When do we pay tax in a family trust? This article will help you understand through four examples.
Only pay tax on the income that is earned in the Family Trust. Both the beneficiary and the trustee of the family trust must pay income tax (or capital gains tax) on all income earned by the family trust in each financial year.
There are four examples that may help you solve problems:
Family trust loan —– Family trust borrows money from a bank or third party. There is no income tax payable on loans. When the loan is paid back the Lender pays no tax on the repayments. However, if the lender charges interest, the lender must be taxed on that interest, and the family trust can get a tax deduction for the interest it pays to the borrower.
Family trust gift & donations —— The Family Trust pays no tax on the gift and donations. There is no income tax payable on those sections.
Income distribution of family trusts —— Once a family trust has earned income, if the trustee has not distributed the income to the beneficiaries, the Trustee of the Family Trust pays the tax on the income. And this is at the highest marginal tax rate. You will pay more money on tax.
Child tax —— All income earned by trustees (parents) is distributed to their own children. If the children are over 18, the first $18,200 a year is tax-free. Under this limit, children do not have to pay tax. However, children under the age of 18 will receive a maximum of A $416 per financial year. (After that, the tax rate on minors climbs to 66%!).