Home – New Forums Money matters Paying yourself in a Trust

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  • #994970
    RH78
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    Hi All,,
    About 18 months ago I restructured my business from a sole trader to a company as trustee for a family trust so I could share profits with my wife. At the time I asked my accountant (who has now sold out) how to pay myself and I’m sure he told me to just take drawings which I have been doing fairly randomly usually about twice a month. I have since read online that when operating as a company you can either pay yourself as an employee or pay yourself a dividend at the end of the year. My question is as I am operating as a trust (with a company as trustee) is it ok to take drawings or have I stuffed up big time? I do all my own book work on Reckon Accounts and are yet to go and see the accountant whom my old accountant sold out to. If I have stuffed up is there anything I can do to rectify the situation? I am well aware we need to pay personal tax on drawings.
    Cheers

    #1199378
    Paul – FS Concierge
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    Hi and Welcome to the Forums RH78 – it is great to have you.

    The ATO do not make some simple things easy do they?

    Hopefully one of our smart accountants can answer your question.

    #1199379
    PRO
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    Hi

    Welcome to a great forum.

    It is a distribution of profit that is the main thing at the end of the financial year. You distribute profits to yourself and your wife, other family members, entities etc.

    You need accounting advice NOW to ensure that your get your EOFY things sorted correctly.

    #1199380
    Taxopia
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    RH78, post: 236002, member: 81821 wrote:
    Hi All,,
    About 18 months ago I restructured my business from a sole trader to a company as trustee for a family trust so I could share profits with my wife. At the time I asked my accountant (who has now sold out) how to pay myself and I’m sure he told me to just take drawings which I have been doing fairly randomly usually about twice a month. I have since read online that when operating as a company you can either pay yourself as an employee or pay yourself a dividend at the end of the year. My question is as I am operating as a trust (with a company as trustee) is it ok to take drawings or have I stuffed up big time? I do all my own book work on Reckon Accounts and are yet to go and see the accountant whom my old accountant sold out to. If I have stuffed up is there anything I can do to rectify the situation? I am well aware we need to pay personal tax on drawings.
    Cheers

    Ok here are some very important points for you to resolve.

    1. You appear to be operating a trust not a company (corporate trustee is not the tax entity unless you have registered a TFN for it and use it in a dual capacity).

    2. It’s probably a discretionary trust (sometimes referred to as a family trust) but you need to check this because it effects distributions.

    3. If there is no company in the mix then you are unlikely to have any related party Div 7A loan issues caused by the drawings (a benefit of trusts versus companies). So that means you can draw the money out and generally have less pressure at the end of each financial year. For reference the reason they generally don’t apply Div 7A related party loans to trusts is because they do not offer sheltering of profits at a corporate tax rate.

    4. From an income trust tax perspective the trustee (the company) is required to make a distribution decision – normally on the last day of the financial year depending on the trust deed. That means you really need to have documented this at 30 June. Importantly this decision minute does not require lodgement with the ATO. You may have documented something somewhere :) and your accountant can help with this.

    5. Each state has a different view on trusts and recasting / substituting owner’s salaries as trust distributions. The main reason being that payroll tax and various other remuneration tests generally apply to wages and not trust distributions to beneficiaries. You need to be sure that if you don’t draw a salary and you record everything as trust distributions, that you are compliant with your state requirements.

    6. Personal services income tax regulations (PSI) and Part4A general anti-avoidance provisions apply to personal exertion income that has been “alienated” to an alternate entity. So you need to be sure that your trust income is actually eligible to split amongst beneficiaries or rather whether in fact it should be taxed in the hands of the individual that generated the revenue.

    Otherwise its very simple – especially at Taxopia :)

    Cheers
    Alex

    #1199381
    RH78
    Member
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    Thanks very much Taxopia. As you guessed I am operating from a discretionary trust with a company as trustee so I think I am in the clear. I will book in with my accountant in the next few weeks to make sure everything is in order.
    Cheers

    #1199382
    Taxopia
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    RH78, post: 236064, member: 81821 wrote:
    Thanks very much Taxopia. As you guessed I am operating from a discretionary trust with a company as trustee so I think I am in the clear. I will book in with my accountant in the next few weeks to make sure everything is in order.
    Cheers

    No probs good luck. If you require any assistance please feel free to contact our office.

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