Trust beneficiary taxes

Question from sasheen updated on 18th January 2019:

What would be tax rate be if a Trust becomes the shareholder of an LTC and the beneficiaries are children under 16? Will the tax rate change if the children are over 16? The LTC is making profit.

Our expert Mark Withers responded:

I presume your question is contemplating what happens if the trust is in receipt of the look through income distributed to young beneficiaries. If a trust retains its income the trust rate of tax is 33%. If it distributes it to a beneficiary under 16 the beneficiary is also taxed at 33% on all income above $1000. Only the first $1000 attracts tax at the beneficiaries marginal tax rate.

If the beneficiary is over 16 and on a low income, then this income is all taxed at their own marginal rates which may be substantially lower than the trust rate.

A word of warning though - when you distribute income from a trust to take advantage of lower beneficiary tax rates, the day will come when those beneficiaries will ask for the money so, despite the tax saving, make sure you are willing to hand over the money or use it for the furtherment or betterment of the beneficiary.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

Search the Ask an Expert archive

Browse all questions in the Ask An Expert Archive »

Site by PHP Developer