I’m looking to set up a discretionary trust with the main purpose of tax minimisation. I thought that gains may be distributed to the corporate trustee so tax is always capped at 30%.
My understanding is that monies distributed to the company may be on lended back to the Trust. In effect, the trust can utilise the net gains after tax. Appreciate if anyone can confirm that this is ok?
Many thanks!
MJ
If you have no other benefificaries with lower tax rates, then you can distribute to a company which will pay tax at 30%. Company can then hold the money and distrbute it to shareholders, or lend it out to the turst. But there are a whole series of rules relating to this, so you had better discuss it with your accountant.
With most trust deeds, you can set up a company down the track it and will be a beneficiary if one of the trustees has a role in the company – director, shareholder etc. So you may not have to set one up initially.
And the company does not have to be trustee for you to distribute to. In fact, it may be better not to for asset protection reasons. What if you build up a substantial amount and the trust is sued?
Terryw
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Originally posted by Terryw:And the company does not have to be trustee for you to distribute to. In fact, it may be better not to for asset protection reasons. What if you build up a substantial amount and the trust is sued?
The trustee company should be a non trading company. Not only if the trust is sued but the company can be sued also, but this is another can of worms easily avoided by using a non trading company as trustee.
The company will only be worth $2, would you sue a company worth $2.
I wouldn’t.A seperate company should be used for distributions of you must distribute funds to company, but you can also distribute to another trust. The options are endless.[thumbsupanim]
CATA
Asset Protection Specialist
[email protected]It is very important that people who operate through trust structures understand the notion of the trustees right to be indemnified against the assets of the trust. This is an important part of every state’s law and basically holds the premise that where the trustee is sued and is found to be liable then that trustee has the right, and the obligation, to sell the trusts assets.
So if you have an investment property in a trust with a $2 paid up share capital company as trustee and the tenant successfully sues the trustee, the the trustee will have to sell the investment property to pay the legal obligations.
The concept that only the $2 company is sued is negligent advice and neglects the trustees right to be indemnified from the assets of the trust. I wish people would get this concept right.
Coastymike..can you not also construct it so that the Trust also ‘owes’ money to other creditors (whoever they may be) and that the structure is set up in such a way that the action is futile..i.e some kind of creative debt construction within the strategy?
Not that anyone intends getting sued..and there are ‘many’ other benefits to using trusts..
<deleted..>
PS- why do accountants call thier newsletters “practice” newsletters (from a few I’ve recently seen)?
“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow CalculatorCoastymike
Your dig at my post is justified. Having re-read my post I know what you are saying ang you are correct. I understand that a trusts assets can be clawed back through various proceedures.
It can also be the case where the trustee company is sued and the director is held personally liable. The last one I heard of was claiming that the Director and the Trust are one and the same (split personality).
Rewding
A registered loan will be paid before any litigant, so you you are correct. This would be a seperate loan document from the trust.
Once again, thank you Coasty for picking up the incorrect wording in my last post.
CATA
Asset Protection Specialist
[email protected]Cata,
It wasn’t directed at you. In general I have found your advice to be good and refreshing.
I had a very heated discussion with an inexperienced accountant about the very issue on Friday and until I had a partner from one of the large law firms in Sydney ring that accountant to advise them I was in fact correct and if continued allegations were made we would consider legal options (the accountant was trying show to my client that I didn’t know what I was talking about and move over to them). So my nerves are a little raw at the moment about the issue.
Sorry if you felt it was directed specifically at you.
The responses have been very informative, thanks!
Terry, you mentioned that there are a set of rules restricting the corporate beneficiary on lending (distributions) back to the trust which concerned me.
My understanding is that the loan from the corporate beneficiary back to the trust must not then be redistributed to the individual beneficiary. However, the loan may be used for investment purposes at the trust level such as providing property equity or reduction in loan. The loan may be perpetual (i.e. never has to be repaid to the corporate beneficiary).
Please correct me if I’m wrong or if you guys have any other major restrictions in mind.
MJ
Hi MJ
This is a complex area which I do not understand. The area I was thinking of is Division 7A loan agreements. See http://www.lawcentral.com.au
Froma brief look, it may be only problematic if your company lends money to the trust and this trust later lends money to an individual.
Without these agreements, any money lent may be deemed a dividend, which may result in tax having to be paid.
Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe†in subject line.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Guys,
Quick question about trusts etc…
I’m looking into establishing a Hybrid Disc. Trust, possibly with a Corporate Trustee added later, and am curious about deductable expenses, ie travel to IP’s etc. Can the trust claim these if you are a listed trustee?
I’ve focussed too much of my time previously on establihing a company, only to find out that it may not necessarily be the best option for me. Unfortunately I am still green on the whole trust thing, so if anyone can shed a bit of light on this it would be greatly appreciated.
Thanks,
[blush2]
Mark.Originally posted by coastymike:(the accountant was trying show to my client that I didn’t know what I was talking about and move over to them).
[biggrin]
Hey Coastymike..I’ll back you if someone wants to say you dont know what you’re talking about..I’m of the opposite opinion..[wink2]
Redwing
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Count The Currency With This Online Positive Cashflow Calculator
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