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Family Trusts

The case for Family Trusts

Nathan Lear
Partner/Private Client Adviser
6 Oct 2015

Last week, leading accounting firm KPMG recommended family trusts pay full capital gains tax (CGT), following new estimates showing lost revenue associated with the use of family trusts tops $1 billion per year. 

One suggestion was to phase out the 50 per cent capital gains tax discount for assets held by trusts that are disposed of if held for more than 12 months. Another suggestion was that death should be treated as a “realisation event” for capital gains tax purposes in some circumstances.

However, family trusts do play a legitimate and important role in the financial strategies of some high net worth Australians and Australian small businesses.

What is the purpose of a family trust?

It’s important to consider the role and purpose of a family trust to high net worth (HNW) individuals and families in Australia. In summary, family trusts provide a way for HNWs to hold income-earning assets, set up to hold a family’s assets or run a business.

Family trusts provide asset protection; with the legal owner of the assets being the trust instead of the individual. They facilitate a vehicle for succession planning and the intergenerational transfer of wealth, as well as offer flexibility meaning that unlike a superannuation fund, they do not lock assets away until preservation age.

Family trusts are also a trusted investment vehicle for the thousands of small businesses in Australia. They provide working capital for a business, and are critical to secure personal assets in the event a business fails.

Lastly, family trusts provide another investment vehicle beyond superannuation, which currently prevent concessionally taxed superannuation contributions in excess of $30,000 per annum (for those under 50 years of age) or $35,000 (for those over 50 years of age).

Role of the ATO

The Australian Tax Office (ATO) has a “trusts taskforce” to keep a close eye on how family trusts operate, ensuring compliance and monitoring those who may abuse a trust. As at January 2015, the taskforce had 21 audits and 397 reviews.

With notable court cases and crackdowns in relation to the income that can be distributed to when and to whom, the ATO continues to keep family trusts in the spotlight. Therefore, there is strong incentive for HNWs with a family trust to ensure they are acting in accordance with the law, or risk an audit. 

In my opinion, the family trust has been unfairly labelled as a loophole exploited by the rich, when in reality, they are an effective way to ensure protection of a family estate.   

You should always consult a financial adviser or taxation accountant to discuss whether a family trust would be appropriate in your situation.

The information provided above is general information only and individuals should seek specialised advice from a qualified financial adviser. Please contact Hewison Private Wealth for more information. 

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.