Hi All - first time poster, long time forum visitor!
We have a family trust with a corporate trustee (wife and I are directors of trustee company). My wife has returned to the workforce now that the kids have grown up and we will therefore both be earning above the 37%+2% ML marginal tax rate. The benefit of distributing all the trust income to my wife no longer exists, so we are looking at our options around incorporating a company to receive investment income from the trust. We don't need the cash from the trust at this point so we will make the distribution in cash from the trust to the company and keep it there in investments/cash. No Div 7a issues this way I believe. The trust assets solely comprise of Australian shares and property.
This is how I envisage it will work
- New company (Newco) created with trustee as sole shareholder (in capacity as trustee of family trust)
- Trust distributes to wife and I up to say 37% marginal tax rate, any excess goes to Newco with accompanying franking credits
- Newco pays 30% tax on income from trust, investment income and capital gains (also benefiting from franking credit distributions, but no CGT discount)
- Funds remain in Newco until such time wife and I either need access to funds or our income drops below 37% marginal tax rate. At such time, Newco issues franked dividend which goes to trust, and then trust distributes to my wife and I as beneficiaries. The only tax should be the delta between the company tax rate and our personal marginal tax rate considering the franking credits.
Does this structure work ok?
If Newco is owned by the trust, is the trust deemed to have distributed all its income if it distributes to Newco? Or will the trust pay tax at the 47% rate as it is deemed to not have distributed all its income?
Any other issues I should be aware of?
Thanks for all your help.
We have a family trust with a corporate trustee (wife and I are directors of trustee company). My wife has returned to the workforce now that the kids have grown up and we will therefore both be earning above the 37%+2% ML marginal tax rate. The benefit of distributing all the trust income to my wife no longer exists, so we are looking at our options around incorporating a company to receive investment income from the trust. We don't need the cash from the trust at this point so we will make the distribution in cash from the trust to the company and keep it there in investments/cash. No Div 7a issues this way I believe. The trust assets solely comprise of Australian shares and property.
This is how I envisage it will work
- New company (Newco) created with trustee as sole shareholder (in capacity as trustee of family trust)
- Trust distributes to wife and I up to say 37% marginal tax rate, any excess goes to Newco with accompanying franking credits
- Newco pays 30% tax on income from trust, investment income and capital gains (also benefiting from franking credit distributions, but no CGT discount)
- Funds remain in Newco until such time wife and I either need access to funds or our income drops below 37% marginal tax rate. At such time, Newco issues franked dividend which goes to trust, and then trust distributes to my wife and I as beneficiaries. The only tax should be the delta between the company tax rate and our personal marginal tax rate considering the franking credits.
Does this structure work ok?
If Newco is owned by the trust, is the trust deemed to have distributed all its income if it distributes to Newco? Or will the trust pay tax at the 47% rate as it is deemed to not have distributed all its income?
Any other issues I should be aware of?
Thanks for all your help.