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Distribution from Trust to Company

Discussion in 'Accounting, Tax & Legal' started by DaveA, 9th Mar, 2007.

  1. DaveA

    DaveA Well-Known Member

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    Because Trusts get the CGT discount and companies dont, any money transfered from a trust to a company (which is capital gains) how is this treated for tax?

    Does the trust make a CG, apply the discount, the send out the $$$s, or does it send out the $$$s and the money is taxed in the recievers hand for the purpose of how it was recieved??

    Does anyone get what ive getting at? Or am i making no sense?

    Cheers
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I'm pretty sure the money is taxed in the reciever's hand ... that's the only accurate way to work it out where there may be multiple beneficiaries receiving the capital gains distribution.

    I doubt you would get the 50% discount if distributing capital gains to a company.

    Distributing undiscountable gains (assets held less than 12 months) to a company may still be worthwhile since you would only pay 30% tax, but for gains where discounts apply - you would pay less than 25% tax if you distributed to yourselves, even if you were in the top tax bracket.

    Will get Nick to verify (currently OS - so may take a while).
     
  3. handyandy

    handyandy Well-Known Member

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    That is certainly my understanding. ;)

    As Sim has indicated you only want to distribute to a company from the trust in the case of income not CG.

    If you did distribute CG then it would be taxed at 30% and then if the company paid a dividend then you would be liable to your top marginal tax less a 30% imputation.

    Cheers
     
  4. NickM

    NickM Co-founder Staff Member

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    Correct Andy. You should not distribute a cap gain that is eligible for discount to a company. It is more tax effective to distribute to an individual regardless of their tax bracket.
    Cheers
    Nick
     
  5. DaveA

    DaveA Well-Known Member

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    thanks nick, good to know its taxed in the hands or the reciever...

    thanks for clearing that up...