Discretionary trusts, known as “family trusts” in Australia, are commonly used to manage a family’s money and property. It’s also a standard framework for family-run enterprises.
To put it simply, a trust is a legal arrangement in which one party (the trustee) retains legal title to the best property lawyers for the benefit of another party or parties (the beneficiaries) (the beneficiaries). The trustee has broad discretion in managing the assets, and the beneficiaries get the income generated by those assets.
One form of trust is the discretionary trust. The trustee of a discretionary trust has the authority to decide whether or not to make any distributions to the beneficiaries and, if so, how much each beneficiary would receive. In this scenario, the recipients can only hope to get payment rather than count on it.
A family trust is a type of trust in which the beneficiaries are all related or related by blood, and the trustee is either a family member or a firm managed by the family. This trustee’s discretion is quite extensive, and it includes the ability to decide how the trust’s revenue should be distributed.
In this article, our professional property rights lawyers explain all you need to know about property co-ownership. We believe that with adequate knowledge about private property, the law relating to personal property, common law principles, and your general legal rights, you will be well-positioned to make good choices as a property owner.
In this article, our professional property rights lawyers explain all you need to know about family trust and local taxes. We believe that with adequate knowledge about private property, the law relating to personal property, common law principles, and your general legal rights, you will be well-positioned to make good choices as a property owner.
Hence, family trusts may be a helpful instrument for asset protection, reduced tax liability, and reduced vulnerability.
The benefits of establishing a family trust include:
Planning Your Tax
The maximum income tax rate is 45%, and that percentage is applied to a family trust. Income earned by the trust that is handed to beneficiaries is subject to taxation at the beneficiary’s individual income tax rate.
It is typical practice to establish a family trust in order to reduce the collective amount of income tax a family must pay. Income from a family trust is often distributed among the beneficiaries with greater amounts going to those who pay a lower effective tax rate. As a result, fewer taxes will need to be collected from the trust’s benefactors.
Security of property
The assets of a family can be shielded from potential lawsuits by setting up a trust. If a debtor is unable to pay back their obligation, the creditor may seize some of their personal property. A person’s home, automobile, and other property that is registered solely in their name are considered personal assets.
The beneficiary of a family trust that holds personal assets has no legal claim to such assets. Therefore, the beneficiaries’ creditors are unable to seize them. No bankruptcy of the beneficiary will affect this.
A reduction in the capital gains tax of 50%
All gains made from the sale of an asset are subject to capital gains taxation. When a family trust sells assets that it has owned for more than a year, the tax on those profits is reduced by half.
Negative balances can be carried over to the following year.
Losses are not passed on to the beneficiaries of a trust. This ensures that the trust’s beneficiaries will not be asked to make up for any financial shortfall. Instead, annual losses can be carried over to the next year.
What exactly is the Land Tax?
A yearly tax that is levied against property owners is known as the land tax. The value of the property possessed on June 30 of each year is used to determine how much tax must be paid.
It is important to note that the exemption applies to the family residence. There is also a level below which no tax is imposed on any other property. As a consequence of this, the vast majority of property owners do not pay land tax; nonetheless, the number of property owners who do pay land tax is expected to grow as property prices rise.
The exemption for the family house applies when the home is owned in the individuals’ individual names and when the owners make the property their primary residence. You can also read about traditional vs online wills by clicking here.
But what about situations in which a trust or a corporation owns the home that the family lives in?
The personal residence exemption is not applicable to a corporation under any circumstances. On the other hand, the exemption can be accessible to a trust in the event that the eligibility standards are completed. Even if the trustee of the trust is a corporation, the trust can still take advantage of the concession. Who is eligible to make a claim for the exemption?
To be eligible, the following conditions must be met: the owner of the property must be a trustee of a trust; the owner of the property and the trustee cannot be a person who does not typically reside in Australia; all of the beneficiaries of the trust must occupy the property as their primary residence and cannot own any other properties; and the beneficiaries cannot own any other properties.
Utilization of the Premises?
If the property is used by the beneficiaries as their primary residence in addition to serving other functions (such as being rented out or serving as the location of a business), the circumstances surrounding the situation will be evaluated to determine the impact on the beneficiaries’ eligibility for the exemption.
Your current situation could shift, as it has for some of our other customers, and if that happens, your qualification for the exemption might shift as well. Your eligibility for the exemption may be restricted rather than eliminated in the event that your personal circumstances undergo a significant transformation, such as when one of the beneficiaries of the trust no longer resides in the residence.
During the past six months of the fiscal year, the beneficiaries must have lived in the property as their primary residence (i.e., they could not have lived somewhere else) – but the Commissioner does have some leeway in this regard if it has been less than six months.
Who exactly will benefit from this?
This is a very essential point since in order to receive the entire exemption, all of the beneficiaries must live in the property.
1. A beneficiary of a discretionary trust is either: someone who has received a distribution of trust property (or another benefit) from the Trustee during the year; or, if no distributions have been received, the default beneficiaries listed in the trust deed. If no distributions have been received, a beneficiary is someone who has received a distribution of trust property (or other benefit) from the Trustee during the year.
2. A beneficiary is a person who is entitled to receive the income or the assets of a trust that is any type of trust outside a discretionary trust. A unit trust is an example of this type of trust.
How should one apply?
A request is made by filling out an application form and submitting it to the Office of State Revenue. In some circumstances, the application will be sent with copies of the supporting papers attached.
You do not have to submit a new request for the exemption each year if you are granted it. Nonetheless, you are required to update the Office of State Revenue if there is a change in the information previously submitted by you.
Finally
For all you need to know about the Australian legal system or the Western legal systems as a whole when you are purchasing property or trying to sell one, our experienced property lawyers at Chamberlains can help you navigate the process with clarity so that you can know what to do at the right time and how to do it.
You wouldn’t have to bother about the property law committee decisions, the same property issues, your local government law council actions, or the necessary things you need to do in the bidding contract, we will help you through it all.
