Trusts complex structures?

Discussion in 'Accounting & Tax' started by TerryP, 10th Nov, 2019.

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  1. TerryP

    TerryP Member

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    Hello all :)
    Nice to be here
    I read in an article online that some investors can significantly reduce their tax by complex trust structures.
    I’m interested in legit ways to minimise tax and wondering if anyone has insights on these complex structure types or if there is reading out there on that matter. I read tax can be reduced from 30% to even 10 or 5% at times.
    Not that I’m trying to bail completely on tax but would like to know what can be done and how.
    This was the article I read Trusts being used to avoid paying billions in tax, report warns ATO

    I’m also currently reading
    Family Trusts: A Plain English Guide for Australian Families
    Book by N. E. Renton
     
  2. Terry_w

    Terry_w Well-Known Member Business Member

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    See the tax and legal section, I have written 100s of tips on trusts
     
  3. TerryP

    TerryP Member

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    Thanks Terry_w
    That’s really terrific
    I’ll be sure to search them out and study them
     
  4. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Dont believe everything you read.

    Part IVA anti-avoidance rules and many other tax laws may impact any such perceived saving.
    Many people will also describe trust arrangements with "bucket"companies. These can also result in savings but unless very well managed and understood they can also result in a far higher marginal tax rate on the income over the longer term. Diversion of income to a company is not the final stage in the tax cycle. Many people will implement a trust to commence acting as a investment entity.

    By all means read away but then invest some time in obtaining tax advice. Then if its still relevant seek expert legal advice.

    We have two very generous tax vehicles used for wealth in Australia that are almost exclusive to our country.
    1. Superannuation funds (a trust)
    2. Testamentary trusts
    In each case its possible to pay negative rates of tax. ie The ATO pays you.
     
  5. TerryP

    TerryP Member

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  6. Trainee

    Trainee Well-Known Member

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    You wont like the event that creates the testamentary trust.....
     
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  7. Scott No Mates

    Scott No Mates Well-Known Member

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    That's a dead cert. :rolleyes:
     
  8. TerryP

    TerryP Member

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    Thanks Scott No Mates. Yes it has its literal down side but we gotta do what we gotta do.:eek:
     
  9. Car tart

    Car tart Well-Known Member

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    In my non existent experience of trusts, I don’t see any benefit in a trust if everyone you “trust” to be beneficiaries is in the highest tax bracket. This is where corporations and super provide better rates of taxation.
    Also I thought the term “complex trust structures” was a euphemism for “Illegal activity”
     
  10. Terry_w

    Terry_w Well-Known Member Business Member

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    What about bucket companies
     
  11. TerryP

    TerryP Member

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    Hello —- I have so far mainly read about trusts being for asset protection which I think is fair however when I read a professor from RMIT saying trust structures are used by wealthy to reduce tax - they never said it was illegal - however they are considering changing the “rules” so that they cant be used this way so much. However I have no idea what this structures are exactly and if they are a veiling and hiding or if they are completely legit and so hence my question. However if there are bona fide ways to reduce tax legally then I’m sure interested in knowing what they are. But I’m also interested in legal and ethical ways that are fair - which I thought I made clear in my question. ... complex structure does not automatically mean illegal. If it’s illegal I’m not interested.
     
  12. Big A

    Big A Well-Known Member

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    I’ll give you my 2cents worth based on my experience of these complex trust structures that I use.

    though you would be best served listening to the likes of an expert like @Terry_w who I personally have used to advise on my own structures.

    firstly if you understand them well they don’t necessarily need to be complex. More complex than no structure at all but does not necessarily have to be over complex.

    second. They are not some magic structure that will eliminate you paying tax. Most people using trusts still pay plenty of tax as I do. But it’s used to protect assets to some degree. Reduce our tax bill as a family by being able to allocate income from our family investments to different family members. And if desired allocate capital to a bucket company as well.

    thirdly. Nothing illegal about trusts structures at all. Illegal activity can be carried out using such structures just as illegal activity can be perpetrated without such structures. If you set them up and use them as for there intended use there is nothing illegal about it. Now working out what it’s intended use is, you need to work that out with the guidance of an expert. A professional can tell you how best to use it and if using in that particular manner is correct and legal.

