Family trust question
- Thread starter eggnog
- Start date
Nope.
Only the earnings and/or the capital gain on the withdrawal of the managed funds units is assesable income.
The $50,000 given into the trust is shown as capital introduced. As far as pulling out the $75,000, that is fine even if you werent distributed the $25,000, as debit loans are fine in trusts. (div7a only applies to a company)
Only the earnings and/or the capital gain on the withdrawal of the managed funds units is assesable income.
The $50,000 given into the trust is shown as capital introduced. As far as pulling out the $75,000, that is fine even if you werent distributed the $25,000, as debit loans are fine in trusts. (div7a only applies to a company)
What do you mean debit loan and what does DIV 7A A meaN
It just means if you were to do the same thing but in a company rather then a trust, you would bring in $50,000 as a loan from you into the company.
You can then withdraw that $50,000 whenever you like.
However, the assessable income in the company which is the distributions plus any capital gains on withdrawal of the units from the fund, is taxed in the company at 30% and sits in retained earnings.
You can't just pull these retained earnings out of the company, otherwise div 7a applies. You would have to pay out a dividend or possible a directors fee depending on your circumstances.
You can then withdraw that $50,000 whenever you like.
However, the assessable income in the company which is the distributions plus any capital gains on withdrawal of the units from the fund, is taxed in the company at 30% and sits in retained earnings.
You can't just pull these retained earnings out of the company, otherwise div 7a applies. You would have to pay out a dividend or possible a directors fee depending on your circumstances.
thanks kris
Just got another question. I understand that if the family trust takes out a loan (say for an IP) the interest on that loan will be quaranteened within the trust (I cannot use it to offset against my personal income). But what would happen if I got a loan under my name and lent it to the trust. Would personal income tax offsetting be allowed on the loan taken out under my name.
For example, I draw down equity of 50k from my IP and lend it to the trust. The trust then goes and buys a 250k IP (50k as deposit and another loan for 200k). Would the 50k be allowed as a tax deduction against my personal income.
Just got another question. I understand that if the family trust takes out a loan (say for an IP) the interest on that loan will be quaranteened within the trust (I cannot use it to offset against my personal income). But what would happen if I got a loan under my name and lent it to the trust. Would personal income tax offsetting be allowed on the loan taken out under my name.
For example, I draw down equity of 50k from my IP and lend it to the trust. The trust then goes and buys a 250k IP (50k as deposit and another loan for 200k). Would the 50k be allowed as a tax deduction against my personal income.
Yes, that is allowed, but isn't the trust going to have to pay YOU interest on the loan? So if, say, you borrow at 7.5% and the trust pays you 7.5% on the loan, the losses are still sitting in the trust and the effect on you is zero.
Alex
Does the trust have to pay back the borrowed amount at the IR charged on the personal equity?Alexee is right , ........but ...........Perhaps the trust can pay back the loan upon sale of the Investment Property. It doesn't have to pay it back every month or every week or every year . I would suggest that repayment could be whatever arrangement the 2 parties agree on .
In this way you could offset repayments against personal income.
I would imagine that the agreement would need to fall within business practice , but others might like to comment on that.
As an example of innovative thinking ......retired folks are now borrowing against the PPR with a variety of partial or non repayments
Trust distributions upon sale would then be distributed to the lowest income earners of the trust.
Depending on the trust time of repayment, Alexees point would be valid ,ie no difference in taxed assessed, or by that time perhaps you are retired or dead.Your tax rate might be a lot lower
Not sure what the tax rate is for dead people. !!!!
In this way you could offset repayments against personal income.
I would imagine that the agreement would need to fall within business practice , but others might like to comment on that.
As an example of innovative thinking ......retired folks are now borrowing against the PPR with a variety of partial or non repayments
Trust distributions upon sale would then be distributed to the lowest income earners of the trust.
Depending on the trust time of repayment, Alexees point would be valid ,ie no difference in taxed assessed, or by that time perhaps you are retired or dead.Your tax rate might be a lot lower
Not sure what the tax rate is for dead people. !!!!
