Join our investing community

Question about trusts & SMSF's

Discussion in 'Accounting, Tax & Legal' started by carms, 1st Jan, 2008.

  1. carms

    carms New Member

    Joined:
    30th Dec, 2007
    Posts:
    3
    Location:
    Melbourne
    Hi All,

    I am new to this forum and I must say I am quite impressed about the knowledge and discussion of this fantatastic online community.

    I have a question, which may sound silly but i've never come across anything dealing with it and was wondering if anyone knew.

    Is it possible to draft a family trust deed, and specify a SMSF as a potential beneficiary? Can the fund accept distributions? I know there are rules regarding in-house assets and related party transactions, but I'm not sure how they'd apply, ecspecially if the fund has not provided any consideration (ie loan) to the trust/trustee for the entitlement.

    Thanks!
     
  2. taxstar

    taxstar Active Member

    Joined:
    9th Nov, 2007
    Posts:
    25
    Location:
    Sydney, NSW
    The simple answer is "Yes" you can make a discretionary trust distribution to a super fund so long as the Trust Deed and the Super Deed can accept the payment.

    BUT - The Tax Laws require this distribution to be taxed at the top marginal rate, so you don't actually get much benefit from doing it this way.

    Better ways to consider include, making a superannuation controbution, or paying the tax on the distribution and then making an undeducted contribution in the super fund.
     
  3. carms

    carms New Member

    Joined:
    30th Dec, 2007
    Posts:
    3
    Location:
    Melbourne
    Thanks for the response, really interesting.

    Can you elaborate on how the distribution would be taxed at the top-marginal rate? and what components?

    What if the family trust allowed income streaming and distributed tax deferred income? i,e Distribute $20,000, 100% tax def, = $0 tax.

    Assuming all deeds are properly drafted, is that possible? Can you steer me in the right direction as to finding out more about this specific topic, i.e where in tax act?

    Although im sure theres probably a loop hole stopping that

    Thanks taxman !
     
  4. taxstar

    taxstar Active Member

    Joined:
    9th Nov, 2007
    Posts:
    25
    Location:
    Sydney, NSW
    OK, found the section that you need to look at. Basically, Sec 273 of ITAA 1936 treats Discretionary Trust distributions as Special Income. The special income is taxed at 45% in the Super Fund.

    You can have a look at Tax Ruling TR 2006/7.

    If you realy want to get the tax deferred portion into the Super Fund, just distribute that portion to you personally, and then make an undeducted contribution to your Super Fund.
     
  5. NickM

    NickM Co-founder Staff Member

    Joined:
    20th Jun, 2005
    Posts:
    321
    Location:
    Sydney
    Sorry Carms, that loophole was closed many years ago. tax star is right
    distribute to an individual and then make an unded contribution.

    Alternatively, distribute to your trading company of which you are an employee, and make a tax deductible contribution to the SMSF. tax will still be payable at 15% in the smsf.
    have fun
    nickM
     
  6. taxstar

    taxstar Active Member

    Joined:
    9th Nov, 2007
    Posts:
    25
    Location:
    Sydney, NSW
    Please note, one issue about distributing Tax Deferred distributions to a company, is that you convert the tax deferred income to taxable income when you finally pay the profits out of the company as dividends, or you make a super contribution from tax deferred income to a super fund (taxed at 15% in super fund).