Trusts and Distriubuting Captial Gains - Tax Free?
Kevin Munro & Associates (www.taxlegal.com.au) free downladable report ‘Trusts and Tax Planning’ (http://www.taxlegal.com.au/publications/Trust and Tax Planning.pdf) talks about the practice where a discretionary trust revalues its asset(s) and makes a capital distribution of the asset revaluation reserve to one or more beneficiaries.
Briefly the process involves:
1. Revalue the asset
2. Trustee makes a revaluation of capital to a beneficiary (if the deed allows capital distribution)
3. But as the trust probably does not have the cash to pay the distribution it opens a credit loan account in favour of the beneficiary
4. Later when the trust has funds, instead of making a (taxable) distribution to beneficiaries, it first directs funds to repayment of the credit loan account which is not taxable to either the beneficiary or the trustee as it is a repayment of loan principal.
5. The fact that the loan is non-interest baring is, according to the report, not affect it’s status as a debt
Does this mean what I think - you have your IP revalued and create a loan account in favour of a beneficiary for the value of the capital gain and then down the track when the trust becomes positively geared (or even if it is already) and the trust comes to make a distribution, it first debits the loan account repaying the loan account and thus makes a tax free payment to the beneficiary concerned?
Kevin Munro & Associates (www.taxlegal.com.au) free downladable report ‘Trusts and Tax Planning’ (http://www.taxlegal.com.au/publications/Trust and Tax Planning.pdf) talks about the practice where a discretionary trust revalues its asset(s) and makes a capital distribution of the asset revaluation reserve to one or more beneficiaries.
Briefly the process involves:
1. Revalue the asset
2. Trustee makes a revaluation of capital to a beneficiary (if the deed allows capital distribution)
3. But as the trust probably does not have the cash to pay the distribution it opens a credit loan account in favour of the beneficiary
4. Later when the trust has funds, instead of making a (taxable) distribution to beneficiaries, it first directs funds to repayment of the credit loan account which is not taxable to either the beneficiary or the trustee as it is a repayment of loan principal.
5. The fact that the loan is non-interest baring is, according to the report, not affect it’s status as a debt
Does this mean what I think - you have your IP revalued and create a loan account in favour of a beneficiary for the value of the capital gain and then down the track when the trust becomes positively geared (or even if it is already) and the trust comes to make a distribution, it first debits the loan account repaying the loan account and thus makes a tax free payment to the beneficiary concerned?
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