Hybrid discretionary trusts can be hybrid discretionary or hybrid unit trusts. The former are the more common and take the best features of both discretionary and unit trusts and mixes them together in the one entity to create a powerful and flexible tax planning solution.
They are typically used to gear into property where an individual will borrow to purchase the units in the trust (usually using the property purchases by the trust as security) and then, when the property is no longer geared, the trust can repurchase the units (often borrowing money to do so).
Care needs to be taken when establish such a structure as not all trust deeds are adequate to allow the individual to claim the tax deduction for the interest expense on the loan.
Testamentary trusts are formed upon the death of a person who has specified its creation in a will. These are not discussed here but if you have any questions feel free to chat below using our live chat tools.
Note that Centrelink may include the income and assets of a trust when working out your social security payments if you are considered to be a controller of a trust. Further information can be found at the Centrelink website.
The trustees of a discretionary trust are able to distribute income and capital gains to beneficiaries in whatever way they desire (typically the most tax effective means).
The assets of the trust are also protected in the event of litigation against beneficiaries as there is no single individual that owns any assets so therefore creditors of an individual cannot access any assets held by a trust.
A ‘family trust election’ must also be made in some circumstances e.g. in order to distribute franking credits. In addition, franking credits cannot be distributed to beneficiaries unless the trust has net income.
A company can be a beneficiary of a trust ensuring that the tax rate is capped at 30%, however, unless this distribution is actually paid to the company there may be other tax consequences e.g. deemed dividends and Div 7A loan issues.
Beneficiaries who receive capital gains can claim the 50% capital gains discount where the asset has been held for more than 12 months.
If your business is not registered for GST it is either very small (business’ with a turnover of less than $75,000 are not yet required to become registered for GST) or is not meeting its obligations to the ATO.
If you would like to take our free Business Health Check we can assess whether your business IS meeting its basic GST obligations.
Once you have an ABN, it is still possible to cancel its registration, back date the date of its registration or change the registration.
Other GST registration options include GST branch registration for discrete parts of your business – if it is viewed as desirable to report GST via business units?
Our Business Health Check may assist you (and us) to critically consider the optimal GST reporting structure for your business with a free review of your business structure.
Below are our video tutorials on why your business should have an ABN and the importance to completing your BAS returns.