Discretionary Family Trusts

Discretionary or Family Trusts are required to distribute all of their income every year to the beneficiaries of the Trust. The Trustees are, in most cases, required by law to have considered the method of distribution of the Trust’s income by 30 June, that is, BEFORE the end of the financial year. We recommend all Trustees ensure they have determined and documented their Trust’s income distribution prior to 30 June each year.

The Trustees therefore need to have some method of determining the likely income of the Trust for the year prior to making a determination of how the income will be distributed. Tax planning calculations are of great assistance, allowing the Trustees to be able to both determine the likely income of the Trust, and in many cases also consider the tax effect of the distributions to beneficiaries.

This gives the Trustees a good foundation on which to make and document their determination of how the Trust’s income is to be distributed by the 30 June deadline.

Businesses

All businesses, irrespective of structure, need to regularly review their financial position to ensure they are moving in the right direction. Many successful business owners place a high priority on a review of their financial position just prior to the end of the financial year allowing them time to implement appropriate tax minimisation strategies.

Tax planning is invaluable to business owners and managers because it provides a concise summary of the business performance to date, and the projected outcome to the end of the financial year. This allows different scenarios to be easily considered, enabling decision makers in the business to implement strategies that have a positive impact on the business results for the year. The types of scenarios that can be investigated as part of tax planning for businesses are:

• Review performance compared to prior years – if turnover has significantly increased or decreased, there may be cash flow implications relating to upcoming tax payments
• Bring forward expense payments to reduce taxable profits prior to 30 June
• Review directors’/owners’ remuneration – both the amount and the method of payment

Capital Gains

Taxpayers who have triggered a capital gain from the sale of an asset during the year have realised benefits with tax planning. Tax planning may be simply in the form of an estimate of the taxable capital gain/s that have been realised, and an estimate of the overall tax effect to the entity that sold the asset. This allows cash flow to be considered, to ensure the funds are readily available to pay the additional tax on the capital gains income.

Tax planning can be undertaken prior to the proposed sale of an asset, to calculate the financial and tax benefits and detriments to retaining or selling a particular asset. This has been found to be particularly beneficial when a taxpayer has a number of choices available to them, enabling them to make an informed decision about what will yield the best result overall.

Superannuation

Finally, the last in our top 4, but by no means least, is undertaking tax planning in relation to superannuation. This can be in relation to superannuation contributions, or pension payments. We encourage all self-managed superannuation fund Trustees to review the level of pension payments made during a financial year, as there are minimum and sometimes maximum amounts that must be adhered to.

Reviewing the level of superannuation contributions is something that is increasingly important, given the almost annual changes to the superannuation contributions legislation from the last few years – and the most recent budget proposes a number of changes yet again. There are significant tax savings available for deductible super contributions, but if an error is made in the calculation, significant tax liabilities can result. Performing a review just prior to the end of the financial year can ensure the tax benefits are maximised.

The types super contributions that are most commonly reviewed as a part of tax planning are:

• Deductible personal contributions
• Employer contributions, including salary sacrifice
• Contributions relating to capital gains – linked with the review of capital gains

If you have any queries regarding tax planning, or how it may be of benefit to you, we encourage you to get in touch with your Altitude Advisor.