who here buys shares with their trust?
- Thread starter rodimus
- Start date
It's a company that has no CGT discount. In a discretionary family trust the discount will apply to whoever the trust (at its discretion) distirbutes capital gains to.
Other benefits that I see are that if you are not just investing by purely buying and holding (say blue chips) and are actually trading (via a trading plan) your trust is actually carrying out a business with all the affiliated expenses. Computer, broadband, mobile, stationery, etc. These are paid for with pre-tax dollars (the best kind
).Trading doesn't need to be day trading and sitting in front of a screen all day, as long as you have a plan and follow some technical analysis to take profits and cut losses short, the shares are just like trading stock in any business.
Rodimus, have a read of the following of you haven't already, should explain it in more detail:
BLUE CHIP INVESTING
ACTIVE RETIREMENT
- both by Alan Hull
Also check with your accountant.
Hope this helps.
Whoa, careful, Michael! Thinking aloud here - Isn't it true that if you're trading and carrying out a business, you lose the 50% CGT discount, even on those shares that you do end up holding for more than 12 months?
If you want to benefit from the 50% discount for shares that you hold for the longer term (ie investments), my understanding was that you'd need to do your investing via a completely different account to the one in which you trade, ie keep your investing and trading activities entirely separate. Otherwise all activity will be treated as trading, and all profits/capital gains taxed as income.
In which case, for trading, surely there are situations in which it would be worthwhile trading via a company? eg if your marginal tax rate is significantly higher than company tax rate. But then - excuse my ignorance - how do you get profits out of the company? If you pay dividends, then obviously you still have to pay your personal marginal tax rate on that money. Are there other ways to extract profits in a more tax-effective manner?
If you want to benefit from the 50% discount for shares that you hold for the longer term (ie investments), my understanding was that you'd need to do your investing via a completely different account to the one in which you trade, ie keep your investing and trading activities entirely separate. Otherwise all activity will be treated as trading, and all profits/capital gains taxed as income.
In which case, for trading, surely there are situations in which it would be worthwhile trading via a company? eg if your marginal tax rate is significantly higher than company tax rate. But then - excuse my ignorance - how do you get profits out of the company? If you pay dividends, then obviously you still have to pay your personal marginal tax rate on that money. Are there other ways to extract profits in a more tax-effective manner?
You can pay it out as directors fees to directors, or to shareholders as franked dividends. If one of your shareholders is a trust, then it can distribute the franked dividends to whoever is on the trust deed as a beneficiary.
Be VERY careful with the trading in a trust thing. As Ozperp said, if you're classified as a share trader, then the income loses its CG characteristic and no discounts apply even it is distributed. In general, if you have shares you plan to buy and hold, put it in a separate trust and don't mix it with other stuff.
Alex
alexlee, if you had a Trust that had two accounts with a broker, one called "Trading account" and one called "Investment account" (for example), would this be sufficient for the gains of the investment account to retain the 50% CGT discount, provided this account did in fact stay in each investment for 12 months or more?
That, I don't know. If it was me, I wouldn't take the chance and just have one trust for the investment and one (with a different corporate trustee) for the business. I wouldn't want to put long term investments in the same entity as my business anyway. If the business fails, I don't want to lose the shares as well. Also, if the business at first makes a loss, I might lose the franking credits from the divs since a trust must make a positive tax profit to distribute anything.
For a trust you use solely for investing purposes, not EVERY investment has to be held for 12 months or more for the OTHER investments to get the CG discount. However, if you trade often enough, the ATO might consider you a trader.
Alex
All of our trading is done within a DFT. This lets you tailor where the trading profits are directed to.
We have a Corporate Beneficiary for "overflow" cases where a corporate tax will be cheaper than the tax rates of the otrher beneficiaries.
Cheers,
The Y-man
Sorry folks,
I didn't make my post detailed enough. The CGT discount in a trust holds true if you are purely investing and the trust distributes CG at its discretion to the beneficiaries.
To clarify, No, you cannot distribute income (if you are trading) with a discount as it is income and not CG. However, if you are making profits by trading you also have expenses that may offset the profits before distribution to beneficiaries.
As Y-man states you can also use a company to further distribute profits to (at 30 % tax rate) once lower tax rate beneficiaires are exhausted.....and the problem of having too much profit would be an enviable financial position to be in.
I didn't make my post detailed enough. The CGT discount in a trust holds true if you are purely investing and the trust distributes CG at its discretion to the beneficiaries.
To clarify, No, you cannot distribute income (if you are trading) with a discount as it is income and not CG. However, if you are making profits by trading you also have expenses that may offset the profits before distribution to beneficiaries.
As Y-man states you can also use a company to further distribute profits to (at 30 % tax rate) once lower tax rate beneficiaires are exhausted.....and the problem of having too much profit would be an enviable financial position to be in.
I use a trust for investment shares and a company owned by a trust for trading shares. However, with the increased personal tax thresholds of late, the benefit of a company for retaining profits is getting less (although of course that depends on its capital and profit levels).
Also, with a company owned by a trust, there are issues if the company makes a loss, related to the trust loss provisions.
GP
Also, with a company owned by a trust, there are issues if the company makes a loss, related to the trust loss provisions.
GP
He means that the shareholder for the company is a trust. So when the company pays a dividend to the shareholder/s (the trust) the trust is then able to distribute its income to the beneficiaries, as allowed by the trust deed.
A trustee company is when a company is set up to be the trustee for a trust. This is a separate thing to being a director or shareholder. Trustee companies still need to have a director and shareholder.
Hope that helps.
A trustee company is when a company is set up to be the trustee for a trust. This is a separate thing to being a director or shareholder. Trustee companies still need to have a director and shareholder.
Hope that helps.
Nope, you can call the account what ever you like but its how you trade that will determine whether you have a 'capital gain' or a 'trading profit'.
Again, It doesn't matter what you call the account, If your holding the assets for a period of 12 months you will have a capital gain NOT a 'trading profit'
Horses for courses really. You can offset a trading loss against other income to reduce your tax or offset a trading profit from any negative gearing losses.
My understanding is that if you're considered a trader by the ATO, gains in that entity will always be considered trading profit even if you hold it for more than 12 months?
Alex
True, but if your holding assests for 12 months or longer the ATO will not classify you as a trader.
But I see the point your making
....if your trading bucket loads of shares/property/widgets on a daily/weekly basis and decide to keep a couple long term (12 months+) then your a trader.
I'm almost positive your correct with regards to the whole account; not so sure about entire entity. I'm assuming shady has misunderstood my point.
Of course I know that the name of the account doesn't matter.
My point was that (I understand that) if you buy BHP shares and hold for 2 years, and in the same account do trading, your gain on the BHP shares will be treated as income, not capital gain, and taxed at your full marginal tax rate.
My question, shady, was whether confining your investing to one account, and your trading to a separate account, was sufficient separation to allow your investments to still qualify for the 50% CGT discount, in the eyes of the ATO.
Alexlee is suggesting that you may even have to have an entirely different ENTITY as the account holder, as well as have different accounts, and that's the point we're asking for clarification about.
Sorry, your right, I did misunderstand, I should have read twice.
Yep, Alexlee is correct. Its the entire entity that will be classified as a trader or investor, and as such all transaction in that entity will be treated the same no matter what type of account they are in.
This isn't relevant to your question but still may help
Carrying on a business of share trading
