Moving profits from one trust to trust carrying losses

Howin theory would this work.
One particular trust is making profits from one source or another.
The second trust is holding loss generating property.
How does someone distribute the profits to the trust carrying the losses.

I have been told by one source or another that this is done by way of loaning the funds from one trust to another.

For the purposes of this post both trusts are Full Discretionary Trusts.

cheers
 
You can distribute to any trust at your discretion. I havent done it but am assured it is a simple book entry in both trusts. This is, assuming your trust deed says that you are not limited to doing it. A loan wouldnt work, because the profitable trust has still earned a profit, and loaning money doesnt equal a loss, and the unprofitable trust then incurs an interest expense (increasing its losses).

Your accountant can do this pretty simply.

If not, get another accountant...
 
Get another accountant. hmmm interesting. Have you mentioned anything about the trust loss provisions and the income injection test. (Section 270-10 of the ITAA). Suggest you read that before suggesting it is a simple journal entry. It is not that simple.

Has the loss trust made a family trust election ? Has the income trust made an interposed entity election ? Are you aware of the disadvantages and advantages of doing so ? What if the income trust has already made a family trust election rather than an interposed entity election. Guess what it will not satisfy paragraph 270-25(1)(3) and will therefore be an outsider to the Loss Trust. So a few things to check before you start doing journal entries and changing accountants.
 
Ah Coasty
thankyou for that insight
If the situation ever arised then I will be sure to point my accountant in the right direction.

As for any one else, do you have any stories or the like about similar circumstances.

cheers
 
Profit washing scheme using a trust and loss entity

Check this out form the ATO website:

TA 2005/1
Profit washing scheme using a trust and loss entity
http://law.ato.gov.au/atolaw/view.htm?docid=TPA/TA20051/NAT/ATO/00001

This Taxpayer Alert describes an arrangement where the taxpayer seeks to minimise tax payable by seeking to use tax losses in an unrelated entity. The business of the taxpayer is restructured so that the income of the business passes through a chain of trusts and on to a loss company. The income, less an amount for promoter fees, remains effectively under the control of the taxpayer, or associates
 
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