More benefits of a trust (Tax Purposes)

One of the key benefits of a trust relates to tax. But the value of seeking very sound legal and tax advice is so important.

s855-10 of the 1997 Tax Act is a great example. This may exclude from net trust income of the trust the value of a capital gains event where the CGT event is NOT taxable australian property (direct or indirect) AND the amount is validly distributed to a non-resident taxpayer. Often to an individual rather than a company in many cases.This rule doesnt apply to CGT from selling property but may for shares etc.

In instances where the beneficiary is a resident of a nation which doesnt tax capital gains this could even be tax free here in Australia and in their country of residence. A side benefit is that data matching between the ATO and the other nation wont even indicate any CGT income.

A range of factors need to be given advice including careful and diligent review of the trust deed for streaming rules, potential amendment to the deed, off shore tax advice including possible tax rulings and ensuring that the trustee makes valid resolutions and that the distribution is physically paid. In some instances a re-gift may occur and that may also need advice.

 

The conduit foreign income (“CFI”) provisions in subdivision 802-A of the ITAA 1997 enable an Australian resident company to distribute a dividend to non-resident shareholders exempt from Australian dividend withholding tax to the extent that the dividend is non-assessable nonexempt (“NANE”) income of the Australian resident company.

Pursuant to section 802-17(1), the distribution can be made directly to a trust, or through a chain of trusts.