Family trust and franking credits

[Welcome]

Once again if your Trust Deed allowed for distribution streaming of different classes of income such as dividend income and business income then it would be possible to carry the $500 business loss forward while streaming the $1000 of dividend income and taking advantage of the $429 in franking credits.

So if you hold income generating shares plus property generating a loss in the same trust, it is possible to distribute the dividend income and franking credits, while carrying forward the loss from the property? (Provided your deed allowed it)

Thanks for your replies Pat. Appreciated.

 

[alexlee]

So if you hold +Ve cashflow shares plus -ve cashflow property in the same trust, it is possible to distribute the dividend income and franking credits, while carrying forward the loss from the property? (Provided your deed allowed it)

Thanks for your replies Pat. Appreciated.

Just remember that cashflow and taxable (distributable) income are NOT the same things. Cashflow is after tax and a trust doesn't pay tax (tax paid at the beneficiary level).
Alex

 

[Welcome]

You're right. Problemo fixed.

 

[Pat]

So if you hold income generating shares plus property generating a loss in the same trust, it is possible to distribute the dividend income and franking credits, while carrying forward the loss from the property? (Provided your deed allowed it)

Thanks for your replies Pat. Appreciated.

Hi,

TR 92/13 gives the ATO weight to dividend streaming and you will notice in this ruling that the accounts of the trust need to be setup to account for differing streams of income as well as a carefully worded trust deed.

Case Law does not seem to support streaming of different classes of income through a trust but we'll stay with the ATO for now as they are our Master and we are their bitches.

 

[Welcome]

Thanks again for your wisdom Pat! The more I learn the more questions I have....

============================
SCENARIO A)

If a trust received:
$700 fully franked dividend
$300 franking credit
$600 in deductions

I'm guessing there would be $400 to distribute, with $300 franking credits?

============================
SCENARIO B)

If a trust received:
$700 fully franked dividend
$300 franking credit
$900 unfranked dividend
$600 in deductions

Are there any rules to say which income (franked v unfranked) the deductions are offset against or can you choose? Or does it need to be proportional?

For example could the trust choose either of the distributions below?

$400 to one beneficiary, which contains the $300 franking credit
+
$900 unfranked dividends to another beneficiary

OR

$1000 to one beneficiary, which contains the $300 franking credit
+
$300 in unfranked dividends to another beneficiary?

=======================

Cheers

 

[Pat]

Hi,

Your answer to scenario A is correct.

In scenario B you would need to read the trust deed to see whether the streaming of franked divis versus unfranked divis is catered for. I doubt it would and to have streaming within the dividend class of income is starting to be too contrived.

 

[Patosan]

Apart from the issue of franked dividends is there any other reason to seperate shares from IP in trusts ?

 

[Pat]

Hi Paddy,

If you are only using your trust for passive investments then there would be no reason to setup a new trust. A new trust is advisable if properties in the trust leads to too much land tax. There are a couple of other reasons but they would be in specific circumstances.

Cheers
Paddy in The Tax Practice

 

[Patosan]

G'day Pat,

I believed that at least in Vic, land tax was on an individuals total holdings. As such having seperate trusts but with the same trustees was pointless since the SRO would simply add all the IP from various trusts or privately owned and hit you with a total bill. Different trustees would do the job though.

Our trusts are of the passive nature ... too passive recently actually, but hoping to remedy that this year. So guess we'll use the same trust for shares and IP ... looking to scoop up a heap of shares when things go further south in the near future. Now to find some quality stock that doesn't frank.

Actually Pat, apart from having the same name you could be my new accountant, by default ... since Dale's retirement. If so I'm sorry to be sooo late ... I promise to have my records finished soon and email them in ... I'm a few years behind.

Oh yeah ... like your last sig

 

[Patosan]

Actually if the shares were traded is it a problem in a trust with long term IP ?
In our case I would expect the "trading" would be of a medium to long term nature though, does this make a difference ?

 

[ladobs]

Use of Franking Credits

Hi all

Newbie here, so hope someone may have the answer to my queries (sorry if they are a bit dumb!):

1) Discretionary trust only has a geared portfolio of fully franked shares. Interest is greater than sum of dividends and franking credits in fin year. Am I correct that the credits will be reducing the losses, which can be carried forward. And the actual franking credits can't be carried forward, so are basically lost.

2) Assuming same as 1 but trust also has business income. If the overall trust position is tax profit for trust, can this be distributed along with all of franking credits to beneficiaries.

I've heard it is wise to have a separate trust for -ve geared investment property and non-geared shares, so am thinking that answer to scenario 2 is a no?

Thanks