Family trust and franking credits
- Thread starter belleran
- Start date
Distributed to beneficiaries together with the div. The beneficiary claims it on their tax return the same as if they had bought the shares that paid the divs.
Alex
Yes provided the trust actually makes a profit to distribute. Remember that franking credits can be refunded, so distributing to the person with the lowest tax rate means more refunds.
Alex
Hi,
From memory I think that once you exceed more than $5,000 in franking credits the ATO will require you to make a "Family Election" which can limit the range of beneficiaries to some degree. This is also required if you wish to carry trust losses forward. In most circumstance this is not much of a problem.
Hopefully this is still correct.
Cheers - Gordon
From memory I think that once you exceed more than $5,000 in franking credits the ATO will require you to make a "Family Election" which can limit the range of beneficiaries to some degree. This is also required if you wish to carry trust losses forward. In most circumstance this is not much of a problem.
Hopefully this is still correct.
Cheers - Gordon
Hi Gordon, I've never fully understood Family Elections. Can someone please explain what this actually involves and why it limits the range of beneficiaries?
Thanks, Ebbie.
Can trusts claim the franking credits when distributing income to a trust making loss?
For example:
Trust 1: Holds shares, funds etc. Generates income and franking credits.
Trust 2: Holds property. Negative cash flow.
Can trust 1 distribute all income, INCLUDING franking credits to trust 2? Or does the fact that trust 2 is making a loss mean those franking credits are 'lost'?
PS: Assume deeds allow trust to trust distribution.
My understanding (suggest you get some expert advice):
if dist is to a loss making trust: credits will be lost.
if dist is to a loss making INDIVIDUAL, credit can be kept
Cheers,
The Y-man
I think the best thing to do would be have Trust 1 distribute $1 of income plus all the franking credits to a beneficiary, so they get the tax advantage of the credits.
Then transfer the balance of the income to Trust 2. (Provided a family trust election and interposed entity election have been made, so trust loss provisions don't stop you from offseting the income with the prior year losses).
Your accountant will know what to do though, really depends on the specific circumstances.
Then transfer the balance of the income to Trust 2. (Provided a family trust election and interposed entity election have been made, so trust loss provisions don't stop you from offseting the income with the prior year losses).
Your accountant will know what to do though, really depends on the specific circumstances.
Hi,
No amount of discretion in your trust deed or goodwill from the ATO will allow you to stream the franking credits out to an individual while most of the net income of the trust is distributed to Trust 2. Unfortunately the Y-Man is correct the distribution to Trust 2 will result in franking credits being lost.
No amount of discretion in your trust deed or goodwill from the ATO will allow you to stream the franking credits out to an individual while most of the net income of the trust is distributed to Trust 2. Unfortunately the Y-Man is correct the distribution to Trust 2 will result in franking credits being lost.
Thanks for those replies.
Say as an example, trust 1 receives 50% of it's income from fully franked dividends and 50% from unfranked dividends.
I am guessing it would be legit to distribute the 50% of the income (plus franking credits) to and individual and the remaining 50% to trust 2 without losing the franking credits?
Does it need to stick to the exact proportions of franked vs unfranked, or could i distribute say 30% income to an individual (+ all franking credits) and then remaining 70% income to trust 2 and still claim franking credits?
Found a bit of info on ATO website but nothing that really solves my problem.
Cheers
Say as an example, trust 1 receives 50% of it's income from fully franked dividends and 50% from unfranked dividends.
I am guessing it would be legit to distribute the 50% of the income (plus franking credits) to and individual and the remaining 50% to trust 2 without losing the franking credits?
Does it need to stick to the exact proportions of franked vs unfranked, or could i distribute say 30% income to an individual (+ all franking credits) and then remaining 70% income to trust 2 and still claim franking credits?
Found a bit of info on ATO website but nothing that really solves my problem.
Cheers
Do you have any references to back this up?
What about if you had a trust that had a small business and some shares. The shares received $1,000 fully franked dividend and the business made a loss of $500.
Are you only allowed to distribute $500 profit and $214 franking credits, or can you distribute the $500 and all the franking credits ($429)?
In short, try not to mix tax loss making property and franked dividend paying shares in the same trust. Franking credits are SO much more valuable when distributed complete to an individual with a low marginal tax rate.
Over the long term it isn't THAT much more effort to set up a separate trust for shares.
Alex
Over the long term it isn't THAT much more effort to set up a separate trust for shares.
Alex
Agreed. I have 2 also for this reason. But the technical aspect of the question still stands - do you need to distribute out of the trust the franked portion (and credits) and non-franked in the same portions that they came in (my understanding) or can you "top up" a bit on the franking credits to one person as outlined above?
Hi
Distribution of Trust Income is so complicated that the ATO doesn't always agree with the top trust tax experts in Australia on many issues.
With this in mind however, it is possible to stream types of income ( e.g. dividend income ) to particular beneficiaries but you would need high level trust tax/accounting advice and have a trust deed that allowed this. However, even in this instance the streaming of income is for the whole of a type of income.
For example if you were able to income stream dividends then all the franking credits related to those dividends would flow to the allocated beneficiaries. It would not be possible to distribute dividend income to one beneficiary but the related franking credits to another beneficiary. The franking credits must be distributed with the income they came into the trust with.
Distribution of Trust Income is so complicated that the ATO doesn't always agree with the top trust tax experts in Australia on many issues.
With this in mind however, it is possible to stream types of income ( e.g. dividend income ) to particular beneficiaries but you would need high level trust tax/accounting advice and have a trust deed that allowed this. However, even in this instance the streaming of income is for the whole of a type of income.
For example if you were able to income stream dividends then all the franking credits related to those dividends would flow to the allocated beneficiaries. It would not be possible to distribute dividend income to one beneficiary but the related franking credits to another beneficiary. The franking credits must be distributed with the income they came into the trust with.
Hi Kris,
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.
I reiterate this is a complicated area of trust law and distributions but it is possible.
