With the Coronation of a new King, it seems fitting to refer to a traditional investment tool that we still use today that originated from Kings, Queens and royal Knights. Trusts and their role in taxation have been around for a long time, steeped deep in history from medieval times they have long been used to protect assets and grow wealth. They originated and were used by Knights that left for battle, so as to protect their women and children, land and assets.
Today trusts are still used for wealth protection, and creation. We are seeing the use of Family Trusts a lot more, to maintain existing wealth and protect the growth of new wealth. They are common amongst business owners and families that have generational wealth. Family Trusts can be set up as a unit trust, discretionary or a hybrid and can have a corporate trustee and also a corporate beneficiary.
Family Trusts hold a purpose that require a Trust Deed, nominated beneficiaries, a nominated trustee, and a settlor. The trust must be settled, and stamp duty needs to be paid along with an application for an Australian Business Number and Tax File Number. The Family trust must also have a bank account opened. This will require that all the documents are correctly signed and witnessed. If there is a corporate beneficiary, this will need to be allowed for in the trust deed. It is a good idea to have a Lawyer review the Trust deed when operating with a corporate trustee or beneficiary to ensure that all the legal documents allow for and if necessary, name the corporate entity.
Once set up, the trustee must distribute income of the trust to the beneficiaries that are presently entitled according to the Trust Deed. There are recent changes in tax law that have drawn much attention that have included the Australian Taxation Office reviewing the taxation of trusts, with recent releases of exposure drafts and legal test cases on the application of Section 100A (ITAA1936). Whilst we don’t need the detail here, any situation should be discussed with your adviser, there are a few takeaways that can prepare you for tax time. The recommendation is that Trustees should undertake to advise beneficiaries prior to 30th June of their intended distribution.
This allows for the beneficiaries to hold their tax return before lodging until they have received notification of a distribution from the family trust. Another focus is that a distribution made to a beneficiary must be a physical distribution such as a bank transfer, and that it must be for the benefit of the beneficiary. This is ensuring that distributions made to children, and dependant adults are for the benefit of those beneficiaries.
There is further detail on this topic that may be relevant to your situation, and specific advice to your circumstances can be discussed when you contact our office for an appointment.