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#EveryoneNeedsaPlan When Distributing Trust Income to Family Members
Posted by G. Dean McKinnon
on 24 February 2022
The ATO recently issued a Taxpayer Alert regarding parents that benefit from a trust entitlement of their children over 18 years of age.
It has been common practice for families to distribute trust income to various family members that have different Marginal Tax Rate brackets. The income may be declared distributed in the trust account and individual tax returns of the parents and children but the "economic benefit" may only reside the parents (i.e. the income is declared for the child but no actual payment is made to the child).
The ATO is "concerned" about this arrangement, believing they are designed to "avoid tax" because the child may have a lower tax rate than the parent and if all of the income was distributed to the parent they may have paid a higher tax rate.
The ATO is reviewing arrangements with some taxpayers that may have this type of structure. If you do have this type of arrangement it is recommended that you seek advice from your taxation professional as possible to ensure you are prepared if the ATO comes knocking on your door!
McKinnon Financial Services is not a tax agent but we do coordinate the tax requirements of our Total Service Clients with qualified taxation professionals. Our initial appointment is free of charge so do not hesitate to contact us and arrange an appointment to discuss your requirements.
It has been common practice for families to distribute trust income to various family members that have different Marginal Tax Rate brackets. The income may be declared distributed in the trust account and individual tax returns of the parents and children but the "economic benefit" may only reside the parents (i.e. the income is declared for the child but no actual payment is made to the child).
The ATO is "concerned" about this arrangement, believing they are designed to "avoid tax" because the child may have a lower tax rate than the parent and if all of the income was distributed to the parent they may have paid a higher tax rate.
The ATO is reviewing arrangements with some taxpayers that may have this type of structure. If you do have this type of arrangement it is recommended that you seek advice from your taxation professional as possible to ensure you are prepared if the ATO comes knocking on your door!
McKinnon Financial Services is not a tax agent but we do coordinate the tax requirements of our Total Service Clients with qualified taxation professionals. Our initial appointment is free of charge so do not hesitate to contact us and arrange an appointment to discuss your requirements.
Author:G. Dean McKinnon
| Tags:Tax |
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