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Investing within a discretionary trust

Discussion in 'Accounting, Tax & Legal' started by Gary 123, 20th Nov, 2017.

  1. Gary 123

    Gary 123 New Member

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    I have a discretionary trust and it currently is receiving an income of approximately $20,000 (franked dividend) from its investments per year. I normally distribute this to myself and my spouse.

    I would like to purchase some additional shares within the trust. Can I reinvest the $20,000 and purchase shares instead of distributing it to myself or my spouse?

    If not, say I distribute the $20,000 to myself and then pay tax on the $20,000 at my marginal tax rate minus the franking credit and then gift the remainder back to the trust to reinvest in the shares. But would this mean if the shares were sold later down the track and I distributed it back to mysef I would have to pay tax on that again? What is a more effective strategy then?

    Thanks
    Gary
     
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  2. Terryw

    Terryw Well-Known Member

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    Assuming you are the trustee you might be able to borrow to buy shares or buy without borrowings but check the deed.

    However buying shares won't cancel the income. If this is not distributed the trustee will probably be taxed at the top rate of tax.

    You might want to consider distribution and then the trustee borrowing it back under a formal written loan agreement.

    Also Consider this as part of a recycling debt strategy
     
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  3. Gary 123

    Gary 123 New Member

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    Could i gift some money to the trust, say 20K and the trust then use that to purchase shares?

    Hypothetically if the shares are then sold for 25K in the future, am I right in saying that if the 25K is distributed to the beneficiaries then only 5k is taxed (minus any cgt discounts if applicable) as this is the capital gain rather than being taxed on the whole 25K?

    Cheers
    gary
     
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  4. Terryw

    Terryw Well-Known Member

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    You could gift to the trust. But you might want to only do this if you have no nondeductible debt and have the cash.

    Generally capital distribution from a trust is not taxable unless it triggers a cgt event for example.

    But seek legal advice before doing things like this.
     
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