There are several different trust accounts in Australia, and the tax implications for each type of trust account vary. With a fixed trust account, all income and capital gains earned by the trust are taxed at the rate applicable to individuals. However, with a discretionary trust account, only half of the income and capital gains are taxed at the individual rate, with the other half taxed at the corporate rate.
The tax implications of trust accounts
Trust accounts in Australia are subject to several tax implications, and these can include income tax, capital gains tax, and stamp duty.
Income tax is levied on the trust’s taxable income, which is calculated by taking into account both assessable income and exempt income. Capital gains tax is applied to any gains made on the sale of assets held within the trust. And stamp duty may be payable on certain transactions carried out by the trust, such as purchasing or transferring property.
The most common types of trust accounts in Australia
Here is a summary of the four most common types of trust accounts and their associated tax implications.
Fixed trusts are a type of trust where the trustee has no discretion over distributing the trust’s assets. This type of trust is often used for estate planning purposes, as it can help to minimise the amount of estate tax that needs to be paid after someone dies.
The tax implications for a fixed trust are that any income or capital gains generated by the trust are taxed at the rate applicable to that type of income or capital gain. For example, if the trust generates interest income, it will be taxed at the concessional rate of 30%. Capital gains from assets held in the trust are also taxed at the concessional rate of 15%.
A discretionary trust is a type of trust where the trustee has complete discretion over who gets the money and when they get it. This type of trust is often used for estate planning purposes, as it can help reduce the amount of estate tax that needs to be paid after someone dies. Discretionary trusts are also popular among business owners, as they can offer some tax advantages over other types of business structures.
The tax implications for a discretionary trust are that the income and capital gains generated by the trust are taxed at the highest marginal tax rate. This means that if any beneficiaries are in a higher tax bracket than the others, they will pay more tax on their share of the trust’s income or capital gains.
Unit trusts are a type of trust where investors buy units in the trust, and each unit represents an equal share in the assets and liabilities of the trust. Unit trusts are often used for investment purposes, as they offer more flexibility than other types of investment vehicles.
The tax implications for a unit trust are that the income and capital gains generated by the trust are taxed at the concessional rate of 30%.
A hybrid trust is a type of trust that combines features of both fixed and discretionary trusts. The tax implications for a hybrid trust depend on the particular terms of the trust. Still, generally speaking, the income and capital gains generated by the trust are taxed at the highest marginal tax rate.
As you can see, the tax implications of trust accounts in Australia vary depending on the type of trust. It is essential to seek professional advice before setting up a trust account to ensure that the trust is structured in a way that is most advantageous for your particular circumstances. We recommend using an experienced and reputable online broker from Saxo Bank, to ensure that you understand the tax implications and how to choose the right trust for you, and you can trade on a demo account and even improve your trading skills.