Do you file a tax return for a trust?
It is important to get your tax optimised and your Trust tax
return lodged for the 2019 financial year. In this article we discuss the
following key points;
- How to lodge 2019 Trust tax return
- What to consider
- Taxes for a Trust
- Non-trading trusts
- Changing distributions each year
- Can a Trust stream income to children
- Due date for Trust tax return
You can appoint a registered tax agent such as POP Business to prepare and lodge your Trust tax return for 2019. It is important to get the right advice as Trusts can be great tax minimisation vehicles if they are used correctly.
What do I need to consider?
If the trust is a discretionary Trust, you will need to
distribute to the beneficiaries at year-end. A Trustee Resolution will need to
be signed by the trustee before 30 June which reports which beneficiaries will be receiving income. It also lists the amount of income or % of profit they beneficiaries will receive.
Does a Trust pay tax?
Most likely, no.
The reason being, if profits are not distributed to beneficiaries at year-end they will be taxed at the highest individual marginal rate of 47%! To avoid this, a distribution is made to the beneficiaries. The income is declared in the beneficiaries’ tax return(s).
So, how’s it all work?
A good tax accountant will review the tax positions of the beneficiaries at year-end to determine who should receive what income to minimise the tax. When the profit is distributed it will be taxed at the beneficiaries’ tax rates.
What if the Trust has no income?
Then a no return necessary will be due to be lodged if the
Trust has an ABN and TFN. If no ABN or TFN then nothing is required.
What’s an example of a trust working well?
A Trust receives income of $50,000 with no expenses. The Trustees and Beneficiaries are a man and his wife. The wife earns $200k per annum and the husband isn’t working, so has no income.
In this case, the Trust could distribute all $50k profits to the husband. As the wife is in the top marginal tax rate bracket any extra income is taxed at 47%.
As a result, the husband can enjoy the 20k tax free threshold, then a 19% tax rate from 20k up to 37k, then 32.5% on the remaining 13k. This significantly reduces the tax rate as the husband was able to utilise
the lower marginal tax rates.
In this example, the tax savings is $16,000 by distributing to the husband (low-earner) as opposed to the wife (high-earner).
Can a Trust make different distributions to the prior
year?
This depends on the type of Trust and the trust deed. Typically, if it is a discretionary or family trust, the distributions each year can change based on tax optimisation.
Can a trust stream income to minors (children under 18)?
Yes, however, the amount is capped at $416 per child.
A Testamentary Trust is a structure that enables family inheritance passed down through the family and has no limits on distributing to minors.
What is the due date for the Trust 2019 tax return?
The due date for lodgement changes for each Trust. It will most likely be in March or May following the year-end, IF no prior year lodgements were made late. If a late lodgement occurs, the tax lodgement due date is normally brought forward by the ATO to 31 October.
Do you file a tax return for a trust?
Get in touch with POP Business to ensure you get your Trust Tax Return lodged on time.
If you have any Trust-related questions, the team at POP are experts in tax minimisation and compliance of Trusts, so get in touch.
