Ask Me Anything! on Trusts

In this interactive session, Andrew Henshaw covers some top tips on distribution resolutions before taking on questions from our subscribers in an ‘office hours’ style event.

In this session, we cover:

• Distribution resolutions

  • When must distribution resolutions be prepared?

  • Variable income resolutions

  • Streaming capital gains

  • What cannot be trust income?

• Ask Me Anything!

  • What is the current position with corporate beneficiaries?

  • Should trust distributions be done based on the accounting (book) profit or the taxable income? Please also explain if we use an adjustment reserve where there are differences between accounting and taxable income?

  • A distribution resolution was drafted before we(the accountant) knew there was a capital gain in the trust, as the client sold investment shares/property without telling us! The income is defined according to the Tax Act, so the 50% discount not distributed, but accumulated in corpus. Can we draft another resolution the following year to distribute out the capital amount (in corpus) per trust deed? Or what would you recommend?

  • What are the consequences (if any) of streaming franked distributions or capital gains to “friends” or unrelated trusts from a discretionary trust?

  • Is it possible to stream discounted capital gains without a Family Trust Election (FTE)?

  • In a typical mum & dad discretionary family trust, is it a good idea to automatically distribute $416 to each kid to ‘save’ a bit of tax? Please also explain if minors should be removed as beneficiaries from the deed when they become working adults?

  • A discretionary trust has an unpaid beneficiary entitlement (UPE) to a corporate beneficiary. However, the discretionary trust itself has a UPE owing to it from another trust (e.g. unit trust) so doesn’t have the cash to pay out the UPE to the corporate beneficiary. Is there any relief for this to NOT be considered financial accommodation?

  • Say a corporate beneficiary doesn’t have a bank account (so they can’t ‘cash out’ their distributions). The funds stay in the trust. Some of the funds get used as working capital, but the rest are used by the beneficiaries for personal expenses. Would this be subject to Division 7A or Section 100A?

  • Company C is 100% owned by Trust A. Trust A and Trust B have the same specified individual for FTE. Is an Interposed Entity Election (IEE) required for Company C for them to receive a distribution from Trust B?

  • If your income is defined as being the accounting profit, what do you say in the distribution resolution to ensure the streaming of franked distributions and capital gains still occurs?

  • If a trust has a capital loss reserve in the financials, and sells an investment property and makes a capital gain, should the gain on sale go in the profit & loss, or offset the loss reserve? Or does it depend on the deed?

  • A trust receives fully franked dividends, which it then distributes to a non-resident beneficiary. Does the trust still report the fully franked dividends as income in its tax return? Does the beneficiary need to report the income in their tax return as well?

Date recorded: 6 June 2024