5 Top Tips on Reducing Tax Using Trusts

  1. Distribute to low-taxed beneficiaries – Rather than pay the top tax rates on income that you earn, shift some activities to a trust where profits can be distributed to family members who are in the lower tax brackets.
  2. What makes up ‘Trust Income’ – A recent High Court case has challenged the historic advantages of using a trust to reduce the rate of tax that you pay.  Nothing has been outlawed; the rules for some have just changed a little.  It all swings on the wording of your Trust Deed as the deed dictates how trust income is defined and whether capital gains are treated as normal income or not. Read the Deed!
  3. How income is assessed – When some accounting expenses are not tax deductible, the net income of the trust for tax purposes exceeds its accounting income. Recent tax law resolved that the distribution of the taxable income must align proportionately with the distributions made for the accounting income.  This can create a problem if you want to limit the taxable income of some beneficiaries to a set dollar amount e.g.: children under 18.  It pays to leave a little leeway in your accounting distributions to allow for potential rejection of some tax claims.
  4. Streaming income – Read the Deed.  If the deed allows it, interest and dividend income (including franking credits) can be channelled to specific beneficiaries to the exclusion of others.
  5. Distribute all income – You need to make sure that you effectively distribute all income each year otherwise undistributed income may be taxed at 46.5%.

Call Noel or Amanda for more information – (03) 9585 7555
or email us atnoel@mktax.com.au