Yes even if the profits are fully distributed a trust still needs to do a trust tax return. Trustee technically lodges the tax return on behalf of the trust.
Trust with a minor as the beneficiary
- Thread starter Brizza
- Start date
So the trustee lodges the tax return on behalf of the trust but it is a separate tax return to the trustee's personal tax return. Is that right?
Also, can the trustee also be a beneficiary in a discretionary trust?
Separate tax return. If you were trustee you would do an individual return and a trust return.
There is no legal reason why a trustee cannot be a beneficiary but a trustee cannot be sole beneficiary.
However having the deed structured so the trustee is a beneficiary has far reaching stamp duty consequences in new as changing trustee will mean stamp duty payable on the whole of the trust assets.
Also there are asset protection risks with distributing assets or income to the trustee.
Get legal advice when setting up the deed.
This is another one of those academically interesting questions, but ideally should never be tested in real life.
Per Terry's comments, there are a lot of potential issues with having a trustee as beneficiary. Much better to have a $2 company as trustee. (Which also pre-empts another interesting-but-should-not-be-tried scenarios: can you use an existing company that operates a business or has other assets as trustee - the answer is yes, but.....)
Brizza, it's unlikely you're going to learn everything about trusts. Avoiding future issues is at least as important as the fancy frills.
The reality is the Trustee has the legal obligation to lodge a trust return. This obligation scommences when the trust commences and ends when the trust ends. There is no income threshold !! As caostymike has indicated, in most cases a trust will have $X of net income and it will distribute it. Like a partnership tax return many trust returns do not result in trustee tax. It is a information collecting exercise so that beneficiaries are taxed. There are exceptions and some Trustees are taxed.
Beware of Trusts not lodging returns thinking it wasnt much money or that the beneficiary is taxed!! This a common DIY / novice mistake. This is the common penalty that the Commissioner applies. "Failure To Lodge" is a criminal offence and dealt with under the Crimes Act. It is a offence easily proven too.
Minors -Franking credits- effective cutoff figure
Anybody please.
Not certain where the franking credit part of the calculation comes into it.
How does distribution of franking credits enter into the above equation?
eg
Dividend Total $607, franking credit $260.
Is it tax of ($607-$416) x 0.66 less (franking credit of $260)
refund of $134
in 2013, the cutoff of $416 was effectively a much higher figure?Is $416 the effective figure where a minor pays tax in my scenario.
Anybody please.
Not certain where the franking credit part of the calculation comes into it.
How does distribution of franking credits enter into the above equation?
eg
Dividend Total $607, franking credit $260.
Is it tax of ($607-$416) x 0.66 less (franking credit of $260)
refund of $134
in 2013, the cutoff of $416 was effectively a much higher figure?Is $416 the effective figure where a minor pays tax in my scenario.
Some trustees are also not aware that a trust set up in say June is still required to lodge a tax return even though there may have been no income generated.
The trustee is liable to tax under s.98 on behalf of the beneficiary.
The trustee will be assessed at the appropriate rate for the beneficiary in relation to that trust income. The trustee is also entitled to the offsets of the beneficiary. However, the low income tax offset is not available for eligible trust income - that is, children being presently entitled to trust income that is not from a testamentary trust.
The minor beneficiary is not required to lodge a tax return if the trust income is the only source. However, if they have other income then they must lodge a tax return by virtue of s.100. They are entitled to a tax offset for the amount of tax already paid by the trustee under s.98.
This is to prevent minor beneficiaries accessing multiple tax free thresholds by being made a beneficiary of multiple trusts.
Australian taxation of minor non-resident beneficiaries
If a real estate (primary home) in Australia is willed to minor non-residents and a non-resident trustee is appointed to manage the real estate till the minors reach maturity, what would be the best set up tax wise and what would be the tax rate on income from the real estate which is distributed to the minor beneficiaries.
If a real estate (primary home) in Australia is willed to minor non-residents and a non-resident trustee is appointed to manage the real estate till the minors reach maturity, what would be the best set up tax wise and what would be the tax rate on income from the real estate which is distributed to the minor beneficiaries.
Tough question and I don't know the answer without researching but Income from a will is generally taxed in the hands of minors at adult rates, s102AG, but non residents pay a tax rate of 32.5% and up. There would also be withholding tax.
Perhaps structuring it differently could result in tax savings. But this will depend on the circumstances.
The Trustee is assessed for non-resident beneficiaries. The beneficiary is also assessed (if they lodge a return!). If the beneficiary lodges a return they can claim their share of the trustee tax paid (s98A(2). You will ask why ...Lets assume taxpayer has trust owned properties (+ve geared) and personally owned -ve geared.
The trustee assessment process acts like a withholding tax. Wht rules wouldn't work.
The ATO process around this is bizarre and I warn you its very slow. If the taxpayer lodges at same time as trust ATO denies the s98A credit since its not "paid" yet. If they wait until the trustee assessment issues and is paid then lodge its better BUT the ATO process takes three-six months and is only usually fixed by writing to the Commissioner and asking for an assessment to be issued. I kid you not.
You said "willed"...That's not correct. The trustee MUST make a real and effective resolution to distribute OR if its a fixed trust a fixed share.
The s98 rate is the highest marginal tax rate. If a non-resident beneficiary is distributed a share of capital gain the 50% CGT discount is lost. A non-resident trustee is a serious tax problem. You dont want to do that.
Get personal tax advice my friend. You are tap dancing in a minefield.
