Establishing a bucket company

Discussion in 'Accounting & Tax' started by Jingo, 28th Nov, 2020.

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  1. Jingo

    Jingo Well-Known Member

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    I’m looking to distribute income for the 2019-2020 fy from our family trust to a bucket company. Is it too late to set up the bucket company now for the 2019-2020 fy?
     
  2. jrc

    jrc Well-Known Member

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    Yes
     
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  3. Jingo

    Jingo Well-Known Member

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    Thanks for replying. I appreciate it.

    Can I distribute income through the corporate trustee?
     
  4. BennEznElle

    BennEznElle Well-Known Member

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    What does your trust deed say in terms of beneficiaries?

    but more importantly what does you trust distribution minute from pre 30 June state? The beneficiary would need to be presently entitled to the distribution at 30 June for the distribution to be effective.
     
  5. Terry_w

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

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    Yes as per normal
     
  6. Jingo

    Jingo Well-Known Member

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    Thanks Terry.
     
  7. Jingo

    Jingo Well-Known Member

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    Thanks for replying. Just checked and the trust deed says the corporate trustee is a secondary beneficiary.

    Not sure about this. Will have to check with my accountant.
     
  8. Terry_w

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

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    A company only exists when it is registered with asic. So it can't be presently entitled to income or capital of the trust on 30 June if it did not exist at this date
     
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  9. Jingo

    Jingo Well-Known Member

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    Thanks Terry. The trustee of our family trust is a company and it was in existence before the 30th June.

    Thanks for replying.

    Kind regards Jason
     
  10. Terry_w

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

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    But did the trust make it presently entitled to the income before 30th of June.
    Is it a beneficiary?
    Who owns it's shares?
     
    Last edited: 30th Nov, 2020
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  11. Paul@PAS

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

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    In nearly every instance someone asks this question I note that the trust has already made payments to a third party (eg Mr Smith) in the period aftre 30 June and not to Smith Pty Ltd not in its capacity as trustee rendering the apparent corporate distrubution a sham and subject to tax issues. This is something to ask your experienced tax adviser who should already be familiar with the trust
     
  12. Jingo

    Jingo Well-Known Member

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    Thanks Terry,

    I contacted my accountant today and no, I can’t use the corporate trustee to distribute the funds to as it wasn’t entitled to the income before 30 June.

    Thanks for the information.

    Regards Jason
     
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  13. Jingo

    Jingo Well-Known Member

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    ‘Thanks Paul,

    Yes, my accountant said I can’t use the corporate trustee for distribution in the 2020 fy and advises against it generally.
     
  14. JohnPropChat

    JohnPropChat Well-Known Member

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    Question: Assuming the corporate trustee's shares are 100% owned by a second discretionary trust (with individual trustees) and the trust deed allows the corporate trustee to be a beneficiary and money will actually be paid out (no UPE). Are there any issues with this scenario?
     
  15. Paul@PAS

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

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    It may depend. I would not "pass through" such a distribution.. Its potentially very circular and could even trigger ultimate beneficiary issues and reporting requirements - Or a Part IVA issue and may even be unfranked.

    Personal advice is recommended as trust issues like a family trust election etc will impact. Failure to have a FTE and interposed entity election in some cases means franking credits are lost and if this isnt known then a later assessment can be raised for the tax avoided. No time limits. No fix.

    Some deeds may also limit a pass through to a further trust where the perpetuity date for the second trust is a date later than the first trust.
     
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  16. Trainee

    Trainee Well-Known Member

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    What is the value in a corporate trustee owned by another trust? The corporate trustee should be a $2 company, and having it owned by a trust has complications for succession (second family trust can vest, trustee company shares are not part of the estate, etc)?
     
  17. Paul@PAS

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

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    Is the trustee of Trust A now a holding company ?
     
  18. Hamish Blair

    Hamish Blair Well-Known Member

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    Who should own the bucket company?

    Can / should I come from a DT be distributed to the corporate trustee of the trust?
     
  19. Paul@PAS

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

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    Seek advice. You are dabbling in a issue that has loads of traps.
     
  20. Terry_w

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

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    There are 4 choices basically
    a) individuals
    b) the trustee of the trust that distributes the money to the bucket company
    c) the trustee of a new trust
    d) a combo

    One allows the bucket company shares into a testamentary trust, one results in up to 47% tax and the other allows flexibility during lifetime and after.
    Advice is needed.
     
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