The ATO changes surrounding trust distributions to corporate beneficiaries could mean you need to review your taxation plan leading up to tax time.

Corporate Beneficiaries
Up until 16 December 2009, trusts have been able to distribute to a range of beneficiaries, including individuals and companies. By distributing income to an eligible company, many businesses have been able to use this as an effective tax deferral strategy (distributing to a company means that taxable profit is taxed at 30% instead of a potential 46.5%).

Often the distribution was done so the cash could be left in the Trust to fund business working capital or further investment. A dividend did not have to be physically paid out of the company until the Directors determined.

the changes

The ATO announced a change to its position on corporate beneficiary distributions on 16 December 2009, finalising their ruling on 2 June 2010.

The final ruling means Trustees who have made distributions to companies which are unpaid need to determine the impact it will have on the amount payable to the tax office.

Where Trusts have made distributions to companies before 16 December 2009, there is some quarantining available, provided certain rules are met.

If the unpaid amount is determined to be a loan, the amount owing may have to be repaid over a period of seven years in most circumstances, with interest at the ATO determined rate under a documented loan agreement. This can have a significant impact on tax payable so it is vital that Trustees consider the implications of these earlier distributions now.

However, all distributions made after 16 December 2009 will be subject to the new laws.

Loan agreements will need to be entered into with specific terms, depending on the security offered. The ATO determines the interest rate to be charged on these loans and the minimum repayments due each year. Most loans will be repayable over a seven year period.

how elliotts can guide you?

With tax time nearing, these new laws will have a major impact on the tax payable by a large percentage of small and medium sized businesses and investors.

In most cases, you will need to complete a new Taxation Plan in order to structure your affairs so you can legally pay the least amount of tax possible and retain more income.

elliotts can help you ensure your Taxation Plan is up-to-date and make sure it complies with the latest ATO rulings and taxation legislation.

Call us on 07 3833 3999 or email info@elliottsgroup.com.au now to arrange a time to review your Taxation Plan.