    Not advice but factors I consider when setting up my trusts: will they provide my family a level of asset protection. Will enough income be generated from investments held in trust to benefit from distributing to multiple family members that will result in a tax advantage compared to only say 1 family member collecting the income.
    Could I hold those assets in a company rather than a trust and which is better suited. I believe that an asset held in a discretionary family trust is entitled to a capital gains discount after 12months ownership. Owned in a company I don’t think you are getting the capital gain discount.

    Should I have a structure that incorporates a company for certain assets and a trust for others?

    so as you can see many things to consider and yes the structure can become complex. But if you are playing with a large portfolio of assets and income a more complex structure might be beneficial.

    Again I am not an expert and everything I have said is based on my experience and level of knowledge but you should get your own professional advice.

    hope this helped and not confused you further.
     
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  13. Terry_w

    Terry_w Well-Known Member Business Member

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    It is certainly not illegal or avoiding tax bus trustee to divert income to lower tax rate beneficiaries
     
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  14. Car tart

    Car tart Well-Known Member

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    Trusts are definitely not illegal.

    But the term “complex trust arrangements” is used by media to refer to tax avoidance. During the Panama Papers release, this was a very common term used to infer that it is an unpleasant formula for reducing taxation, without being liable to defamation action.

    Much like it’s not illegal to be a “ colourful racing identity”
     
    Last edited: 11th Nov, 2019
  15. Terry_w

    Terry_w Well-Known Member Business Member

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    Panama papers involved overseas structures with tax avoidance. Taxpayers were basically hiding overseas once by disguising control or trusts and companies
     
  16. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    In complex schemes used to evade tax a regret is that a trust is often involved. And as Terry points out its often through a chain of entities and structures to give a illusion and mask identity. That the scheme part. And the illegal bit. I can have a company in panama and provided it pays Australian tax there isnt a major issue.

    The other key parties to schemes are companies. And people. The media and some pollies love to describe trusts as a tax avoidance vehicle. So is a company. And a super fund. And a charity. And a church. All have different laws which tax them differently. Doesnt make them illegal. To be honest you would have to have rocks in your head to willingly operate a business that makes a reasonable profit as a sole trader.

    Companies are actually a modern tax structure borrowed from the dutch. Trusts pre-date companies by a LONG time. Trusts reflect relationships and exist all around us.

    Almost every worker in Australia is impacted by trust law. Super is held in a trust. We all believe it will exist and we receive our entitlements when we retire due to the foundations of trust laws.
     
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  17. TerryP

    TerryP Member

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    Just a thought- Property A owned by Trust A has a positive cash flow. Property B owned by Trust B has a negative cash flow. Trust B is a beneficiary of Trust A.... Can the profits of Trust A be distributed to Trust B and the negative Cash flow thus affecting the tax payable for Trust A from property A? Or is this avoiding Tax in an illegal way?
     
  18. Terry_w

    Terry_w Well-Known Member Business Member

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    Yes it could be possible as long as the laws of perpetuities are not infringed
     
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  19. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Issues :
    • Law of perpetuities
    • Family trust election
    • Deed rules to be checked
    • Interposed entity election
    • Unpaid present entitlement issues
    • Valid distribution resolution
    • Part IVA maybe
    • Trust loss quarantining may occur in some trusts
    Trusts are complex.

    And dont confuse cashflow with net trust income. Its possible Trust A has a tax loss and any movement of cash to trust B may be a loan and not a distribution of income. Is that documented on each side ?
     
    Last edited: 12th Nov, 2019
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  20. Trainee

    Trainee Well-Known Member

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    This is one reason for not putting negatively geared investments in a trust.
     
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