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franking credit from business through family trust?

Newbie

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hello,

I am looking to create a family trust that will be an intermediate entity between myself and my PTY business.

The reason is to have better control over dividing up the profits.

My business has a lot of franking credits, so is it possible to get the franking credits to use myself when the profits is paid through the family trust? My accountant says yes, but when i read online a few websites, they say no.

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ATO Certified Response

Former Community Support

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Hi again @PixelPaul,

 

Thanks for your patience.

 

Corporate entities can pay distributions to their members. Members may be individuals or other entities including trusts. A trust's franked distributions can, if not prevented by the trust deed, be streamed to beneficiaries for tax purposes by making them specifically entitled to the amounts.

 

This allows beneficiaries to get the benefit of any franking credits (subject to integrity rules) attached to a franked distribution. For a beneficiary to be specifically entitled to a franked distribution received by a trust, they must meet the entitlement and record conditions.

 

A lot of this depends on the trust deed. There is a good example on our website at Calculating shares of the franked distribution and attached franking credit | Australian Taxation Of... However you should be aware of various rules when distributing franking credits, such as franking credit trading rules where credits are diverted from the true economic owners of the membership interest to others who can most benefit from the use for the credits.

 

There are a number of integrity measures which limit the use of franking credits including the exempting entity rule, the qualified person test, dividend washing and specific anti-avoidance provisions. There may also be other strategies that may be available to you but we suggest that you speak to your advisors as they would be aware of your particular circumstances.  

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Former Community Support

Replies 0

Hi @PixelPaul,

 

A great question, which deserves a great answer. I'm liaising with a tax technical team who will be able to provide further info, so hold tight! We'll have something for you soon.

Most helpful response

ATO Certified Response

Former Community Support

Replies 0

Hi again @PixelPaul,

 

Thanks for your patience.

 

Corporate entities can pay distributions to their members. Members may be individuals or other entities including trusts. A trust's franked distributions can, if not prevented by the trust deed, be streamed to beneficiaries for tax purposes by making them specifically entitled to the amounts.

 

This allows beneficiaries to get the benefit of any franking credits (subject to integrity rules) attached to a franked distribution. For a beneficiary to be specifically entitled to a franked distribution received by a trust, they must meet the entitlement and record conditions.

 

A lot of this depends on the trust deed. There is a good example on our website at Calculating shares of the franked distribution and attached franking credit | Australian Taxation Of... However you should be aware of various rules when distributing franking credits, such as franking credit trading rules where credits are diverted from the true economic owners of the membership interest to others who can most benefit from the use for the credits.

 

There are a number of integrity measures which limit the use of franking credits including the exempting entity rule, the qualified person test, dividend washing and specific anti-avoidance provisions. There may also be other strategies that may be available to you but we suggest that you speak to your advisors as they would be aware of your particular circumstances.