We can help you understand all your tax liabilities associated with managing a trust and its beneficiaries.
Managing and setting up a trust can be complex. Formal deeds are required and there is administrative work that must be done each year.
Because the trust deed outlines how the trust will operate, it is important to get professional advice. We can advise you on the best way to manage your trust to minimise your tax liabilities.
If managed correctly, trusts can help reduce higher tax rates by distributing the income to the beneficiaries who often are on a much lower, individual tax rate. We can help you set up a Tax File Number for lodging an annual tax return, an ABN for the trust and register it for GST if the annual turnover is more than $75,000, or more than $150,000 for non-profit organisations.
DISCRETIONARY (FAMILY) TRUSTS
A family trust (also known as a discretionary trust) is the most common trust used by small to medium size business owners, investors and medical professionals in Australia. They are generally set up to hold a family’s assets and/or business for the benefit of providing asset protection and tax planning for family members.
From a tax perspective the main advantage is that any income generated by the trust from business activities and investments, including capital gains can be distributed to beneficiaries in low tax brackets to significantly reduce taxes. The income distribution is discretionary, which means, no beneficiary is entitled to receive income or capital it is the trustees that have the discretion as to what they receive, The trust assets can also be transferred from generation to generation tax and stamp duty free.
UNIT TRUSTS
A unit trust is like a company where the trusts property (business or investments) are divided into a number of shares called units. The number of units you hold will determine your entitlement to your share of income, capital gains and voting power.
The taxation benefits are generally not as flexible as a discretionary trust in that any income distributions must be distributed to unit holders as per their share of units. However if a discretionary trust was a unit holder you can achieve the same flow through tax benefits.
From an asset protection point of view, unit trusts don’t provide the same kind of asset protection as a discretionary trust. If a unit holder is made bankrupt, then that persons units will be treated like any other assets and sold to raise funds to pay creditors.
HYBRID TRUSTS
A hybrid trust takes the best features of a discretionary trust and the best features of a unit trust and puts them into one. This means that the trustee has the discretion to distribute benefits to the beneficiaries of the trust – to beneficiaries who are on low tax rates, as well as have unit holders who are absolutely entitles to a portion of the benefits.
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