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Setting up a trust

Discussion in 'Accounting, Tax & Legal' started by sharejunky, 12th May, 2009.

  1. sharejunky

    sharejunky Well-Known Member

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    I'm a share trader considering setting up a trust/company structure to try and minimize tax. A friend of mine had such a structure set up for him by an
    accountant whereby he claims to send money through the trust to family members (but doesn't actually) and then pays their tax for them. I'm not sure of any more details than this, but it sounds rather shady to me. Anyone have any knowledge of this subject please? (He claims it's legitimate, but I'm doubtful myself.)
     
  2. AsxBroker

    AsxBroker Well-Known Member

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    Hi ShareJunky,

    I believe it is called a discretionary family trust.

    You should speak to an accountant.

    Cheers,

    Dan

    PS Speak to an accountant before making taxation decisions.
     
  3. sharejunky

    sharejunky Well-Known Member

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    Actually I've had a preliminary talk with an accountant, and his price for setting up a shelf company is $1650 - does this sound rather exorbitant?
    He also recommends a trust/company structure btw.
     
  4. samaka

    samaka Well-Known Member

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    You have a discretionary trust which holds the assets - with you and some one else as the beneficiary. A discretionary trust must have more than 1 beneficiary.

    You then setup a company to be the trustee (rather than yourself). The reason for this is that changing the trustee at a later stage will incur stamp duty (or some fee - I can't remember what). You make yourself sole shareholder of the company. If at some stage you want to change the trustee - you simply change the shareholding.
     
  5. sharejunky

    sharejunky Well-Known Member

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    So you definitely need more than one person in a trust then? I
    thought that too, but my accountant insisted I only needed
    one person (myself.) Apparently the idea is to split the income
    between two entities to reduce the overall tax, but I'm still
    hazy on the details :) Anyway he told me to wait until after
    the Budget, as he'd heard rumours that the Company tax rate
    might go to 50% (which was news to me.)
     
  6. joanmc

    joanmc Well-Known Member

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    That amount is probably about right we paid around 1400 plus a few years ago. I am trading through a company myself and hubby and I draw wages from that. Have you discussed your reasons for wanting a trust with your accountant? He/ she would be the one with your overall financial picture in front of them, so is it their recommendation?
    I would have thought that if you are the only beneficiary of the trust then wouldn't all the income have to go to you? this could then push your taxable income into the higher brackets and defeat the purpose. I suppose it depends on your marginal rate, how much you are actually earning from shares, do you trade frequently enough to be considered to be in the business of trading?
    For us, we started trading in our own names but made so much money that now we trade in a company as we were going to be pushed into the next tax bracket. at least then anything over what we take as wages we only pay 30% on.

    and boy oh boy I hope your accountant is wrong about the company tax!!!!!!
     
  7. joanmc

    joanmc Well-Known Member

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    just checked out budget, the 50% is actually an increase in a deduction to do with capital expenditure.... a labour government helping small business??? what is the world coming to:p
     
  8. Rob G.

    Rob G. Well-Known Member

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    If there was no intention for the beneficiaries to actually benefit from the purported distributions then this is a reimbursement agreement which is not effective for income splitting.

    Combined with Part IVA, I would expect penalties all over the place.

    I am sure your friend's Accountant actually meant that the unpaid amounts were either beneficiary loans or unpaid present entitlements held on a sub-trust depending on the deed.

    Cheers,

    Rob
     
  9. austing

    austing Well-Known Member

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    Rob might be able to make more sense of the following measure contained in last nights budget but if I understand correctly it would seem to put a stop to the sort of thing your friend is doing:

    "Improving fairness and integrity in the tax system — extending the tax file number withholding arrangements to closely held trusts

    The Government will extend the tax file number (TFN) withholding arrangements to closely held trusts, including family trusts, with effect from the 2010‑11 income year. This measure has an estimated revenue impact of $150 million over the forward estimates period.

    The measure forms part of a package of measures to improve fairness and integrity in the tax system.

    The measure will ensure that assessable distributions to beneficiaries of closely held trusts align with the amounts included by these beneficiaries in their tax returns. The measure will not apply to income upon which tax is directly payable by the trustee of the trust, such as the income assessable to minors. Individuals who have tax withheld by trustees can claim a credit for that tax in their tax return.

    The measure also aligns with the Government's commitment to ensure a high level of compliance with existing taxation laws by improving the efficiency and effectiveness of the Australian Taxation Office's income matching system."

    Cheers - Gordon
     
  10. Rob G.

    Rob G. Well-Known Member

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    Haven't seen the details yet, but it won't affect most on this forum.

    There is already the field for beneficiary TFN, although it was not mandatory to fill it in.

    Seems the ATO could not be bothered to cross-check by other means - so how did they come up with the estimate that they were losing $150m then ?

    Why couldn't they just make this mandatory instead of imposing the administrative burden on the Trustee ?

    Seems they still cannot be bothered to cross check, so just what are the ATO doing while you are waiting so long in the call queue ?

    I assume this does not apply to non-resident beneficiaries - either for foreign or Australian source income ?

    Cheers,

    Rob
     
    Last edited by a moderator: 13th May, 2009