I have a discretionary family trust with a corporate trustee where my wife and I are both directors of the company. We are both the beneficaries of the trust.
The trust is used as an investment vehicle to provide flexibility in distributing income and capital gain and to a lesser extent asset protection.
The trust owns share and some cash investment (TD). It has its own bank account too.
Whenever the trust purchases new share, I transfer fund to the trust's bank account from our personal account (gifting the fund). Then, whenever the trust sold some share, I transfer the fund out from the trust's bank account to our personal account (the intention here is as non-assessable capital distribution). The main reason here is that I get a better interest rate holding cash in my personal account than in the trust's bank account.
At the end of the financial year, I distribute all income and capital gain received by the trust to my wife in the tax return. But in reality there isn't any cash flowing back as at that time the trust holds almost no cash. But from taxation point of view, my wife will pay the tax for all income and capital gain assessable to the trust.
Question is am I doing something right here?
The last two tax return, I used a chartered accountant who suggested that this is all fine. I keep a record of all transactions (including bank transactions) in Quicken, so everything can be checked up to the cents. I even game him a summary of all fund transfer into and out of trust including when and how much. He did not seem too concern about it. None of it is declared in the tax return. I just want to double check that there isn't any tax implication for my wife by doing the capital distribution in throughout the year.
Second question, does anyone have any experience in doing tax return for family trust? Is it easy? Can it be done electronically? I want to avoid paying huge fee to my accountant since I pretty much have all the records in Quicken and all he has to do is simply plug in the numbers into the form.
If you need others type in Trust in the search box at the below link and pick what you need. Forms
This post contains information of a general nature only and is not intended to be used as advice on specific issues. Opinions expressed are subject to change, just like the legislation and yearly budget. That said I hope it helps someone in some way.
There are some legal implications to consider too.
You must remember that the trust money is not your personal asset and you shouldn't treat it as such.
A trustee has a legal duty to act in the best interests of the trust's beneficaries and a duty to keep the trust assets separate from their own personal assets.
Although there may be 2 main beneficiaries there are probably hundreds more that are beneficiaries because they fall into a class of beneficiaries (children, parents etc). These beneficiaries have the right to have the trust properly managed for them even though they have not and may not receive any income or capital from the trust.
Therefore you have to think, when you transfer the money, is it benefiting the trust or is it benefitting yourself at the expense of the beneficiaries as a whole. The trust may be missing out on interest income etc and you are gaining interest income.
The trustee is governed by the rules of the trust. The deed may say that the trustee can make interest free loans to any beneficiary. It maybe be ok then. Or it may be an early distribution of income. Each decision of the trustee should be recorded in a resolution too.