HDT and gifts to beneficiaries

What are the accounting entries when a HDT purchases gifts for the beneficiaries of the HDT ?

What is the benefit of doing this ?

Thanks

 

Firstly, what does the hdt do, & secondly what kind of gifts?

 

The hdt only invests in property atm, the gifts are just gifts of varying nature and value.

I've worked it out now.

The benefit is that you can distribute income to beneficiaries without it being classed as taxable income. It doesn't reduce the net income of the trust.

For example I can distribute $1300 to my 6yr old and there is no tax to be paid as it is under thethreshold for a minor. I can then have the trust buy him a gift which in the trusts books will be a distribution of income however is not classified as income in my kid's tax.

I think.

 

is your son a unit holder - unless this is a hdt with units issued id imagine thats against the trust deed.

DGG had in his book is was limited to $100 per transaction, however i THINK it might of been increasesd to $300 now... this is only for DT not HDT as far as i know....

Id be wary of "gifting" too much away as it will probably attract ato attention for tax avoidence...

id love to here some more thoughts on this this...

 

I think you are getting confused with tax-free distributions.

A child can receive unearned income up to $1333 without being liable for tax. (assuming this is not a testamentary trust, or similar).

So if they are a beneficiary, then provided there is no other unearned income in their name, it would be tax-effective to distribute $1333 of trust net income.

Similarly, the Trustee may be able to distribute trust capital or exempt income tax-free (depends on the deed & circumstances).

It is unlikely the Trustee has the power to 'gift' to strangers, it depends on the deed but according to Trust Law the trust property is only to be held by the Trustee for the benefit of the beneficiaries (ignoring charitable trusts).

Where allowed, the Trustee might be able to make modest tax deductible gifts to tenants as part of generating goodwill of their income producing activities.

Choosing to call a transaction a 'gift' does not change its nature.

I was kind of waiting for MattR to respond to this as he seems to explain more concisely - unlike me !!

Cheers,

Rob

 

With the term "Gift" - the number of $100 and $300 suggests to me that you might be talking about the Minor Benefit limits for FBT purposes.

If the trust deeds allow the distribution of trust assets to beneficiaries then you need to condsider if you are distributing Trust Capital or Income.

Once the income has been distributed then the beneficiary can use the money to purchase anything they want as they are legally entitled to the income.

I would cafefully consider buying gifts for your son using the assets of the trust (prior to any distribution) for personal use (such as toys), as the tax law could deem the use of those assets as a distribution and they could be taxable.

Please provide more information about the gifts you are considering.

Warren

P.S. If the trust already owns you money, I would suggest posting the amount of the gift to your loan account.