FAQ 64 How should Trust funds/Expenses be handled?

Trusts must be treated as an entirely separate entity from you. The property is not personally owned ( the Trust owns it , it\’s liabilities, it\’s assets, it\’s income and it\’s expenses) and therefore there is no entitlement to receive the rental income directly from the Trust property.

• The trust submits it\’s own tax return each year.
• The trust claims depreciation for the assets that it owns.
• The trust may borrow using it\’s assets as security for the loan. The purpose of this borrowing may be either to loan to other entities or pay down loans from personal sources. The net overall effect being to transfer the total amount of loan to a single lender rather than being spread over 2 lenders.
• Entitlement to distributions is decided by the Trustee on behalf of the Trust. These distributions will be taxed at the marginal rate that the beneficiary pays.
• The exception to this is when the beneficiary is a bucket company in which case they are taxed at the current company rate which is 30%.
• Persons receiving distributions are free to use these distributed funds as they choose.
• Companies receiving distributions have to abide by company law when using their funds. An accountant will brief on how funds held in a company may be used.
• The only way that a Trust can maintain it\’s separation from other entities is by having it\’s own separate Trustee bank account.
• All Trust monies MUST flow into and out of this bank account
• All Trust monies should be annotated. These include Rental Income, Rates, Water, Property management, Interest paid on Loans from a bank, Interest paid on Loans from other entities, Distributions paid to Beneficiaries, Distributions paid the associated entities.
• Total Annual Distributions paid MUST be nominated prior to 30th June each year. Visit an accountant prior to this date and discuss how the Trustee will distribute the Trust funds. Document these and leave them with the accountant to form an audit trail.
• Below is a spreadsheet showing the overall cash position of an example trust. It should be noted that there are no funds to distribute as the Cash Flow for each year is negative
• Trust losses are accumulated each year until such time that the trust makes a profit
• Trust invoices should be made out to the Trustee as they control the bank account and submit the trust accounts to the ATO on behalf of the trust.

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