tax if buying property in name of trust?

Discussion in 'Accounting, Tax & Legal' started by brassones, 24th Jul, 2019.

Join Australia's most dynamic and respected property investment community
  1. brassones

    brassones New Member

    24th Jul, 2019
    I am expecting an amount of money from sale of shares into our discretionary trust account.
    enough to buy a small property. the shares are in the name of the corporate trustee.

    As I understand it:
    1. the money will enter the bank account as a gross amount. If the shares were in my name I would owe tax on this at my personal tax rate.

    2. normally if I withdrew the money from the trust as trustee I would be taxed at my marginal tax rate.

    Question: If i take the gross amount and buy an investment property with it. At what point does the trust get taxed? Is it upon using the funds?

    thanks all
    2 people like this.
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Plus Member

    9th Jun, 2006
    Australia wide
    The trust will trigger a capital gain on the sale of the shares. There will be a tax liability whether money goes into a bank account or not. The trustee would usually make a person presently entitled to the income of the trust and this person would pay tax. If this doesn't happen the trustee will pay tax at the top marginal tax rate.

    Withdrawing money from a trust bank account will not be a taxing event in itself.

    Whatever the trustee does with the money doesn't change the tax outcome. It is still taxed on the sale of shares even if the proceeds of the sale are used to buy another asset.

    Also the trustee should consider that if someone is presently entitled to the income it should be paid to them. They might then gift it back to the trustee to buy a new asset, but this should all be properly documented.