits the beneficiariy. So the top tax rate would be around 23%. If it is normal income this could even be dstibuted to a company and then the top tax rate would be 30%.
Also GST may be claimable by the trust depending on what sort of business and if it is registered.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Can a discretionary trust (or other trust) distribute to a SMSF or other SF (so that it only pays 15%). Does the SF need to be a beneficiary of the trust or is it good enough that it is my SF?
Hi Scott – not sure about that.
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
That’s fantastic!
Once more, unrelenting questions…
1. You mentioned a beneficiary can be a company. CAN a company be counted as a family member and be part of a Family trust? I am only assuming that it can, providing directors are family members. If they are not, then one needs to form a Unit Trust instead. Is this right?
2. In the next two years my house will be mortgage free thanks to property investing. I hear some talk about gifting their principal home to a Family trust. I know that this attracts stamp duty and the gifting process is a long process if one does not want to incur a gift tax. BUT why would anyone gift their principal home to a Family trust? It is not an income generating asset and it strips your own assets making personal loans difficult. Would you do this so that you can cover the costs of rates and upkeep with before tax money from the Trust?
(Scott, my shorthand is still in want of education – what does SMSF stand for?)
Greatly appreciated!
Vita22
hi Vita
Most trust discretionary deeds are worded in such a way as any company in which the trustee/appointor/named benefiary is an officer holder/director/shareholder etc then that company will be a benefiiary too. You could also name an existing company too if you wanted to.
In Australia there is no gift tax and you could gift a property to a trust but you would incurr stamp duty. You would also then need to pay rent to the trust. PPOR are CGT exempt, but not if held in a trust. So I cannot see the point, unless maybe if you are getting a new PPOR and want to keep the old one as an investment.
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
vita22 wrote:(Scott, my shorthand is still in want of education – what does SMSF stand for?) Greatly appreciated! Vita22Self-Managed Super Fund
Scott No Mates wrote:Can a discretionary trust (or other trust) distribute to a SMSF or other SF (so that it only pays 15%). Does the SF need to be a beneficiary of the trust or is it good enough that it is my SF?A discretionary trust can distribute to an SMSF – it should normally be picked up under the deed as a beneficiary, BUT (and it is a huge but) the income received by the SMSF (Self Managed Super Fund) will be tax as 'Special Income" at 45% rather than 15%
You may as well distribute to any other beneficiary regardless of their marginal tax rate.
I wonder how it works in regards to the law against perpetuities – a trust can only distribute to an older trust (i.e. one that has an earlier 80 year vesting date) – but SMSFs don't vest – so even though you would likely never (never ever ever) distribute to an SMSF from a discretionary trust – it may be that the trust can't distribute to the SMSF anyway. I might have to research that – i need some more useless knowledge in my head.
I could probably write a book about the legitimate ways to structure so you can flow income through to an SMSF (to be taxed at 15% or less) – but I think it is a little beyond the scope of this thread.
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