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Trust Beneficiary Question

Discussion in 'Accounting & Tax' started by alexm, 21st Jun, 2016.

  1. alexm

    alexm Well-Known Member

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    Hi there,

    To our resident accountants, is it possible to add a low income earner (<$25k p/a) as a beneficiary to a hybrid trust in order to reduce tax payable, without affecting their government pension?

    I've already raised this to my accountant however in the spirit of building the body of knowledge here, i'm looking forward to their answer.

    Cheers
    Al
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    If you add a low income Centrelink beneficiary (Student, Pensioner, Child Care etc) as a actual trust beneficiary and distribute to them Dept of Human Services will reassess them. They send what looks like a phone book.

    They can assess them based on income and or assets. In some cases I have seen them assess on an assets basis meaning they lose their pension. Take care
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Short answer is no.
    But it really depends on the situation.

    Look at the social security act.
    There are 3 aspects to consider:
    - income of the beneficiary, could this push them over the threshold
    - source test
    - control test

    see
    PART 3.18----MEANS TEST TREATMENT OF PRIVATE COMPANIES AND PRIVATE TRUSTS
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    Are you able to distribute to them already using the discretionary portion of the trust? This will depend on who they are and what the trust says, ie whether they fit into one of your beneficiary classes.

    If so, its really just a centrelink question I would have thought guys ? I.e. how much do they earn now and what's the threshold to keep receiving benefits?
     
  5. alexm

    alexm Well-Known Member

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    Thanks for the replies.

    This is what i'm concerned about (i.e. affecting his pension). If we nominate the father-in-law as a beneficiary and then distribute income his way, i'll blow the threshold so he'll receive $0 from the pension. If they assess the assets then he's also stuffed.

    Looks like a No Go in this case.

    Wonder if I can make my cats beneficiary's... :)
     
  6. D.T.

    D.T. Adelaide Property Manager Business Member

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    As far as I know (happy to be corrected here); They'd wouldn't assess the assets (assuming he didn't receive units, was only a discretionary beneficiary), only the income he got if/when he got any.
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This may not be the case because of the control test s1207V SS Act - if the beneficiary is an associate of the trustee or an appointor of the trust.
     
  8. D.T.

    D.T. Adelaide Property Manager Business Member

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    So if corp trustee, an associate of the director?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Could be an associate of the director, but also an associate of the appointor or the person that controls the trust - even someone who influences a company. They have covered just about everything here:
    s1207C
    SOCIAL SECURITY ACT 1991 - SECT 1207C Associates
     
  10. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    For SS purposes its usually necessary to make the person an excluded beneficiary so that the trust cannot make Mr X a entitled beneficiary even by later amendment. Not all deeds contain such a rule but if amendment powers are clear it should pose no major issue. Can be costly. And the new exclusion clause needs to be excluded from later amendment too.

    Take deed to a solicitor - Ideally one who knows trusts and not a Denis Denuto.