What is a family trust?

When someone says family trust, they are probably referring to a discretionary trust. The main reason why the word family usually replaces discretionary (besides being a shorter word) is probably because the trust is intended to benefit themselves and their own family members. There really is such a thing as a Family Trust though so I might come back to this in a later post.

So what is a trust?
Essentially it is a relationship where a trustee holds onto assets on behalf of one or more beneficiaries.

What is a trustee?
A trustee is whoever has control over the trust assets and is required to make decisions and attend to the day to day running of the trust. Think of the trustee as the manager of the assets, but technically not the owner. A company can act as a trustee so the decisions then rest on the director(s) of the company.

What is a beneficiary?
A beneficiary is the real owner of the trust even though they don't necessarily make any decisions and some beneficiaries don't even know that the trust exists. Beneficiaries are entitled to the assets of the trust and any profits generated from those assets. Most trust deeds allow other trusts and companies to be beneficiaries as well.

What is a trust deed?
A trust deed is the legal document that outlines the terms and conditions of the trust such as how it is to be setup and then how it is to be run. The trust deed will also specify who the appointor is.

What is an appointor?
The appointor has the important power to be able remove or replace trustees. This is usually the limit of their influence as appointors are not involved in the day to day running of the trust. However the appointor can also be the trustee if they so choose.

What is so discretionary about a discretionary trust?
Under current Australian taxation law, if a trust makes a net profit then it normally should distribute this profit to its beneficiaries every financial year. This is when the trustee can exercise their discretion to decide which beneficiaries will receive how much of the profits every year. Some years a beneficiary will receive more than last time, or less, or none at all. Sometimes the trustee can decide to not pay out any profits at all if they so decide.

Now you all know the bare basics of a discretionary trust. And I'll know that you don't read my blog if you keep referring to a family trust instead of a discretionary trust! Next time I will go through some advantages and disadvantages of using one to run your

2013 election promises

Public service announcement: Remember to vote this Saturday!

I missed voting in one election before and got a fine for it. It felt great having to pay for not exercising one of my constitutional rights. Anyway I'm going to list some of the relevant tax and small business election promises that both Liberal and Labor are making so that we can refer back here later to see how many were broken.

Labor

• Reduce GST reporting requirements from quarterly to annual.
  (This is nice but you all better still reconcile your bank accounts regularly.)
   
• Temporarily increase new asset purchase write-off from $6,500 to $10,000 until 30 June 2015.
  (Sounds nice but the existing $6,500 limit covered most things already.)
   
• Committed to delivering the National Broadband Network (NBN).
  (This isn't new but they keep going on about it; probably because it cost so much. Well I hope you guys live in one of those roll-out areas because it's not even planned for my suburb yet.)
   
• Continue the company tax loss carry-back scheme and expand the carry back period to two years as planned.
  (I think the original intention of this was to save companies who have a bad year from going bankrupt but if your company has to rely on tax relief to survive then you really are just delaying the inevitable. Reminds me of the Australian car manufacturing industry.)
   
• Continue with not allowing the statutory formula for motor vehicle fringe benefits tax.
   (Apparently this will generate more tax revenue for the government but if employers stop buying cars then there will be nothing to tax. Now who is going to pay that $200 million package promised to the car manufacturing industry?)

Liberal

• Abolish the carbon tax.
  (Bit late now since I doubt prices will come down for things like electricity and freight costs.)
   
• Reduce company tax rate to 28.5% from 1 July 2015.
  (This is very nice. The resulting franking account reduction should be negligible for most of us.)
   
• Delay the compulsory superannuation guarantee increases.
  (Well good if you're the employer and bad if you're the employee.)
   
• Abolish the mining tax.
  (Olympic Dam expansion might then go ahead after all.)
   
• Discontinue the $6,500 new asset purchase write-off and $5,000 accelerated depreciation for motor vehicles.
  (This is disappointing. That Labor policy of increasing the write-off is looking pretty good now.)
   
• Discontinue the company tax loss carry-back scheme.
  (Hopefully none of us need to use this.)
   
• Reinstate the statutory formula for motor vehicle fringe benefits tax.
  (You all might as well finish off those log books since we can use them for five years anyway.)
   

I'll keep adding to this post as I find things during the week. Remember to do your own digging around before you vote as these are my own opinions only. Hope all the dads out there had a