TAX PLANNING 2020
TIP #10 – TRUST DISTRIBUTIONS
Business structures that involve a family trust either as shareholder of a trading entity, or the trading entity itself, still present highly effective strategy when it comes to minimising tax across a family unit.So how do we determine which beneficiaries receive how much surplus at year end to achieve the tax minimisation goal, and how do we go about it?
Assuming your family trust is trading and there are no other business structures in the mix. Here’s what to do.
🚩 Ensure your bookkeeping is up to date, and banks reconciled, preferably at 31 May 2020
🚩 Update fixed asset register, transfer assets to pool, and run depreciation full year. (Also journal amortisation on intangible assets)
🚩 Review your profit & loss comparing to prior year and recode where necessary. (Also tidy up your balance sheet accounts)
🚩 How’s your net profit looking? Do you have excess profit that will not be paid out as wages / bonuses / super, but instead paid out to beneficiaries as trust distributions?
🚩 Next review the annual tax position of each beneficiary. Identify who has room to tax effectively receive a trust distribution and determine how much.
🚩 Include all beneficiaries in a group estimate in your tax plan, input their trust distributions, then calculate their annual tax payable.
All of this is done accurately by preparing an ANNUAL TAX PLAN in advance of year end, giving you enough time to take action and save real tax dollars!
What to be aware of when making trust distributions to beneficiaries:
✅ Read and comply with your Trust Deed which will specify distribution resolution requirements
✅ Ensure your resolutions are prepared in writing before 30 June or as specified by the Trust Deed
✅ Actual amounts don’t need to be recorded in your resolutions unless required by the Trust Deed, methodology for calculating the entitlement is the key component
*** IMPORTANT *** If you do not have a TAX PLAN 2020, get in touch and ensure you are well prepared in advance of financial year end. As a result of Covid-19, businesses are in line for material tax savings never experienced before, all designed to assist your business through the pandemic.
If you have any questions at all regarding financial and business matters, please don’t hesitate to contact us.
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If you are a business owner and you would like to learn more about how you can produce an accurate and reliable set of financial records for your business for maximum value and minimum cost, please contact us to request a free consultation.