CGT minimisation for Family Trust

Hi All,

I wish to sell shares purchased within a family trust and use the proceeds to pay down my PPOR. I would obviously like to minimise CGT!

For round numbers lets say that I have a portfolio worth $300k with $100k profit.

I have approx $100k Profit (CGT) to minimise and could distribute as follows:

  • Mother in law Centerlink: $18k
  • Father retired: $18k
  • Mum working part time: $18k
  • Aunty on pension: $18k
  • Nephew (age 2) : $18k
  • Wife : remainder
Questions

1) If I do distribute these funds as above, can I still use the funds to pay off my PPOR or does it need to remain within the trust?

2) any issues with distributing to my nephew who is underage

many thanks
 
Watch out for anyone on centrelink benefits. They could lose the benefits over the trust.

Kids can't get income over $416 without paying penalty tax rates (unless the trust is a testamentary trust).
 
1) If I do distribute these funds as above, can I still use the funds to pay off my PPOR or does it need to remain within the trust?

many thanks

If the trust distributes to someone then it is their money. If it stays in the trust then it would be a loan from that person - which still means the money belongs to them. It is best to physically distribute the money I think as this avoids problems later.
 
If the trust distributes to someone then it is their money. If it stays in the trust then it would be a loan from that person - which still means the money belongs to them. It is best to physically distribute the money I think as this avoids problems later.

Thank you Terri

If I were to physically distribute the funds can that beneficiary legally give the funds back to me so I can pay off my ppor? Is that kosher?
 
I don't know the rules for distributing. But if any of those people aren't named members or beneficiaries of the trust would there be a problem?

If you did redistribute then they gave it back, it may affect their tax rates as well. It could even eat up tax refunds due to them.

Assuming that you could distibute the funds to these people, it may be better to determine the circumstances of each, and for some to get more and some less.
 
Thank you Terri

If I were to physically distribute the funds can that beneficiary legally give the funds back to me so I can pay off my ppor? Is that kosher?

There are no law preventing gifting so someone could be kind enough to gift you money (or loan you).

Just consider the Bankruptcy act, if the become insolvent or do it to defeat creditors etc the could be clawed back.
 
I don't know the rules for distributing. But if any of those people aren't named members or beneficiaries of the trust would there be a problem?

If you did redistribute then they gave it back, it may affect their tax rates as well. It could even eat up tax refunds due to them.

Assuming that you could distibute the funds to these people, it may be better to determine the circumstances of each, and for some to get more and some less.

Yes, if they are no beneficiaries then the trustee cannot distribute to them - if the trustee did then it would be a breach of trust and he/she/it would be personally liable to reimburse the trust.

And good point Geoff about Centrelink;). It could affect them 3 ways:
1. Classed as income for centrelink purposes
2. Could be that the trust assets as assessed as their assets for centrelink purposes. So they will be considered the owner of all the trust assets, and
3. They could be deemed to be the owner of the money they gift back for a period of 5 years after the gift.
 
Talk to your accountant about other ways of reducing tax. There may be ways of reducing tax by bringing expenditure from next FY to this FY if done properly- say prepaying interest on an IP loan, if there is a benefit for doing this apart from tax.
 
Yes, if they are no beneficiaries then the trustee cannot distribute to them - if the trustee did then it would be a breach of trust and he/she/it would be personally liable to reimburse the trust.
Aren't parents and children automatically beneficiaries?
 
i didn't see it stated, so i'll state the obvious.

Keep in mind that any distributions to a beneficiary need to declare the distribution as income and pay income tax on it. This is why it impacts the people on centrelink benefits.

It's treated differently to a gift between people and the trust to the people as a once off. you *could* make a trustee resolution to give the money away rather than distribute.
 
It's treated differently to a gift between people and the trust to the people as a once off. you *could* make a trustee resolution to give the money away rather than distribute.

Hi Nathan, but you would be talking capital here rather than income. There would be no tax payable on capital but tax on income and giving away capital won't reduce income either.

Also under the Social Security Act there are complex rules regarding trusts. Even though a person may not ever receive a distribution they could still be deemed to be controlling the trust and the trust assets considered their's. This includes being trustee or appointor of an associate of a trustee of appointor.

see s 1207v of the Social Security Act 1991
http://www.austlii.edu.au/au/legis/cth/consol_act/ssa1991186/s1207v.html

What this means is if you set up a trust with yourself as appointor and a company as trustee, then your mother could be deemed to control the trust as she is an associate of the individual who controls the appointor position.

Not many realise this.
 
Watch out for anyone on centrelink benefits. They could lose the benefits over the trust.

Kids can't get income over $416 without paying penalty tax rates (unless the trust is a testamentary trust).


Hi has this changed?, the Dale GG book Trust Magic 2009 talks about $2,666
 

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