Arnold
CibbuanoTax Deduction Strategies – Family Trusts
June 29th 2006 00:42
The word "trust" is a technical legal term which refers to a relationship, based on confidence, under which property is held by and formally vested in one party, who is known as the "trustee", as its legal owner, but on behalf of other parties who are entitled to the fruits of that ownership - the "beneficiaries" (or "objects") of the trust. A family trust works in much the same way as a deceased estate, except that it is set up while the instigator is still alive. Typically family trusts invest in shares, property and fixed interest securities in the same way as individuals. Some family trusts are used to run a small business. The advantages of purchasing a property under a trust come into play during tax time. If the trust is a discretionary trust then the tax consequences can be one of the factors taken into account when deciding which distributions should flow to which beneficiaries each year.
Clearly, the greatest collective tax minimisation occurs, quite legally, when distributions are made to beneficiaries on low or zero marginal tax rates. The ability to use the low income taxpayers' rebate may constitute an additional advantage. In some cases the trustee's ability to make distributions within the tax-free threshold to one or more low income beneficiaries can lead to significant overall tax savings. The more persons in such a position that are available to receive trust distributions the greater the total tax savings would be - although, of course, there may be non-tax features to such a scenario which make it unattractive. No tax savings at all will occur when all the beneficiaries are already in the highest marginal tax bracket.
Some of the further benefits and advantages of investing in property under a trust structure include;
1) Assets acquired in the future get the advantage of being in the trust as from the date of their acquisition. This applies both to assets being built up gradually out of savings and to large one-off items such as inheritances, lottery winnings, damages awards or lump sum superannuation payments. It applies equally to assets being acquired for their income potential and to those with capital growth prospects.
2) Assets acquired directly by a trust do not involve the stamp duty and capital gains tax liabilities applying to assets which are acquired by another party in the first instance and then transferred to the trust only later on.
3) As managing a trust involves a learning curve it is probably better to start off with a small operation than with a large one.
4) If the tax rules affecting trusts are ever changed by the authorities then existing trusts may be able to keep some privileges not available to new trusts set up, or to assets acquired, after the date of the change.
5) Assets transferred out of an individual's name well before any bankruptcy occurs cannot be clawed back by creditors.
Clearly, the greatest collective tax minimisation occurs, quite legally, when distributions are made to beneficiaries on low or zero marginal tax rates. The ability to use the low income taxpayers' rebate may constitute an additional advantage. In some cases the trustee's ability to make distributions within the tax-free threshold to one or more low income beneficiaries can lead to significant overall tax savings. The more persons in such a position that are available to receive trust distributions the greater the total tax savings would be - although, of course, there may be non-tax features to such a scenario which make it unattractive. No tax savings at all will occur when all the beneficiaries are already in the highest marginal tax bracket.
Some of the further benefits and advantages of investing in property under a trust structure include;
1) Assets acquired in the future get the advantage of being in the trust as from the date of their acquisition. This applies both to assets being built up gradually out of savings and to large one-off items such as inheritances, lottery winnings, damages awards or lump sum superannuation payments. It applies equally to assets being acquired for their income potential and to those with capital growth prospects.
2) Assets acquired directly by a trust do not involve the stamp duty and capital gains tax liabilities applying to assets which are acquired by another party in the first instance and then transferred to the trust only later on.
3) As managing a trust involves a learning curve it is probably better to start off with a small operation than with a large one.
4) If the tax rules affecting trusts are ever changed by the authorities then existing trusts may be able to keep some privileges not available to new trusts set up, or to assets acquired, after the date of the change.
5) Assets transferred out of an individual's name well before any bankruptcy occurs cannot be clawed back by creditors.
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