At a time when the Federal government is proposing to introduce a 30% minimum tax on discretionary trusts, it is a very opportune time to consider your current discretionary trust deed and review how this new proposed regime will affect your business and tax planning.
The main proposals are:
- Trustees will pay a baseline 30% tax on the taxable income of discretionary trusts
- Non-corporate beneficiaries entitled to trust income will receive non-refundable tax credits for the tax paid by the trustee
- Corporate beneficiaries will be excluded from receiving non-refundable credit
- There will be a 3 year rollover relief starting 1 July 2027 which will enable taxpayers to transfer assets out of discretionary trusts into non-trust entities like companies or fixed trusts
Clearly the government has an agenda to encourage businesses and trust entities to migrate assets to corporate structures.
What are the implications for anyone in Queensland who wants to transfer assets or land?
In other States as compared to Queensland such a transfer of business assets or land from a trust into a company would ordinarily attract little or no transfer duty.
That is not the case in Queensland.
Queensland does have an existing exemption for certain transfers of ‘small business property’ from a discretionary trust to a company where it complies with within Part 1A of the Duties Act 2001 (Act), when applying to qualifying ‘small business restructures’.
The exemption doesn’t apply if the assets:
- being transferred have an unencumbered value of more than $10 million
- are being transferred from an entity with annual turnover of more than $5 million
- are being transferred to a company that has traded before
- are being transferred between companies
- are being transferred out of a company structure.
The exemption also doesn’t apply to land used as:
- a residence by the transferor
- an investment property held by the transferor which is used to generate income to fund the business.
It is important to note that the Act does not require all the trusts assets to be transferred as the exemption only applies to the ‘small business property’ transferred to the new corporate entity.
All ‘default beneficiaries’ of the discretionary trust must also become shareholders in the new corporate entity.
Whilst there are some limitations this will be a valuable planning tool for business owners.
A corporate entity does have a lot of benefits including improved succession planning, corporate tax rates for retained earnings, simplified ownership interests to name a few.
For business owners who operate trust structures it is a prudent time to look at your current discretionary trust deed with a view to start considering future planning initiatives.
How can FC Lawyers help?
The business and corporate team have assisted small business owners from a range of industries and professions in these types of matters, and we are happy to review your current structures and provide legal and strategic advice going forward.
Contact our team today to discuss your legal options.
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