Drawings from discretionary trust

Discussion in 'Accounting & Tax' started by Elicon, 19th Feb, 2017.

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  1. Elicon

    Elicon Well-Known Member

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    Hi guys,

    Quick one. If you are drawing funds for yourself out of a discretionary trust to live off and the trust makes a loss for the year out of its trading, how do those drawings get accounted for come tax time given trusts do not hold retained earnings from prior years to declare dividends.

    Thanks
     
    Elicon, 19th Feb, 2017
    #1
  2. Terry_w

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

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    Is it income or capital? Or a loan?

    Does the trust have the power to distribute these funds to you?
     
    Terry_w, 19th Feb, 2017
    #2
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  3. Ross Forrester

    Ross Forrester Well-Known Member

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    Generally it is a loan but you should have a discussion with how they are treated.

    Do not just sign and not get advice. Do not assume it is all simple and does not need review.
     
    Ross Forrester, 19th Feb, 2017
    #3
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  4. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The "loan" may pose a asset protection concern later if you owe $$ to the trust it could have all sorts of issues. And if the trust is setup badly with few or little assets then the trust may even terminate if your loan is its sole asset. And if the source of trust income was for example company profits then there could also be a tax issue....ie a deemed dividend merely using the trust as a interposed middleman ?

    Not all tax advisers are trust savvy. Its a simple but very good question any adviser should be explaining
     
    Paul@PAS, 20th Feb, 2017
    #4