A very specific question for people that have family trusts and own AMIT ETFs.
I already asked the ATO but the 2 people I spoke with did not know the answer and just referred me to the AMIT section on the ATO website, which does not answer my query.
So I thought there are many very knowledgeable people here that may have encountered this before.
Anyway, I have a family trust that owns BBOZ, an ETF that is an AMIT entity.
Betashares, manager of BBOZ, sends an AMMA as an annual statement which shows tax return info for individuals.
Essentially BBOZ gives a dividend (say $1000 supposed to go to tax return label 13U for individuals) which includes a cash payment (say $500) and an AMIT amount as cost base increase amount (say $500, retained by the ETF).
All clear for individuals: declare $1000 income at 13U and pay tax for it. The other $500 (not received) will reduce any eventual capital gain when the ETF is eventually sold.
But how does it work for a family trust?
The income to declare is still $1000 that must be distributed to beneficiaries at end FY, but there is only $500 cash to distribute. Should the trust distribute the other $500 (not received) from its own reserves or there is another way?
Edit: the trust has very little income so I would prefer not to spend over $1k in accountants fee to lodge a return.
Tax Return of AMIT ETF Income for a Family Trust
Last edited 08/08/2022 - 19:04
Comments
Thank you shaun83.
That is what I thought, however as an added complication the beneficiary for this is a company. So an upe/loan to the company may trigger div7a? Also the trust has some losses carried forward from previous years, so the capital gain will never be able to be paid to the company even if the ETF is eventually sold at a gain.Ahh, yep Div7A would be an issue.
I haven't looked at this fund but maybe check that the whole distribution is income and not part capital.
If it's part capital perhaps distribute income to the bucket, and use the capital losses to soak up the capital component.
If it's all income like mentioned above - then no good ideas sorry.
Why distribute to the company in the first place if knowing div7a is an issue??
All income unfortunately.
Although the trust can claim some running expenses (deductions) that would reduce the actual trust income to be distributed to less than the cash received, so it could possibly distribute part of the cash actually received to the company. The rest of the reportable income would be soaked up by the expenses deductions.
All very small stuff really. I know hardly worth having a trust and company structure these days. But it was worth years ago when it was set up.
All trust income has always been distributed to the bucket company.
Have you also considered what your IOTE is and how income is defined? Refer to the trust deed and trust minutes that you signed prior to year end.
Sorry to be blunt, but a little knowledge is very dangerous. You sound like some of our clients who know a little bit and question why we charge so much because we need to deal with the bits that they don't know.
Thank you Kyle.
My trust is really very basic and with a very limited pool of beneficiaries.
I have always been able to sort out any situation in the last 20 years with some research and some advice from the ATO, so my little knowledge has been sufficient so far.
Always happy to learn more when I find new challenges though.
That is why I am here asking to people like yourself that may deal with this for their work or others that may have encountered this and sorted it out before me.
Unfortunately the income of the trust is so little that it is not viable to spend thousands in accountants fees.
We had the first return done by an accountant (it was VERY expensive!) and kept up with the changes since then to lodge our own return since.
The trust deed allows the trustee to define the income and allocate it at his discretion. Normally to a bucket company.
The ownership of this AMIT ETF has been a bit more of an headache. BBOZ has never distributed dividends before so I did not expect it and it was too late to sell the ETF cum dividend when I learnt about the distribution and its complicacy for the return of the trust. Unfortunately it is not just like any other shares investment and dividend.
The fact of having to pay income tax on undistributed income that goes to increase the cost base is not really effective in our case either.
But you live and learn…Not a big issue.
Do you have any suggestion on the best way to report this income on the trust return and how to effectively and legally distribute it to the bucket company?
The income of the trust (IOTE) is only this ETF dividend and the figure not much more than the one I mentioned (rounded up for simplification).
As I said, not worth accountants fees.Without providing any sort of specific advice and without knowing your full circumstances, you need to know the differences between accounting income per financial statements, IOTE (i.e. how the deed defines income) and trust law income. On the assumption that your trust minutes have been drafted correctly, there is no issue distributing 100% to the corporate beneficiary. This will however create an UPE which should be satisfied by paying actual cash across to the corporate beneficiary, or enter into a Div 7A loan arrangement. Should have just done the minutes as 100% to yourself to save all the corporate beneficiary troubles. Bucket companies are only delaying the inevitable and saving on the time value of money in most cases.
As you have not attached the annual tax statement, I can't comment on whether you are actually reading the numbers and the labels correctly.
I wonder if you're best to sell - wind up the trust and simply purchase in individual(s) names?
Yes that has crossed my mind. However the trust has some carried forward losses from previous years that I am hoping to be able to use with future capital gains.
When you make a gain the government wants its share straight away, but when you make a loss you only get to carry it forward and use it in the future if you are lucky enough to make a gain! Not a bad partnership for the government… when YOU win WE win, when YOU lose YOU lose.
Also the trust has a 99 years lifespan and it is all setup. Ongoing cost is minimal other than my time. You never know when it can come handy or be passed on to the children if they can benefit from it.How much in value are we talking here i.e. capital losses cfwd, current market value of ETFs - original price of ETFs?
Without going in specific details, not much at all.
Few thousands in cfwd.
Probably not even worth a second look from the ato.@EveryLastCent: Put it this way. If that were me I’d wind it up. Asic fees alone aren’t worth preserving the losses. Bit of a false positive IMO.
a family trust with a company as a beneficiary, surely u have an accountant who u pay to deal with this stuff…
If income is only 1k… I'm curious why ud want such a complicated setup. When setting up a trust, u need to factor in such running costs of the trust (rhetorical question. I know u have your reasons… I just couldn't imagine how it'd be worthwhile)
It was worthwhile many years ago when it was setup. Now due to xhanged circumstances it is not really, but not really difficult to look after with normal stuff. It just takes a hit of research.
Does the family trust have the cash to pay the distribution fully? just do that if you can.
An option if the family trust doesn't have the cash on hand is to perhaps an injection of capital to your beneficiary account, or a member loan
Yes it has the cash. And in case I can always add capital to the trust.
Especially considering that after accounting for all allowable deductions the taxable income left to distribute will be probably lower than the cash actually received drom the ETF.
I just find this AMIT dividend (that includes an unpaid amount that is retained by the ETF and increases the cost base) not very good or advantageous for the ETF holder.
In future I will make sure I sell ETF Cum dividend. Anyway the price normally falls by a similar amount to the dividend when they go Ex.
Much better to receive standard fully paid dividends with franking credits attached.
I'm working through a similar problem. Will an LIC instead of ETF fully solve your issue? In my case, my accountant suggests it won't, although it seems counter intuitive to me.
My trust invested in an LIC instead of ETF. Let's say the grossed-up dividend is $1k with $700 fully franked dividends and $300 franking credits.
The draft tax return from my accountant is showing $1k net income (assuming no deductible expenses).
The trust distributes $700 cash and $300 franking credits to the bucket company.
However my accountant says there's still a $300 cash shortfall, which will need a Div 7A loan if I don't have reserve cash. It doesn't seem right but I haven't been able to find a good counter example.
For the tax return.Distribute the $1,000 from the trust to the beneficiary.
In the financials, If paying out the entitlement, pay the $500 and put the other $500 in as a upe/loan.