Last year, the government introduced a new section in the Tax Act aimed at tax avoidance. To many, it seems like it’s about taking all the fun out of tax planning. The new rules particularly impact trust distributions to family members.
Changes in Trust Distribution Rules
Previously, if you had children in university, you could distribute up to $45,000 to them. This strategy allowed the income to be taxed at the top of the 19% tax bracket, instead of parents paying tax at 37% or 42%.
However, the ATO has caught on to this practice. Now, if you distribute to family members outside the two main stakeholders, you need to distribute the money within two years of making the distribution.
Practical Implications
For example, if you want to distribute to a university student like Billy, ensure that the funds you give him for living expenses or tuition come directly out of the trust rather than the parents’ bank account.
Key Takeaways
– New Rule: Distributions to family members must be made within two years.
– Direct Payments: Ensure funds for living expenses, tuition, etc., come directly from the trust.
– Tax Planning: This impacts how you manage distributions to maximise tax benefits.
Conclusion
These changes mean you need to be more strategic with trust distributions. If you have questions or need assistance with tax planning under these new rules, reach out and let us know. Proper planning can help you navigate these changes effectively.