Tax Implications

[rodimus]

Tax implications

Can someone help me to understand the tax issue in this scenario?


A unit trust buys a land and develops. 50% is owned by Hybrid Disc Trust 'A', and another 50% by another HDT "B". When time to tax, does the Unit Trust pays the Capital Gains Tax? or the profit is distributed to the unit holders (Trust A and B) and then Trust A and B distributes the profit to beneficiaries, and then declare the rest as taxable income? The question is, does the Unit Trust and the HDTs all pay tax?

If the Unit Trust pays tax, at what rate %?

[MasterInvestor]

My understanding is that trusts do not pay any tax. All income and capital gains flow through to the beneficiaries.

[Ralph]

I'm far from an expert, but have the same understanding as MasterInvestor, all tax is paid by the beneficiaries, Trusts pay no tax. I think you can also theoretically pass the gains/income to beneficiaries in disproportion to the share of units owned.

This is in DaleGG's "Trust Magic" book - a really good read if you're looking for this type of info on Trusts - was for me :)

Apologies to Dale if I've got that wrong. I remember the book saying that distributing in disproportion was not always the most 'comfortable' way in regard to ATO scrutiny, but still legal.

[DaleGG]

Hi

The others are correct. The unit trust would pay no tax at all. Instead, it distributes its profit (income or capital) to the unit holders and those unit holders then have to pay tax.

However, if the unit holder is a family trust then that trust distributes the profit (after deducting its own deductions) out to the beneficiaries of that trust and it is these beneficiaries who pay tax, if any, on that net profit.

If the unit holder is a HDT then basically the same principle applies as for a family trust.

Dale

Tax implications

Can someone help me to understand the tax issue in this scenario?


A unit trust buys a land and develops. 50% is owned by Hybrid Disc Trust 'A', and another 50% by another HDT "B". When time to tax, does the Unit Trust pays the Capital Gains Tax? or the profit is distributed to the unit holders (Trust A and B) and then Trust A and B distributes the profit to beneficiaries, and then declare the rest as taxable income? The question is, does the Unit Trust and the HDTs all pay tax?

If the Unit Trust pays tax, at what rate %?