Family trust mistakes - TRUST LOSS LESSONS

A Family Trust allows for the distribution of income to any family member.

However, if the trust has a loss it is trapped inside of the trust and needs to be funded with after-tax income.

This is because the use of this type of trust does not push down losses to a taxpayer to claim against their PAYG income.

As an example, if the trust holds a property where the rent is insufficient to cover interest and other costs– so it's negatively geared– then the loss is trapped inside.

The bank and other suppliers still need to be paid but this is achieved without getting a tax deduction.

Any accumulated losses in the trust are available to offset future profits, including a capital gain.

This issue can be adjusted, with the correct advice and implementation, to allow any negative gearing to effectively flow down to the taxpayer.

The end result being that the losses will be offset against PAYG tax to improve cash flow.

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Jason Gwerder
Friday, 30 June 2023

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