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Nick, have I got this right ...
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Option 1 (dividend paid after 30/6)
Company gets $10K income (let's assume it's all profit).
Company declares $10K income and pays $3K tax.
Company pays $7K fully franked dividend to trust
Trust distributes $7K of income to beneficiaries with $3K of imputation credit.
Beneficiaries declare income of $7K net dividend + $3K franking credit = $10K assessable income
Tax liabilities:
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Option 2A (48.5% tax bracket)
Beneficiary on 48.5% tax bracket has $4.85K tax liability, with $3K credit = $1.85K net tax owed
Total tax paid by everyone = $3K by company + $1.85K by beneficiary = $4.85K
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Option 2B (30% tax bracket)
Beneficiary on 30% tax bracket has $3K tax liability with $3K credit = 0 net tax owed
Total tax paid by everyone = $3K by company + 0 by beneficiary = $3K
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Option 2C (0 tax bracket)
Beneficiary on 0 tax bracket has 0 tax liability (less than $6K total) with $3K credit = $3K net
tax returned
Total tax paid by everyone = $3K by company + -$3K by beneficiary = $0
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Option 2 (dividend paid before 30/6)
Company gets $10K income (let's assume it's all profit).
Company pays unfranked dividend of $7K to the trust
Trust distributes $7K of income to beneficiaries with zero credit.
Beneficiaries declare income of $7K net dividend = $7K assessable income
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Option 2A (48.5% tax bracket)
Beneficiary on 48.5% tax bracket has $3395 net tax liability
Company has $3000 net tax liability
Total tax paid by everyone = $6695
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Option 2B (30% tax bracket)
Beneficiary on 30% tax bracket has $2100 net tax liability
Company has $3000 net tax liability
Total tax paid by everyone = $5100
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Option 2C (0% tax bracket)
Beneficiary on 0% tax bracket has $150 net tax liability
Company has $3000 net tax liability
Total tax paid by everyone = $3150
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Option 3 (paid after 30/6 but no profits to distribute to beneficiary)
Company gets $10K income (let's assume it's all profit).
Company declares $10K income and pays $3K tax.
Company pays $7K fully franked dividend to trust.
Trust has at least $7K of losses.
Trust distributes $0K of income to beneficiaries with $3K of imputation credit.
Beneficiaries declare income of $0K net dividend + $3K franking credit = $3K assessable income
Beneficiary has $0K tax liability, with $3K credit = $3K net tax returned
Total tax paid by everyone = $3K + - $3K = $0
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Summary:
Total tax paid is quite a bit higher if the dividend is paid before 30/6 and is unfranked. Fully franked dividend is a lot better taxwise.
If the trust has losses to offset the dividend income, the unfranked dividend paid before 30/6, total tax paid is $3K by the company. If fully franked paid after 30/6, the trust pays $3K, but the beneficiaries get $3K of tax credit - net effect is zero.
Did I get it right ? Option 2 seems really expensive taxwise, with only $3305 in after tax income left from the $10K. Surely this isn't right - you're basically paying double tax ?
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Sim'
This is a general comment only and does not constitute advice. Before making financial decisions you should seek advice from a professional adviser, who can take into account your specific circumstances and investment goals.
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