Trust

[#1]

Hello,

Can someone please help to answer a question regarding Trust Distribution please? 

I know a corporate trustee can also be a beneficiary of the trust; if some income of the trust is distributed to the trustee as a beneficiary, does the trustee pay corporate tax on the distribution received for the year? And then can use the after tax money to buy property for the trust? I got asked this question from a friend and my instinct answer is no, but I cannot find hard evidence to argue with him. 

Can somebody please advise? thanks!

[#2 · Accepted solution]

I know a corporate trustee can also be a beneficiary of the trust; if some income of the trust is distributed to the trustee as a beneficiary, does the trustee pay corporate tax on the distribution received for the year?

No, the company receving the distributions pays tax at the corporate tax rate.

And then can use the after tax money to buy property for the trust?

You can, but in doing so you are effectively loaning funds from (what I assume is) a private company to the trust -- which is caught under the Div 7A rules.

[#3]

Thank you for your answers! 

But I am a bit confused - with the 1st query, you said No, but also said "company receving the distributions pays tax at the corporate tax rate". In this case, the trustee is a corporate/company, and receives distributions as a beneficiary, so the trustee/company pays tax at corporate tax rate? 

Re 2nd query, if the trustee buys a property, isn't it treated as acting for the Trust? Div 7A applies when private companies lending to the trust, but in this case the trustee buys and mangaing assets for the trust, div 7A shoudn't apply right?

Or maybe the Corporate Trustee as a beneficiary of the trust, its accounts need to be seperated from it's function as a trustee? 

Thanks!

[#4]

Trust is a "flow through" entity unless for some reason (eg. no beneficiary presently entitled) the trustee is assessed.

This means that the trust itself normally does not pay tax on the income it makes. Rather it's assessed in the "hands" of the beneficiary.

In the case of a company, if it receives say $1,000 in distributions. then it treats this as income - and pays $300 in income tax on this. Here the trustee doesnt pay any tax. Note that the trustee/trust and the company are separate entities and should be considered separately.

Re 2nd query, if the trustee buys a property, isn't it treated as acting for the Trust? Div 7A applies when private companies lending to the trust, but in this case the trustee buys and mangaing assets for the trust, div 7A shoudn't apply right?

Or maybe the Corporate Trustee as a beneficiary of the trust, its accounts need to be seperated from it's function as a trustee? 

Holy ... yeah that's... "sub-optimal" to put it lightly. You cannot and should not ever mix the Corporate Trustee (in its capacity as trustee) with the Corprate Trustee (in its capacity as a beneficiary). These need to be kept distinctly separate - though generally speaking, this practice is highly discouraged as there is a high chance of getting things wrong and the consequences of getting it wrong are... severe.

Do you have an accountant and tax adviser? It sounds like you need proper advice that is outside the scope of this forum.

[#5]

Thanks very much for the clarifications! 

You've made it very clear to me where I confused myself!