Can a trust distribute to another trust to offset losses?

Discussion in 'Accounting & Tax' started by thydzik, 30th Jan, 2020.

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  1. thydzik

    thydzik Well-Known Member

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    Hello All

    Quick question, if a discretionary trust has a loss in a financial year, can another discretionary trust who has income distribute to this trust (which has a loss) to offset the income against the losses for tax purposes.

    Thanks again.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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  3. thydzik

    thydzik Well-Known Member

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    thanks,
    so the income the trust receives, is no different to any other income the trust produces?
    can be used to offset any losses first before distributions to beneficiaries
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    providing family trust elections met,. laws against perpetuities not breached, it meets the definition of a beneficiary then one trust can distribute to another and income can be offset by losses. Seek legal advice.
     
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  5. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Personal services income may even be a consideration. Not uncommon to find someone who thinks a trust means PSI can be ignored.

    Part IVA could also be a consideration.

    A tax adviser could incur PI liability if they are reckless and dont consider if the trustee has made valid trust resolutions.
     
  6. thydzik

    thydzik Well-Known Member

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    Hi Terry
    Follow-up question, what happens to the assists the trust trustee holds after 80 years? forced sale?

    edit, found some info here;
    Trust vesting
     
    Last edited: 5th Feb, 2020
  7. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    No its not enforced. However there may be CGT consequences on that date as the legal / tax position is that the beneficial entitlements become "fixed and absolute". However there may be also be consequential trust issues which isnt a vesting in other instances. The recent case of the Reinhart family publicised efforts to avoid vesting has led to the ATO giving further guidance :

    Trust vesting

    I would seek legal + tax advice from a trust law professional rather than tax adviser advice.
     
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  8. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    It will depend on the wording of the trust deed. The trustee may hold the assets on bare trust for certain individuals, CGT may or may not be triggered, the same with duty.