Trust deductions

[Ebbie]

Is it possible for a trust to charge another trust an administration fee?

Trust A has made a $15K loss for the year and Trust B has made a $30K profit. Can Trust A charge Trust B a management fee of say $230 p/w ($12K in total) so the end of year balances would be:

Trust A - $3K loss
Trust B - $18K profit

Is this a legitimate way of reducing taxable income in one trust by utilising the losses in a second trust?

I was discussing this with an account and he suggested Trust B could enter into an agreement with Trust A to provide "management, advice and administrative services" with a written agreement or recorded in a trust minute.

Is this a reasonable expense/deduction for Trust B if the trustee of Trust A does in fact look after the admin side of things for Trust B, or would the tax office view this as a 'scheme'?

[JamesGG]

Hiya,

That may be a possibility. You would need to make sure that commercial rates were being used to determine the fee charged, and, that the work was actually done by the entity issuing the invoice.

Another thought is that if the two trust's are related (via a common primary beneficiary, for example), then the trust that is actually making money may be able to distribute those profits to the trust incurring losses, to balance up the equation. Obviously, any remaining profits would need to be distributed to other beneficiaries. Check your trust deeds to see who is an eligible beneficiary, and if this includes related trusts...

Cheers

James.

[geoffw]

Another thought is that if the two trust's are related (via a common primary beneficiary, for example), then the trust that is actually making money may be able to distribute those profits to the trust incurring losses, to balance up the equation. Obviously, any remaining profits would need to be distributed to other beneficiaries. Check your trust deeds to see who is an eligible beneficiary, and if this includes related trusts...In fact, a strategy James has used for me. A strategy which earnt his accounting fees well and truly.

[Ebbie]

Another thought is that if the two trust's are related (via a common primary beneficiary, for example), then the trust that is actually making money may be able to distribute those profits to the trust incurring losses, to balance up the equation. Obviously, any remaining profits would need to be distributed to other beneficiaries. Check your trust deeds to see who is an eligible beneficiary, and if this includes related trusts...Hi James,

The two trusts are related, with my trust deed mentioning 'related trusts' as eligible beneficiaries. The only problem here is that it is a hybrid trust with income units issued to myself as the special income unit holder entitled to 100% of the income so I can't distribute money to the trust incurring losses just yet. (I plan to redeem the income units at the first opportunity now it has positive cashflow).

The idea with paying a management fee was that it would be a tax deductible expense reducing the trusts net income before it is distributed to the income unit holder.
Does that make sense?

That may be a possibility. You would need to make sure that commercial rates were being used to determine the fee charged, and, that the work was actually done by the entity issuing the invoice.I have no idea what the commercial rates might be for this type of service or how to determine the fee. The amount of time spent and the work done could be as much (or less) as I want I guess. Is there a commercial rate for giving 'advice'? The entity issuing the invoice would be the second trust of which I am the trustee so I'm already doing the work for both trusts anyway.