Paying tax as individuals or companies from earnings as developments

Let's start with Development A, sold, net profit $400k. Development A is owned by a discretionary trust with corporate trustee with 4 beneficiaries. (I'm aware the beneficiaries can also be the corporate trustee - - whether bucket companies or not)

In any event I've always been of the mindset that ideally if the tax rate of the individual is less than the corporate tax rate 27.5% now then it's better to divert the earnings to the individual beneficiary and then loan back to the trust rather than retain in the company and pay the full 27.5% tax - am I correct?

HOWEVER the only reason why we would not do this is we could always retain the trust earnings and give to the corporate trustee/beneficiary - pay the 27.5% company tax rate / then get a franking credit so that the remaining 100k (less tax/franking credit) can be paid in later years to individuals when they don't earn as much and claim the balance of tax back.

Obviously for developments we need capital so I'm wondering when earnings are a lot more, do people just keep the earnings in the company (when the tax rate is higher than the individual) and use that to do larger ROI projects. I'm assuming some would transfer these funds to a project company company B for means of capital protection rather than the construction or development company. In this instance we would not be the builders at all.

 

Everyone's situation is different.

It might be nice to retain earnings in a bucket company and pay out later when individual tax rates are much lower.

But it might be better to pay out need.

This will depend on the following
Structure of trust
Structure of bucket company
Current and future potential risks to the individuals
Cashflow
Non deductible debt
Estate planning

 

50% CGT discount not applicable when developing.

What if decided to sell some and keep others as IPs and rent for long term? Does beneficiary status impact ability to access 50% CGT discount (e.g. Bucket company might not be able to utilise; natural person might)

 

50% discount not available to bucket companies

 

What makes you think a tax rate of 27.5% applies. Its likely to be 30%

A corporate beneficiary needs to determine if it operates a small business. If not, tax is 30%.

 

The intent was to develop. It may not even become a CGT asset.

This simple outcome can be a trap. Read TD 1992/135 for the basic issue. A revenue asset needs a CGT event to become a CGT asset.