Trust and Tax

[Northy85]

hey guys,

I have been looking online to get an answer and I can't seem to get the right info. So here goes. If I was to set up a Trust (not even sure what type of trust would work) and give say $100k to it, does the trust have to pay tax on receiving the $100k?

My understanding is that the ATO considers Trust to be a business and so it has to pay tax of 30% on all income received. I'm considering doing something like this so that I can invest in shares.

Thanks in advance.

Northy.

 

[Hooray]

EVERYTHING about that post was wrong.

Start again.

 

[Northy85]

Ok Hooray,

thanks for your help mate.

 

[MRO]

EVERYTHING about that post was wrong.

Start again.

Well said.

I would speak to an accountant before going any further. Paying a few bucks to get a solid understanding will help a lot.

 

[Hooray]

Do not go to an accountant and say 'my understanding is.....'

Start with 'I want to use a trust to buy shares'. Then just stay quiet and listen.

 

[Terry_w]

hey guys,

I have been looking online to get an answer and I can't seem to get the right info. So here goes. If I was to set up a Trust (not even sure what type of trust would work) and give say $100k to it, does the trust have to pay tax on receiving the $100k?

My understanding is that the ATO considers Trust to be a business and so it has to pay tax of 30% on all income received. I'm considering doing something like this so that I can invest in shares.

Thanks in advance.

Northy.

Hooray is right

No tax on gifts unless it is really income but there are many many issues. Trusts are not considered a business and trusts generally don't pay tax at all and not at 30%. Companies pay tax at 30% rate

 

[GreyGhost]

Do not go to an accountant and say 'my understanding is.....'

Start with 'I want to use a trust to buy shares'. Then just stay quiet and listen.

Easy Tiger.

To answer the OP first question, no the funds provided to the trust is not considered income. It is "Funds contributed" from a beneficiary, being you.
There are arrangements which could show this as a loan on commercial terms from yourself, but you will just be generating assessable interest in your own name by doing this. However,
If the funds were originally borrowed, or it is redraw on a loan you may want to do this so that you claim interest expense and income in your name and ultimately the trust claims the tax deduction for the interest.
A back to back loan agreement would be needed..

Back to the topic the original funds will show as a liability owing to you in the trust accounts. I wont comment on subsequent transactions from this, so not to confuse the scenario, but that is the basic bit.

As far as tax goes, trusts do not pay income tax, the beneficiaries and or the trustee will be assessed. 30% tax rate relates to company tax.

Also, you need to consider why you are looking to purchase shares in a trust. What are you trying to achieve?
Are they going to be leveraged?
Do you have a family and or (with kids over 18) to distribute to if using a trust.
Have you considered the accounting fees involved?

As previous members have suggested, I also strongly suggest you pay the coin and sit down with an accountant for an hour or so to work some of the above out..

Cheers

 

[Northy85]

cheers guys.

I'll hit my accountant up at tax time and kill two birds with one stone.

I'll tell her my End State and she can work back from there in minimizing my future tax burden.

thanks again.

 

[Northy85]

thanks Grey Ghost,

that is a bit clearer but you're right I will have to talk to my accountant and see whether it is the right thing to do for my situation. She knows exactly how much I earn and all the tax I pay so it makes sense.

 

[Terry_w]

You may also need legal advice if there is a gift or a loan involved.

 

[Paul@PFI]

cheers guys.

I'll hit my accountant up at tax time and kill two birds with one stone.

I'll tell her my End State and she can work back from there in minimizing my future tax burden.

thanks again.

One of the problems with using a trust is quarantined losses. Financial investment losses can offset normal income and provide a tax benefit. If a trust does the share investment that can get stuck in the trust.

 

[willy1111]

Ok Hooray,

thanks for your help mate.

Or for a general overview, pick up a book. . . something like http://www.harpercollins.com.au/9780732291891/how-to-legally-reduce-your-tax-2011-edition

I am not recommending or endorsing the book, but for those that know nothing about structures, it can be a good start to give you a better understanding.