Can a corporate beneficiary be wholly owned by the same Trust?

Can a Trust be a Shareholder of a Company who is also a beneficiary of that same trust?

I have proposed the following structure; parts of this structure already exist, new entity is ABC Pty Ltd;

- XYZ Trust has 100% shareholding in new company ABC Pty Ltd. It also owns 50% of a Trading Company LMN Pty Ltd which provides the trust with significant dividend income.

- ABC Pty Ltd is also a beneficiary of the XYZ Trust. LMN Pty Ltd is not a beneficiary.

- XYZ Trust also has a separate Corporate Trustee, TRU Pty Ltd.

- XYZ Trust invests in long term property, has the benefit of CGT discount.

- ABC Pty Ltd invests in short term property developments, treats property as stock.

- ABC Pty Ltd accumulates distributions from trust and pays only 30% tax.

- Profits within ABC Pty Ltd are reinvested for further property development within the company.

- At some point in the long term future ABC Pty Ltd will need to pay dividends to XYZ Trust. XYZ Trust then distributes dividends to all beneficiaries except ABC Pty Ltd.

-The whole purpose of this structure is to preserve 'working capital' and limit its erosion by taxation through distributions to individuals on high marginal rates.

-The proposed company ABC Pty Ltd will be a legitimate trading company earning profit and paying tax and not merely a 'Bucket Company.'

I can't see any UPE or Div7A issues, can you?

Is this possible, can anyone see a hole in this structure?

View attachment 848

 

Yes.

But what are the consequences?