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2966406
Trusts and beneficiaries
Description
Mind Map on Trusts and beneficiaries, created by Cassie Goh on 18/06/2015.
Mind Map by
Cassie Goh
, updated more than 1 year ago
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Created by
Cassie Goh
almost 9 years ago
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Resource summary
Trusts and beneficiaries
Taxation of beneficiaries
Non-Resident Beneficiaries
not under legal disability
share of net income (exclude foreign sourced income) taxed at non-resident rates: ss 98(2A) & (3)
Minor Beneficiaries
Distributions from trusts taxed at top marginal rate + medicare levy
Div 6AA ITAA97
2014/15 resident minors rates:
$0 - 416: Nil tax rate
$417 - 1,307: 66%
$1,308+ : 45% of whole Div 6AA income
Exempted minors from Div 6AA: Full time employment + Disabled children s 102 AC (2)
Preservation of income character
Divds distributed to beneficiary can carry imputation credit
Capital gains distributed to indiv beneficiary can claim CGT disc
Taxation of trusts
Scenarios
#1 Presently entitled to trust income, not under legal disability
pays under s 97
#2 Presently entitled to trust income, under legal disability
trustee pay on behalf, at tax of beneficiary: s 98
beneficiary entitled to deduction for tax paid by trustee s 100(2)
net income treated as no deductions avail
#3 No beneficiary presently entitled
Trustee taxed at penalty rate of top marginal indiv rate + medicare levy of 47%: s 99A
exception: if trust from will & commissioner of option that is unreasonable to apply penalty rate: s 99
taxed at trustee normal indiv rate
Net income/loss of trust s97
Income of trust estate
Defined in trust deed, excludes capital gains
Net income of trust
Taxable income calculated to s 95(1) ITAA36, includes capital gain
Share: Adopt proportionate view, not quantum view
Commissioner of Taxation v Bamford [2010] HCA 10
Summary
#1 Net income/loss of trust
if net income
If net loss
Loss trapped in trust
#2 Any beneficiaries presently entitled to trust income
if net income
Yes
No
Trustee pays s 99 or s 99A ITAA36
#3 Is the beneficiary presently entitled to trust income under legal disability
No
Beneficiary pays under s 97 ITAA36
Yes
Yes
Trustee pays on behalf of beneficiary under s 98 ITAA36
Beneficiary is presently entitled if
Interest in income both vested in interest and possession
Present right to remand and receive payment of income
Harmer v FCT (1991)
Unnecessary to have knowledge of distribution
Vegners v FCT (1991)
Legal disability
s97 does not apply
cannot give discharge to trustee for pmt made to them
eg. minors, undischarged bankrupts, intellectually impaired
CGT events for trusts
9 CGT events relating to Trust
E4 occurs if unit trust (not discretionary trust) makes payment not regarded as assessable income to beneficiary
Capital gain = non-assessable receipts > cost base of units
What is a trust?
not a separate legal entity
but relationship between Trustee and Beneficiaries
Trustee: Owner and manages trust property for beneficiaries
Beneficiaries: Receives distribution from trustee
Types
Bare trusts: Informal & Verbal (Asking someone to hold property on behalf)
Express trusts: Formal with a trust deed (Rights & Obligations)
Fixed trusts: Predetermined entitlements of beneficiaries to income and capital by terms of trust deed
Trustee no discretion to change fixed entitlement
Proprietary interest in trust property held by beneficiaries
Case study: 2013 Charles v ATO
Predetermined entitlements of beneficiaries to income and capital by terms of trust deed
eg. No. of units held by each beneficiary typically corresponds to the contribution made to trust
Common fixed trusts are unit trusts
Beneficiaries hold "units" in trust
Discretionary trusts: Absolute discretion to allocate trust income/capital to beneficiary
Life of 80 years
aka Family trusts: Good to distribute income between family
Asset protection: Protected even if bankrupt
Beneficiaries have no entitlement until trustee decides
Establishment & operations
#1 Main beneficiary appoints trustee as an "appointor"
#2 Establishment of trust: Settlor makes initial cash contribution & execute trust deed
#3 Trustee operates the trust
#4 Trustee distributes income to beneficiaries
Testamentary trusts: Created under a will
Can be fixed trust or discretionary trust
Beneficiaries: Widow(er), (Grand)children
Div 6 ITAA 36
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