06/09/2024
🔵 ADVANTAGES
- High flexibility in income distribution for annual profits and future capital gains.
- Tax-efficient streaming of franked dividends and capital gains to multiple family members.
- Eligibility for the CGT discount—50% tax-free on assets held for more than one year.
- The small business 50% active asset reduction can pass through discretionary trusts tax-free.
- Generally effective for risk management and asset protection; however, legal advice should be sought for individual circumstances.
- Unit trusts can provide fixed entitlements for unrelated parties.
🔵 DISADVANTAGES
- Losses are trapped within the trust.
- Subject to close scrutiny by the ATO, particularly regarding tax minimization strategies.
- Trusts are not perpetual, though this is often a minor concern.
- Accumulated income is typically taxed at penalty rates; distributions to family members are taxed at personal rates, potentially up to 45% plus Medicare and levy surcharges.
- Not conducive to debt financing.
- Discretionary trusts do not handle ownership changes well; transferring ownership to another family member may incur stamp duty, depending on the assets involved.
- Limited access to the main residence exemption.
- Costs associated with establishing and maintaining a trust or trustee company.
- High land tax and duty expenses.
- No cash back when refinancing with banks.
Ngo Accountants Team.
