A discretionary trust, otherwise known as a family trust, is an arrangement in which an individual or entity consents to maintain an asset for the benefit of others - commonly their relatives.
Family trusts are typically used for business purposes due to the desirable features of potential asset protection and tax benefits they provide.
Establishing a trust in Australia can provide a range of tax advantages, depending on the particular structure and purpose of the trust. Trusts are a versatile and powerful tool for estate planning, asset protection, and tax minimisation.
Income generated by a trust can be distributed to multiple beneficiaries in ways that minimise tax exposure.
For example, trust income can be distributed to adult beneficiaries, taking advantage of the individual marginal rate, which could even be in the tax free threshold.
Trust taxation is a complex area of taxation and requires an understanding of the trust distribution process as well as the tax implications that apply.
The trust itself does not have to pay income tax, but it is crucial to distribute all the income derived from its investments to its beneficiaries in order for it to be taxed in their hands.
It is also important for a trustee to lodge a trust tax return each year with the Australian Taxation Office (ATO).
Depending on the type of trust, distributions may be discretionary or mandate-based. In the first instance, distributions are made at the discretion of the trustee, while in the second, they are allocated according to the terms of the trust deed.
Navigating trust taxation can be complex, but having a thorough comprehension of trust structures and applicable tax laws can ensure that your trust functions properly and effectively.
A trust is a business structure that allows the trustee to control and manage assets on behalf of beneficiaries.
A trustee can be a person or a company and is responsible for managing the trust's tax affairs including lodging a trust tax return.
The trustee holds legal ownership of the property, income or financial assets owned by the trust, and is responsible for distributions like profits, as per the terms of the trust and determining any tax implications.
There are two main types of trusts, a discretionary trust (also known as a family trust) and unit trust.
Each beneficiary will then include their share of the trust's net income in their own individual tax return.
The trustee holds the legal capacity to act on behalf of the trust when it comes to financial matters, including need to lodge a trust tax return.
The trustee has a legal responsibility to make sure that all requirements are met.
Depending on the nature of the trust and its assets, this may be an individual trustee or a corporate trustee. If it is an individual trustee, they are legally responsible for filing the trust tax return. However, if you have a corporate trustee in charge of business assets, then they are liable for filing.
In either case, it is best to consult with an accountant to ensure that all documents are filed correctly and promptly.
A family trust is a great option for many family businesses. Generally speaking, the characteristic of flexible distribution choices, strategic tax planning and a robust structure to grow your wealth makes family trusts appealing to many in Australia.
Discretionary Family Trusts can offer significant income tax advantages.
This trust structure allows a trustee to have the discretion to allocate net profits and make distributions to one or all of the beneficiaries, who then pay tax on their own individual marginal rates.
This flexibility is an advantage for families with a family business or high-net-worth individuals who may want to pass on funds to other family members that are at a lower tax threshold for the financial year.
Discretionary family trusts provide attractive taxation opportunities for individuals looking to reduce their tax liabilities.